Internal auditors in fraud fear

Nine out of ten internal auditors believe there is more pressure to distort earnings figures since the onset of the recession, an industry survey has found.

A KPMG study of more than 1,000 audit committee members from 25 countries found widespread concern for fraud, especially the manipulation of earnings data, since the recession took hold.

The distortion of earnings data can create a biased view of a company's financial position. Management can manipulate the timing of announcements or other basic reporting conditions behind closed doors in order to speed up or delay the release of earnings information.

The report found 86% of committee members said the risk of inappropriate earnings management and other misconduct had grown due to the recession.

Committee members felt powerless to challenge the practice.

Temptation to manipulate the earnings information can be particularly strong when times are tough, according to KPMG partner Tim Copnell. 'I wouldn't be able to point you to any statistics that prove it, but I think most people would accept the fact that this happens when organisations are stretched,' he said.

'I certainly think that good whistle blowing procedures would catch a lot of accounting fraud.'