What is commonly referred to as "cooking the books" in a business context?

The term "cooking the books" refers to the manipulation of financial statements or accounting records to present a misleading view of a company's financial position or performance. This deceptive practice is generally categorized as financial fraud because it involves intentional misrepresentation of financial information for the benefit of the perpetrator, often to secure loans, inflate stock prices, or achieve certain financial outcomes.

Financial fraud can manifest in various forms, including fraudulent accounting entries, misreporting revenue, or concealing liabilities. Such actions not only violate ethical standards but also breach legal regulations governing financial disclosures, leading to severe consequences for the individuals and organizations involved, including legal penalties and damaged reputations.

In contrast, internal fraud typically refers to wrongdoing perpetrated by individuals within an organization, such as embezzlement or asset misappropriation, while skimming specifically involves taking cash from sales before it is recorded in the company's books. External fraud generally encompasses fraudulent activities conducted by outsiders targeting the business, such as phishing schemes. Understanding these distinctions is crucial for identifying and addressing various types of financial crimes in a business setting.