There are plethora of fraud cases across the corporate world, ample enough to awaken the perpetrators benefitting themselves illicitly with the hard earned money of public at immense level. As we all know, Investors are the backbone of the security market and the number of investors is augmenting subsequently and it is going to help in prosperity of individuals along with nation but certain frauds which have taken place over a period of time have diminished the confidence of Investors and for the smooth functioning of security market, investors participation is mandatory in enhancement of Indian economy.
Corporate frauds are of much more significance from investor’s point of view in the corporate world. Fraud can be defined as, an act of deceiving or misrepresenting intentionally in order to obtain benefits in an illicit or unwanted manner. According to association of certified fraud examiners (ACFE) fraud is: deception or misrepresentation that an individual or entity makes knowing that misrepresentation could result in some unauthorized benefits to the individual or to the entity or some other party. Nowadays, Corporate frauds have become a matter of serious concern, since it affects the entity’s reputation and investor’s faith on the organization. Fraud consists of many unscrupulous activities by individual or company for making large number of personal benefits. Fraud is an indirect way of attaining huge amount of money, the problem is in order to augment the level of company in corporate world, it indulges itself into unwanted activities, which affects organization to the larger extent as well as the investors loses trust over the company and they beware in future from these mistakes which take place.
The major public companies have experienced financial reporting fraud, resulting in turmoil in the capital markets, a loss of shareholder value, and in some cases the bankruptcy of the company itself.
Corporate frauds can be committed in various ways. It can be done inside the organization by the employee through manipulation of audit and financial statements of the company for the purpose of attainment of unauthorized benefit. Generally, there are 3 groups of people who commit financial statement fraud. First category is people who are at top level of management such as CEOs’ and CFOs’ commit accounting frauds to conceal true business performance, to preserve personal status and benefits, for instance if company is running out of profits and they are not able to repay their debts to creditors, then they start showing their false income for obtaining huge amount of capital from individuals and from financial institutions without the security and it leads to company in wrong way and pushes it into the well of loss so this is all done for getting personal benefits and for maintaining the stagnant position of the company in market.
Corporate frauds can be committed in various ways. It can be done inside the organization by the employee through manipulation of audit and financial statements of the company for the purpose of attainment of unauthorized benefit. Generally, there are 3 groups of people who commit financial statement fraud. First category is people who are at top level of management such as CEOs’ and CFOs’ commit accounting frauds to conceal true business performance, to preserve personal status and benefits, for instance if company is running out of profits and they are not able to repay their debts to creditors, then they start showing their false income for obtaining huge amount of capital from individuals and from financial institutions without the security and it leads to company in wrong way and pushes it into the well of loss so this is all done for getting personal benefits and for maintaining the stagnant position of the company in market.
Fraudulent reporting in accounts of company creates a chaos in the operation of activities of company. It can have significant consequences for the organization and its stakeholders and it affects public confidence in capital market because it hampers share value of company in capital market, moreover the fraudulent financial reporting impacts organization in numerous areas such as, financial, operational activities and psychological and the consequences can be horrible and it can cause company to crumble like commodity because the goodwill, reputation, customer trust over the company will be vanished and obtaining trust might be a herculean task for the company and from future point of view, when extreme need of capital arises, no one will be ready to provide loans to company. These unwanted activities effect on stakeholders, creditors and employees as well who suffer jobs and diminishes position and value and auditors, attorneys, and insurers and even competitors whose reputation suffer by association.
As fraud can be perpetrated by any member of company, therefore there should be proper mechanism and strategy plans for avoiding these harmful activities to take place in the next level itself and proper fraud management department should be separately available in the organization itself which will eyeball on company daily operational activities.
Types of Frauds: There are plethora of Corporate Frauds existing at present level in Corporate World, and feasible solution need to found for avoiding these inevitable and fraudulent activities.
Every Organization needs capital for operation of their daily activities in smooth and perfect manner since finance is the lifeline of all corporate sectors and here the Investors Contribution comes into play for the establishment of admiring and confident image in the eyes of investors. Investors are considered as backbone of the securities market because they contribute heavily in Security market as well as in enhancement of an Indian economy, therefore their invested money need to be safeguarded through effective rules and regulations. The number of investors is taking part in security market but due to several fraudulent scams which have taken place over a period of time has diminished the confidence of investors in capital market. Therefore, this confidence needs to be maintained for existence of capital market or else the consequences will be outrageous and horrible which is beyond fantasy of laymen point of view.
The concept of investors protection needs to looked from different angles by looking into aspirations and requirements of different category of investors.
So, for the clear understanding of the aforesaid concepts, it is mandatory to know the term investors in elaborative manner.
There are 5 established legislations which governs security markets.
These legislations governs the entire security market scandals and fraud and it works as protective measures of money of investors and helps in establishments of confidence of investors in security market because their participation is necessary for the betterment of economy of country and investors prosperity.
The number of corporate scandals related with primary and secondary market affects the whole entity in many ways such as, financial, psychological and reputation of the company gets hampered and whoever was involved in company’s various operational activities becomes prey of one negligent and greedy decision which drowns the entire firm. The ramifications of scams are easily predictable, therefore for avoidance of these decisions from being taken by employees at all level of entity should carefully indulge into proper decision-making process because obtaining money by following wrong direction leads to devastation and collapse of the entire community and affects economy as whole.
Investors should always be careful and due diligence need to be adopted by them before they indulge into investment process. There is different category of investors and their knowledge differs in field of security market, therefore those investors who do not possess knowledge about working procedure of capital market, they should always take consultation with appointed financial brokers by SEBI and every organization should have properly established fraud department which keeps an eye on day to day transactional activities therefore, the security market system need to be transparent and trustworthy since the confidence of investors should always be given priority because capital market can’t stand without contribution and full support of investors.
India has enacted various legislation to safeguard investors’ money because they cannot predict the intention of utilizers of that money and it can be used in many wrong ways, but proper implementation of these laws are necessary for resisting scams in corporate world.
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