Backdating Invoices

Many firms, especially those desperately trying to disclose profits or cut losses, use fraudulent time zones as a strategy to show false gains. Invoice backdating is the collective activity of corporate accountants to change the invoice transaction dates to an earlier date than the document’s creation date (Hamilton 2009). Backdating has often been an issue in the context of company contracts and corporate restructurings, but there is debate as to whether it is legal or illegal.

There are those who argue that it is legal as long as individuals are properly accountable.There are those who argue that it is legal as long as an individual is can correctly account for it. However, the argument may not be correct in the face of banks and investors as the accounting rules tend to be arcane and a majority of the population may not understand them fully before arguing the case for backdating of the invoices. From the fraud triangle, such actions can result from factors such as motivation, rationalization, and opportunity where the companies want to recognize premature revenues and attract more investors and the amount recorded in the bank accounts.

Investors and banks may consider a person who is recording transactions earlier before the date they occurred as committing fraud because when an individual wants to backdate the document the argument for such step may not be valid (Walker, 2007). Therefore, from the discussion and analysis in this persuasive, it will be evident that investors and banks view backdating of the invoices as fraud despite the minimal effect on the shareholders. Such issue makes people pretend that they are not granting the money options while in the real sense the act is performed. In the paper, there will be an explanation on why many firms opt to commit the fraudulent activity of seeking to backdate documents, and critical stakeholders view such actions and how accounting standards, law, regulations, policies, and procedures consider this concept. There will be supportive evidence as well ideas from reliable sources regarding accounting which prove to the audience that is indeed backdating is fraud in banking and investment sectors, and it should be overcome at all costs.

Backdating of invoices

Backdated invoices raise problems among the concerned parties, and the issue can eventually become a contemptuous one. There is no straightforward answer for an individual who agrees to backdate a document for purposes of the oral agreement. Thus, it is paramount for a person to state openly and precisely on the invoice that the recording involves an earlier deal made and it is impacted from a particular signed date (Parloff, 2007). Failure to do so can give the incorrect impression to the banks and investors who will consider the act as a criminal offense that needs to be dealt with accordingly. The question on whether backdating invoices is a fraud or is appropriate significantly depends on the purpose and effect of such activities as well as the impacted parties and in this case it is considered illegal in the face of banking institutions as well as potential investing partners.

In the legal practice, backdating has become a thorny issue, and it is something that one should not be involved in and should not be considered in any circumstance to be appropriate (Walker, 2007). It leads to premature revenue recognition through the application of the professional skepticism while recording transactions in the invoices. For instance, as an accountant, when you are preparing the sales journal, you may be asked by the senior executives to interfere with the sales order for the approval of credit terms, misrepresent the shipping documents and also record differing prices in the invoices as opposed to the ones marked in the published prices. Therefore, dating back transactions has severe legal consequences and it fraud in the eyes of banks who keep a company’s accounts and the investing parties that may view an organization to be participating in criminal offenses.

Nonetheless, it is not a sure thing despite the fact it is also illegal. The action may help companies to the lower exercise price that eventually results in an increment of a probability that more money will be generated from for an optionee through exercising the options. However, it may not always be right on the stock prices in the exchange market continuously change and cannot guarantee that stock prices will go beyond the exercise price.

Any backdating in the financial statements will mean that an organization or corporation that is publicly traded will misstate its stock options and henceforth will be charged with the securities fraud. It gives rise to contradiction to the legal rights where it is made for financial and usually constitutes a more dull-sounding criminal offense where one obtains the pecuniary advantage through an act of deception. Thus, any banking institution or potential investor may not be willing to enter into any contract with such a company that does not comply with statutory procedures of recording transactions despite its acceptance in accounting for purposes that can be accounted for in case of any lawsuit.

When backdating takes place for reasons of error, oversight, or administrative convenience the parties concerned may be at a lower risk of facing criminal judges as a clear explanation may be given to both banks as well as investors (Parloff, 2007). The concept is viewed from different perspectives. Firstly, there can be a fabrication that intends to deceive the third who in this case includes the investors that the company is recording an enormous amount of revenues and their stocks are worth of high prices in the stock exchange market (Hamilton 2009). Secondly, one can fabricate the document to achieve goals of different parties, and there may be no intention to deceive the banking institutions or the investors. Thirdly, it may facilitate memorization of the prior event that may have occurred.

