Which financial statement is commonly manipulated in fraud schemes?

The income statement is frequently manipulated in fraud schemes because it directly impacts a company’s reported profitability. This financial statement reflects revenues, expenses, gains, and losses that contribute to the net income of a business over a specific period. By inflating revenues or underreporting expenses, fraudsters can create a misleading picture of the organization's financial performance, making it appear more successful or financially stable than it actually is.

Manipulations may involve aggressive revenue recognition practices, such as recording revenue before it is earned or inflating sales figures. These actions can mislead investors, creditors, and other stakeholders about the company’s true financial health, which can have serious consequences, including regulatory scrutiny and financial losses for those relying on the inaccurate information.

In contrast, while the balance sheet, cash flow statement, and statement of retained earnings can also be subject to manipulation, the income statement tends to be the focal point for fraudsters looking to significantly alter perceived company performance in a way that can easily influence stock prices and investment decisions. Therefore, the income statement is the financial statement most commonly manipulated in fraud schemes.