In public companies, this type of "creative accounting" can amount to financial fraud and investigations are typically launched by government oversight agencies, such as the Securities and Exchange Commission (SEC) in the United States. How To Trade Currencies | Option Stock Trading

In 2002, a wave of separate but often related financial fraud scandals became known to the public in the U.S.. Several leading public accounting firms—Arthur Andersen, Deloitte & Touche, Ernst & Young, KPMG, PricewaterhouseCoopers, and others—have admitted to or have been charged with negligence in the execution of their duty as auditors to identify and prevent the publication of falsified financial reports by their corporate clients which had the effect of giving a misleading impression of their client companies' financial status. In several cases, the monetary amounts of the fraud involved are in the billions of dollars USD.

Financial Fraud Outcomes

The Enron financial fraud scandal has so far resulted in the criminal conviction of the Big Five auditor Arthur Andersen, and that firm has had to divest itself of its non-US partners.

There is a general perception that there are other financial fraud scandals waiting to be uncovered, which has contributed to the 2002 stock market downturn.

On July 9, 2002 George W. Bush gave a speech about recent financial fraud scandals that have been uncovered. In spite of its stern tone, the speech did not focus on establishing new policy, but instead focused on actually enforcing current laws, which include holding CEOs and directors personally responsible for accountancy fraud.

In July, 2002, WorldCom filed for bankruptcy protection, in the largest corporate insolvency ever.

These financial fraud scandals have reignited the debate over the relative merits of US GAAP, with its rules-based approach to accounting, versus International Accounting Standards and UK GAAP, which favour a principles-based approach. The Financial Accounting Standards Board has announced it intends to introduce more principles-based standards. More radical means of accounting reform have been proposed but so far have very little support.

In 2005, after a financial fraud scandal on insurance and mutual funds the year before, AIG is under investigation for accounting fraud. The company already lost over 45 billion US dollars worth of market capitalization because of the scandal. This was the fastest decrease since the WorldCom and Enron scandals. Investigations also discovered over a billion US dollars worth of errors in accounting transactions. Future outcome for the company is still pending.