Backdating invoices to perpetrate any fraud is therefore unethical as well as illegal. In many cases, clients who have sought the dating back to the journals of an organization have failed to meet the deadlines. The inclusion of a prior date to the invoices haunts notaries in the long run. In the real-life situation, the statement is viewed as an act of cheating, stealing or lying to different stakeholders regarding real values of invoices and prices resented and publicly published for the benefit of banks and investors respectively.

The most fraudulent and impermissible activity includes dating and documenting a transaction that never occurred. It is crucial to ensure that one stays in bounds of the misrepresentation to memorialization line. Thus, banks are always cautious on the issue of backdating of invoices to avoid facing unethical sanctions, criminal prosecution, and even unending lawsuits. A difficulty can arise concerning the ambiguous law that governs the time an event occurred, and there are more uncertain relevant facts to defend the backdated invoices of the company. Lawyers that consider backdating of documents may face challenges, and in the contract issues, it is not easy to determine the actual time when the concerned parties reached a conscious agreement.

The ambiguity of the accounting law, procedures, and regulations can result to the innocuous backdated invoices that eventually lead to inadvertently becoming inappropriate fabrication when making accounts records. The backdating that misrepresents can also result from the insufficient records, nonexistent of other vital documents, and human errors. Legitimate accounting reasons may be behind the backdated invoices, but it is critical to query the reason behind such action for investors and banks to fully understand why a company can engage in such a fraudulent activity that is usually associated with financial gains. The backdated document may be done so to either mislead an existing customs department or for other reasons that may be well known by the concerned culprits.

Therefore, in many circumstances, backdated invoices may be considered fraudulent as well as illegal, but in some situations, it can apply for the legal and beneficial ways. However, when it comes to down in the eyes of investors together with banks, the act is an entirely a fraud as such individuals do not believe in any explanation that is supporting the acts of cheating or lying while recording financial statements for any material or financial gains. Once an invoice has been created, it cannot be changed in any way since it has already become a legal document that is subject to lawsuits if interfered with for purposes of meeting personal or financial advantages.

Sometimes it is difficult for the concerned professional to make the appropriate decision, especially when a customer you to show or explain the particular law that is against the amendment of an original document when preparing a VAT invoice. For instance, changing a specific customer’s details will mean that all the historical invoice data will adjust accordingly and it leads to breaking of every single invoicing law. Such practices are considered fraud or an act of perceiving other stakeholders including banking institutions and potential investors. Invoice frauds in banks occur when companies or organizations change details of bank account payee for the sizeable amount. It is a feature that aims at deceiving people while at the same time it is an offensive activity in the public policy.

Conclusion

In summary, backdated invoices are illegal documents, and the banks and investors view the activity as the commitment of fraud. The accounts reflected in the published financial statements will, therefore, be invalid and it will eventually mean that there will be an omission of backdated transactions. As a result, it will be regarded as false accounting if the act aims at accelerating the premature recognition of revenue which will look more appealing to the potential investors of that particular company or organization. Despite the fact that many cases regarding backdated invoices go unnoticed, it does not seem necessary that it is an acceptable accounting practice. Banking institutions as well as investors consider it unethical and a fraud activity.

Over time it has been a concept being misunderstood and unexplored as there exists little guidance on its pervasiveness, severe consequences of misjudgment, and complexity when determining its propriety. It is however not easy to distinguish the improper from the legitimate backdated invoices, and as such there may be the confrontation of the accounting practices while presenting relevant documents to the banks and investors who want to invest in the company that has record outstanding premature revenue recognition. It is a wrongdoing that no one who intends to tolerate at any circumstance. Hence, the necessity to ensure that one stays in bounds of the misrepresentation line. Investors and banks may consider a person who is recording transactions earlier before the date they occurred as committing fraud because when an individual wants to backdate the document the argument for such step may not be valid. It gives rise to contradiction to the legal rights where it is made for financial gains.

References

Hamilton, S. (2009). Backdating documents: Not necessarily the stuff of scandal. Retrieved from

http://www.wisbar.org/NewsPublications/InsideTrack/Pages/Article.aspx?Volume=1&Issue=16&ArticleID=7625

Parloff, G. (2007). On the theory that backdating is not illegal if you account for it correctly. Retrieved from

http://fortune.com/2007/04/26/on-the-theory-that-backdatings-not-illegal-if-you-account-for-it-correctly/

Walker, D. (2007). Unpacking backdating: economic analysis and observations on the stock options scandal. Retrieved from

http://www.bu.edu/law/journals-archive/bulr/volume87n3/documents/walkerv.2.pdf