Determining appropriate product costs is essential to reporting a reliable inventory valuation. Fraud examiners have indicated that scams that involve product costs and expenses are relatively easy to detect. Based on our readings and, possibly, your experience, discuss some ways in which you think accounting fraud could be committed through product costing.
From the point of view of accounting fraud, it is critical to understand how the product costs are associated with a cost incurred by a business when manufacturing a good or producing a service. Usually the production costs combine raw material and labor and a companyensure that they are aware of direct or indirect cost to produce an item, or produce a service.
We know from several global crimes and fraud cases that, there are ways to commit fraud and successfully avoid detection by experts. There are quite literally hundreds of red flags of fraud in the corporate setting. The key to being successful at fraud is not only committing the theft, but effectively covering it up without giving any hints to management.
As a matter of fact, organization employees at all levels in a company can commit fraud. The methods vary, but most involve diverting money before payments are recorded correctly on the company's financial books. However, as a mitigating action, implementing strong internal accounting controls helps prevent accounts receivable fraud. There are several ways of committing Frauds. For example, the accounting fraud can be committed in several ways, if the reporting is not done appropriately. There are mainly three types of product costs such as direct labor, direct material and manufacturing overhead. The reporting of each transaction must be adequate to reduce the mistakes in accounting.
Generally, the frauds are committed by recording wrong amount related product costs that can be identified by the fraud examiners (Anderson, 2014). Another way of accounting fraud through product costs is to report wrongly and not having pay attention by the examiner.
At the same time, the examiner should also focus on the amount and data that is provided by the fraudulent employees. The accounting fraud may also be committed, if the information and data is wrongly recorded about the product costs in the accounting books. The recorder should ratify the information, if wrongly recorded and clearly check it. Thus, it can be said that accounting fraud can be committed in two ways that are recording and reporting the data of product costing (Kinney and Raiborn, 2012).