While they may be complex in their characteristics, accounting scandals are fairly easy to understand. Whenever employees steal or hide money, accounting fraud has been committed. Over-recording sales revenue or under-recording expenses are both examples of accounting fraud.

One of the most infamous scandals involves Lehman Brothers—the major players were CEO Richard S. Fuld, Jr. and Lehman executives. Lehman Brothers hid over $50 billion in loans by classifying them as sales. Auditor, Ernst & Young, manipulated the books by using accounting trick “Repo 105,” a report that was “materially misleading.” It temporarily moved $50 billion of assets at the end of each quarter.

To avoid falling prey to scams, be cautious and alert—avoid investment opportunities that seem “too good to be true.” You should avoid considering low-risk, high return investments and becoming involved when the terms and/or legitimacy are not easily understood.

To learn about other big time accounting scandals and ways to avoid scams, check out the infographic below!

Anatomy of an Accounting Scandal
Source: Accounting School Guide

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