Nordia News

Case: Acquittal of accounting fraud charges

By Antti Hannula
Published: 09.10.2023 | Posted in Cases

In the District Court and Court of Appeals in Finland, we successfully defended the CEO of an accounting firm who was ultimately acquitted on charges of aggravated accounting fraud by a legally binding verdict.

The CEO, whom we represented, partially owned the accounting firm, which provided financial management services to client companies. The CEO was jointly accused, along with the CEO of one of the firm’s client companies, of committing aggravated accounting fraud.

The charge was based on the assertion that our client and the CEO of the client company had together hindered the accurate and adequate depiction of the company’s financial results and financial situation by neglecting to record business transactions in a manner that relied on proper documentation. According to the prosecutor, this conduct met the criteria for aggravated accounting fraud. However, the prosecutor conceded that the day-to-day bookkeeping entries and the financial statements were accurate.

The definition of aggravated accounting fraud under the criminal code necessitates the fulfilment of both the statutory definition (such as neglecting to record transactions, entering false or misleading information, or destroying, concealing, or damaging accounting materials) and the consequence definition. In other words, the conduct must result in hindering the accurate and adequate depiction of the financial performance or financial position of the accounting obligor, effectively leading to inaccuracies in the income statement and balance sheet.

In this case, neither aggravated, basic, nor even negligent accounting fraud occurred, as determined by the judgments of the courts. The prosecutor claimed that the conduct did not meet the requirements of the Good Accounting Practice guideline issued by the Accounting Standards Board in 2015 and simultaneously constituted aggravated accounting fraud. However, this interpretation was not based on law, as both the District Court and Court of Appeals effectively stated in their verdicts.

Recording certain business transactions without proper or original documentation and relying on the provided explanations did not constitute criminal activity, even if it might have violated good accounting practices. Moreover, the alleged conduct could not be said to meet the criteria for accounting fraud. Various memo receipts had been used in the case, some of which were better documented than others. According to the testimony of witnesses, using memo receipts when the original documentation was unavailable was not at all uncommon.

The District Court concluded in its judgement that the recording of business transactions had not been neglected, as all transactions had been documented and accounted for appropriately, and there were no claims of incorrect bookkeeping in the charges.

The Court of Appeals focused on whether the accounting entries made by the accounting firm were based on deficient documentation and whether this affected the accurate and adequate depiction of the company’s operations or financial situation. Despite deficiencies in the content of the documentation, it did not meet the criteria for accounting fraud. Additionally, because no business transactions had been left unrecorded, accounting could not jeopardise obtaining an accurate and adequate picture of the financial statements.

As a result, the CEO we represented was acquitted of all charges in both the District Court and the Court of Appeals, and the state was ordered to compensate our client for the legal expenses incurred during the trial.

The verdict is legally binding.

Read more about our business-related criminal law services.

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Antti Hannula
Attorney, Partner, Helsinki +358 50 584 9191

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