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 years. 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?