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Detecting fraudulent financial reporting using financial ratio

Emie Famieza Zainudin (School of Maritime Business and Management, Universiti Malaysia Terengganu, Kuala Terengganu, Malaysia)
Hafiza Aishah Hashim (School of Maritime Business and Management, Universiti Malaysia Terengganu, Kuala Terengganu, Malaysia)

Journal of Financial Reporting and Accounting

ISSN: 1985-2517

Article publication date: 3 October 2016

6340

Abstract

Purpose

The main aim of this study is to analyse the financial ratio (i.e. financial leverage, profitability, asset composition, liquidity and capital turnover ratio) in detecting fraudulent financial reporting (FFR).

Design/methodology/approach

The logit model was used to identify firms that are related to FFR. The sample firms that engage in fraudulent reporting were obtained from the media centre of Bursa Malaysia. The firms were selected based on their contravention of the Listing Requirements of Bursa Malaysia Securities Berhad. The data cover a period of seven years from 2007 to 2013.

Findings

The results suggest that financial leverage, asset composition, profitability and capital turnover were significant predictors of FFR.

Practical implications

The findings of this study may assist investors in making decision for their investments.

Originality/value

This study describes firms that breach the Listing Requirements of Bursa Malaysia Securities Berhad using the financial ratio.

Keywords

Acknowledgements

The study is supported by the Fundamental Research Grant Scheme (FRGS, Vote: 59,302) provided by the Ministry of Higher Education (MOHE) of Malaysia. The authors thank the Ministry for its research support.

Citation

Zainudin, E.F. and Hashim, H.A. (2016), "Detecting fraudulent financial reporting using financial ratio", Journal of Financial Reporting and Accounting, Vol. 14 No. 2, pp. 266-278. https://doi.org/10.1108/JFRA-05-2015-0053

Publisher

:

Emerald Group Publishing Limited

Copyright © 2016, Emerald Group Publishing Limited

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