There is a common thread linking the major fraud scandals among publicly traded companies in the United States in the late 1990s and early 2000s: financial statement fraud. Enron, WorldCom, and Health South were all brought down by efforts to fraudulently misrepresent the health of the company by manipulating financial statements. This had far. reaching negative consequences -for shareholders, creditors, and the thousands of employees who lost not only their jobs but also their retirement savings. It also resulted in the enactment of the Sarbanes-Oxley Act in 2002, which has two key provisions: A requirement that senior management certify the accuracy of the reported financial statement (Section 302); A requirement for the establishment of internal controls and reporting methods on their adequacy (Section 404). Red Flags for financial statement fraud can be behavioral, situational, organizational, financial, or transactional in nature. In essence, financial reporting fraud is not necessarily committed to reap immediate personal gain. Management often sees it as a means to benefit the whole organization. Nevertheless, there may also be a personal gain aspect because it can be argued that management's survival in a given situation - let alone its remuneration - is often so closely linked to the organization's performance that an organization's success translates directly into personal benefit. The methods used to perpetrate financial statement fraud may include: Manipulation of net assets -that is, of assets less liabilities; Manipulation of earnings; False or inadequate disclosure.

Question: a. Define and comprehensively discuss behavioral, situational, organizational, financial, or transactional red flags that indicate financial statement fraud may be occurring; b. Discuss comprehensively methods used to perpetrate financial statement fraud.