Lesson 7: Fraud in Financial Reporting: Causes, Consequences, and Controls

• What is financial statement fraud?
• How do weak internal controls contribute to fraud?
• What role does professional judgment play in fraud cases?
• How were financial statements manipulated in major fraud scandals?
• How can accountants prevent similar failures in the future?

Financial Statement Fraud
Internal Controls
Misstatement
Materiality
Earnings Manipulation
Overstated Revenue
Understated Expenses
Segregation of Duties
Auditor
Stakeholders

HS.CTE.2A – Recall and apply prior knowledge for intended purpose.
HS.CTE.2B – Pose questions and make predictions about problems.
HS.CTE.2C – Apply a solution using evidence and reasoning.

Students analyze informational case studies, evaluate arguments, interpret financial data, and defend conclusions using evidence. These analytical reasoning skills align with SAT reading, writing, and quantitative reasoning expectations.

Description: students investigate large corporate fraud cases to understand how unethical decisions and weak internal controls led to financial collapse. Students analyze how financial statements were manipulated and identify red flags that could have signaled fraud earlier.

Purpose: The purpose of this lesson is to demonstrate the real-world consequences of unethical accounting practices. Students connect professional judgment, internal controls, and financial reporting integrity to economic impact and stakeholder trust.
DOK Level Questions

DOK 1
• What is financial statement fraud?
• What are internal controls?

DOK 2
• How did the company manipulate financial data?
• What red flags were visible?

DOK 3
• How did weak professional judgment contribute to the fraud?
• How did fraud impact stakeholders?

DOK 4
• Evaluate whether stronger internal controls could have prevented the fraud. Support your reasoning with evidence.

Fraud cases demonstrate how unethical financial reporting can impact employees losing jobs, investors losing savings, and communities losing trust.

• Fraud only happens in large corporations.
• Fraud is always easy to detect.

Structured research guide
Pre-selected articles at varying reading levels
Graphic organizer for fraud analysis
One-on-one support
Google Classroom resources
Paper or online presentation options
Spanish version available for ELL students

Fraud Investigation Report or Presentation
Group participation
Exit Ticket: Identify one red flag from your case and explain its significance.
Short reflection: How does this case change your view of the accountant’s role?

Century 21, Accounting General Journal, 11th edition (online/paper edition)
Research articles (teacher-provided)
Class notes
Guided research worksheet
Presentation tools (Google Slides, PowerPoint)
Do Now prompt
Exit Ticket