Why Manipulation of Accounts might occur?

Manipulation  of  Accounts: Detection of manipulation of accounts with a view to presenting a false state of affairs is a task requiring great tact and intelligence because generally management personnel in higher management cadre are associated with this type of fraud and this is perpetrated in methodical way. This type of fraud is generally committed :

(a) to avoid incidence of income-tax or other taxes;

(b) for declaring a dividend when there are insufficient profits;

(c) to withhold declaration of dividend even when there is adequate profit (this is often done to manipulate the value of shares in stock market to make it possible for selected persons to acquire shares at a lower cost); and

(d) for receiving higher remuneration where managerial remuneration is payable by

reference to profits.

There are numerous ways of committing this type of fraud. Some of the methods are given below:

(i) inflating or suppressing purchases and expenses;

(ii) inflating or suppressing sales and other items of income,

(iii) inflating or deflating the value of closing stock;

(iv) failing to adjust outstanding liabilities or prepaid expenses; and

(v) charging items of capital expenditure to revenue or by capitalizing revenue expenses.