Asset contains the total resources owned by an individual. Assets include inventory, cash, property and so on.

Accounting can be characterized as measurement, accumulation, identification and communication of the economic data about an organization for making decision and other groups curious. 

Liabilities is the responsibility of an individual or outsider’s interest against an organizations resources. 

There are two types of accounting methods. They are;

• cash-basis
• accrual-basis

Cash-basis includes keep track of expenses and revenues based on when an organization pays or receives any cash.

Accrual-basis accounting requires to keep track of revenues whey they are earned, without any regard to cash exchanges hands. 

Financial statements represent the financial data and the following notes prepared in compliance with either IFRS, GAAP or according to the countries accounting standards or any other all-over basis of accounting.

The following is the typical Financial statements;

• Statement of financial position
• Statement of profit or loss and other comprehensive income for the period
• Statement of changes in owners’ equity or statement of retained earnings
• Statement of cash flows

Balance Sheet or statement of financial position shows an organizations financial situation at a specific time, usually the last of the accounting period.

Income Statement or statement of profit or loss and other comprehensive income shows how much profit or loss an organization has earned over a period of time.

Cash Flows from Operations makes a summary of an organizations cash receipts and payments from it’s business operation.  

While preparing financial statements, accountants, management and auditors are charged with a relevant standard financial reporting practices which is known as Generally Accepted Accounting Principles (GAAP)

International Financial Reporting Standards (IFRS) is a foundation that set understandable, legitimate, high quality and globally accepted standards by following IASB.

It can be recognized in the balance sheet when probably the future benefit of economic benefits will add up into the entity as the cost of the asset or value can be measure with reliable.

It can be recognized in the balance sheet when it is assumed that the outflow of the resources will illustrate the economic benefit.

The Elements of Financial Statements can be Measured by the following;

• Historical cost
• Current cost
• Realizable value
• Present value

The departures from GAAP can be justified from the following;

• It is common practice in the entity’s industry for a transaction to be reported a particular
  way.
• The substance of the transaction is better reflected  by not strictly following GAAP.
• If a transaction is considered immaterial then it need not be reported.
• There is concern that assets or income would be overstated
• The results of departure appear reasonable under the circumstances that when strict adherence to GAAP would produce unreasonable results and the departure is properly disclosed.

It is a statement where the changes are made on financial condition of an organization is achieved  intentionally by the amount or disclosure in the statement to mislead the user who reads the statement.

The following are the Financial Statement Fraud Schemes;

• Overstated assets or revenue
• Understated liabilities and expenses

The following are the five classifications of financial statement schemes;

• Fictitious revenues
• Timing differences
• Improper asset valuations
• Concealed liabilities and expenses
• Improper disclosures

The following are the Red Flags Are Associated with Fictitious Revenues;

• Unusual large amount of long overdue accounts receivable
• Outstanding accounts receivable from customers that are difficult or impossible to
  identify and contact
• Rapid growth or unusual profitability, especially compared to that of other companies in
  the same industry
• Recurring negative cash flows from operations or an inability to generate positive cash
  flows from operations while reporting earnings and earnings growth
• Significant transactions with related parties or special purpose entities not in the ordinary
  course of business or where those entities are not audited or are audited by a separate
  firm
• Significant, unusual, or highly complex transactions, especially those close to the period’s
  end that pose difficult “substance over form” questions
• Unusual growth in the days’ sales in receivables ratio
• A significant volume of sales to entities whose substance and ownership is not known
• An unusual increase in sales by a minority of units within a company or in sales recorded
  by corporate headquarters

Revenue should be recognized in the accounting records when the sell process is complete. 

Sales with Conditions are the terms that have not been fulfilled and those with the  rights and risks of ownership that have not been passed down to the one who have purchased it.

Delivery of products involves multiple deliverable.

The following are the financial reporting frauds regarding risk associated with multiple-element revenue arrangements;

• Falsely claiming that the criteria for a multiple-element revenue arrangement have been
  met
• Manipulating the allocation of revenue among the individual components of the
  arrangement to accelerate revenue recognition

It means when there is a sale of product in a large scale where the distributors want to but excess products due to large amount of discount or extended payment terms.

The time of recording of expenses is usually compromised due to the pressure of meeting the budget projections, goals or lack of keeping proper track of accounting controls.

The following are the Red Flags Are Associated with Timing Differences that Includes Improper Revenue Recognition;

• Rapid growth or unusual profitability
• Recurring negative cash flows from operations or an inability to generate positive cash
  flows from operations while reporting earnings and earnings growth
• Significant, unusual, or highly complex transactions, especially those close to the period’s
  end, that lead to difficult “substance over form” questions
• Unusual increase in gross margin or gross margin in excess of industry peers
• Unusual growth in the days’ sales in receivables ratio
• Unusual decline in the days’ purchases in accounts payable ratio 

The following are the Improper asset valuations;

• Inventory valuation
• Accounts receivable
• Business combinations
• Fixed assets

False fixed assets can be created in different types of methods. It can be done by
manipulation using different techniques.