Question from Accounting Information Systems 13^th Edition by Marshall B. Romney and Paul John Steinbart

Chapter 5, Problem 5-6 (page 169)

QUESTION

An insurance company in Asia reported profit of $100 million for the financial year through the news – dissemination system of the stock exchange. Its stock price increased several times, as the announced profit was 10 times more than the previous year’s. A few days later, the company announced a mistake in the released financial results, and stated that the correct profit should be $9.5 million. Regulatory bodies were asked to investigate if it was a trick used to manipulate stock prices. It was not clear who should be held responsible: the management, the accounting system or the auditor?

REQUIRED

Is it an example of fraudulent financial reporting? (why)

What procedures could reduce the occurrence of such “mistakes”?