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Manipulation, falsification, or alteration of accounting records or supporting documents from which financial statements are prepared Misrepresentation in or intentional omission from the financial statements

Manipulation, falsification, or alteration of accounting records or supporting documents from which financial statements are prepared
Misrepresentation in or intentional omission from the financial statements of events, transactions, or other significant information
Intentional misapplication of accounting principles relating to amounts, classification, manner of presentation, or disclosure
The following were the assumptions that can be derived given the situation above:
Faking the Numbers. Net Income being reported might have been over coated since it is the basis of compensation of both the controller and the company president.
The Controller and the Company President might have been partners in manipulation of the reports. Cash Flow and Net Income are directly related. Increasing net income should also mean increasing cash flows from operations. While it is true that the credit policy was loosened and credit terms were relaxed, a special audit should be conducted on their accounts receivable account because of the presumptions that there are ghost Borrowers / Clients.
In case our assumptions can be proven to be true, the management as a whole will be affected which can lead to breakdown of the company as a whole. Investors and clients will lose trust and confidence on the management. And it will be hard for the management to revive again.
As the assistant controller, might as well request for fraud audit and gather information enough to support his claim.

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