Question

What might account for the unprecedented level of stock market and corporate fraud experienced during the period from 1990 to 2004?

Answer 1

Around 1990 and 2007, the number of fraud cases increased relative to the average in the preceding 10-year studies. Following the introduction of the 2002 Sarbanes-Oxley Act, the dollar volume of fraudulent financial statements soared over the last decade. The companies engaged in fraud were far larger than those found in the computer hardware and software industries which occurred most frequently. For any degree of involvement in 89 per cent of fraud cases, the SEC cited the chief executive and/or chief financial officer of a corporation. The most popular strategies of fraud include inappropriate identification of sales, accompanied by overestablishment of assets and false recognition of expenses.

Between the filing of their original clean financial statements and their original false financial statements, 26 per cent of the firms involved in the scam changed auditors. Sixty percent of the businesses engaged in fraud that changed auditors did so during the time of false reporting; the remaining 40 percent changed auditors in the fiscal year just before the fraud began.
The most frequently cited reasons for fraud included a willingness to: meet expectations of earnings; hide the declining financial state of the company; bolster results for pending equity or debt financing; or raise compensation for management.

When the economy faced increasing stress, many businesses felt pressure to survive alone. This pressure can lead to fraudulent behaviour, masking deteriorating operations