Financial statement manipulation: Ethical and regulatory perspectives

Adejumo, Adetunji Paul and Ogburie, Chinonso Peter (2025) Financial statement manipulation: Ethical and regulatory perspectives. GSC Advanced Research and Reviews, 22 (3). pp. 252-264. ISSN 2582-4597

Financial statement manipulation remains a significant ethical and regulatory concern in corporate governance, impacting stakeholders, financial markets, and economic stability. This paper explores financial statement manipulation from both ethical and regulatory perspectives, analyzing its causes, methods, consequences, and the measures implemented to prevent such unethical practices. Ethically, financial statement manipulation breaches fundamental principles of honesty, integrity, and transparency, often driven by pressure to meet earnings expectations, secure executive bonuses, or attract investors. Companies engage in tactics such as revenue recognition fraud, expense understatement, and asset overstatement to present a misleading financial position. Such practices not only erode trust in financial reporting but also contribute to corporate scandals, damaging reputations and leading to significant economic consequences. From a regulatory standpoint, governments and financial watchdogs have established stringent frameworks to detect and prevent financial misreporting. Regulations such as the Sarbanes-Oxley Act (SOX), International Financial Reporting Standards (IFRS), and Generally Accepted Accounting Principles (GAAP) provide guidelines to ensure transparency and accountability in financial disclosures. Regulatory bodies, including the Securities and Exchange Commission (SEC) and the Financial Accounting Standards Board (FASB), play a crucial role in enforcement by imposing penalties, conducting audits, and ensuring compliance. However, despite these measures, some corporations still exploit loopholes, necessitating continuous regulatory updates and stronger internal controls.