Performing analytical review on the financial statements of a company is an important part in the fraud detection process. It can help detect manipulation of the numbers, as we are looking at account balances and their relationships to one another. How have account balances changed from period to period? How have the relationships between accounts changed from period to period?
Some of the things that may be evaluated include:
- Current period figures versus prior period numbers
- Financial statement line items compared to one another
- Actual financial results compared to budgeted or projected figures prepared before that accounting period
- Company data compared to operational facts
- Company data compared to industry data
- Numeric data compared to the notes to the financial statements
In later video posts, we’ll cover some of the common ratios that can be used to analyze the balance sheet and income statement to evaluate them for the potential that fraud may be occurring.