Fraud in the Balance Sheet.

Abstract This article presents information on various lawsuits related to the use of accounting statements as a means of committing business deceit in the U.S. Turning now to the individual items appearing in a balance sheet, it should first be noted that judges have had some interesting opinions involving accounting conventions in the valuation of the assets therein. One decision, for instance, stated that the integrity of a statement of financial condition should not be impeached because the firm's plant had been listed at its value as a going concern, and not at its liquidating value in the lawsuit U. S. Smelting Co. vs. Hofkin. The courts, however, were not so positive in their acceptance of cost or market, whichever is lower, in valuing assets. While one decision definitely held that showing merchandise inventory at cost when in fact the value had enormously decreased was indeed fraudulent. Another said that showing assets at cost instead of at lower market value was not fraud, where the amounts were clearly designated as cost, the court adding: The worst that can be said for it is that it is bad accounting practice. Some accountants might question this judgment. Another judge agreed with the prior decision in holding that where the inventory figures are not reduced for shelfworn and out-of-style goods, the values are untrue and can amount to fraud.