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Article
Publication date: 26 July 2021

Arief Hidayatullah Khamainy, Mahrus Ali and M. Arif Setiawan

The purpose of this paper is to evaluate the effect of the new fraud diamond model in explaining financial statement fraud.

Abstract

Purpose

The purpose of this paper is to evaluate the effect of the new fraud diamond model in explaining financial statement fraud.

Design/methodology/approach

The variables used to examine the factors consist of motivation, opportunity, personal integrity and capability. This research used manufactured companies listed in the Indonesia Stock Exchange of the 2015–2019 period as the population.

Findings

There has been a positive influence between personal financial need (OSHIP), nature of the industry (RECEIVABLE) and history of sale (SG) toward financial statement fraud, while the negative effect is found only in the effective monitoring (IND).

Research limitations/implications

The new fraud diamond model theory which is used as a reference in this study is a new and under-developed theory. So the author suggests that further research on this theory be carried out to strengthen the new fraud diamond model theory and ensure whether it can be used as a reference to find out the causes of financial statement fraud. In addition, the object used in this study is limited to manufacturing companies, so the author suggests that further research combine several types of companies.

Originality/value

The research finding supports the new fraud diamond model theory in elaborating the financial statement fraud phenomenon.

Details

Journal of Financial Crime, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1359-0790

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Article
Publication date: 1 April 2000

C. Koornhof and D. du Plessis

There is increasing international concern about the escalation of fraud and, in particular, financial statement fraud. Detecting financial statement fraud and proving such…

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1270

Abstract

There is increasing international concern about the escalation of fraud and, in particular, financial statement fraud. Detecting financial statement fraud and proving such fraud remains an elusive goal. Red flagging is an early warning system that has been used by auditors to determine the probability of financial statement fraud. The purpose of this research project was to survey investors and lenders in South Africa on their use of red flags and to obtain their opinions on the relative importance of individual red flags. A questionnaire was sent to banks that are registered with the Registrar of Banks (representative of lenders) and to portfolio managers registered with the Financial Services Board (representative of investors). The research findings indicate that lenders and investors in South Africa appear to be aware of the benefits of red flagging as an early warning system. A structured approach (questionnaires/checklists) in using them is to be lacking at present. Respondents rated all red flags in the questionnaire as being important. No distinction was discernable among the different categories that were based on the nature of red flags.

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Meditari Accountancy Research, vol. 8 no. 1
Type: Research Article
ISSN: 1022-2529

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Article
Publication date: 1 October 2018

Noorul Azwin binti Md Nasir, Muhammad Jahangir Ali, Rushdi M.R. Razzaque and Kamran Ahmed

We examine whether the fraud firms are engaged in real earnings management and accrual earnings management prior to the fraud year in the Malaysian context.

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2066

Abstract

Purpose

We examine whether the fraud firms are engaged in real earnings management and accrual earnings management prior to the fraud year in the Malaysian context.

Design/methodology/approach

Our sample comprises of 65 financial statement fraud and 65 non-fraud firms over a period of eight years from 2001 to 2008.

Findings

Using the abnormal cash flow from operations (CFO) and abnormal production costs as the proxies for real earnings management, we find that financial statement fraud firms engage in manipulating production costs during preceding two years of the fraud event. However, our results show that financial fraud firms engage in manipulating CFO prior to the fraud event. Additionally, we find that financial statement fraud firms prefer to manipulate earnings using accruals relative to real earnings prior to the fraud year.

Originality/value

Our results demonstrate that real earnings management is more aggressive in financial statement fraud firms compared to the non-fraud firms in the four years prior to fraud.

Details

International Journal of Accounting & Information Management, vol. 26 no. 4
Type: Research Article
ISSN: 1834-7649

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Article
Publication date: 27 September 2019

Noorul Azwin Binti Md Nasir, Muhammad Jahangir Ali and Kamran Ahmed

This study aims to examine the relationship between the presence of a Malay director on the board and financial statement fraud in Malaysia. Further, the authors…

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1136

Abstract

Purpose

This study aims to examine the relationship between the presence of a Malay director on the board and financial statement fraud in Malaysia. Further, the authors investigate whether financial statement fraud firms improve their governance mechanisms compared to non-fraud firms subsequent to the fraud year.

Design/methodology/approach

The authors use hand-collected data comprising 76 financial statement fraud and 76 non-fraud firms over a period of eight years from 2001 to 2008.

Findings

Using a univariate and logistic regression model, the results demonstrate a significant positive relationship between the proportion of Malay directors on the board and the financial statement fraud. The authors also find that fraud firms significantly increase the proportion of independent directors on their boards, increase the frequency of board and audit committee meetings and reduce duality subsequent to the detection of financial statement fraud compared to the non-fraud firms.

Originality/value

The findings of the study are useful to policy-makers, regulators, firms and investors.

Details

Accounting Research Journal, vol. 32 no. 3
Type: Research Article
ISSN: 1030-9616

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Article
Publication date: 1 February 1998

Rocco R. Vanasco

This paper examines the role of professional associations, governmental agencies, and international accounting and auditing bodies in promulgating standards to deter and…

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25081

Abstract

This paper examines the role of professional associations, governmental agencies, and international accounting and auditing bodies in promulgating standards to deter and detect fraud, domestically and abroad. Specifically, it focuses on the role played by the US Securities and Exchange Commission (SEC), the American Institute of Certified Public Accountants (AICPA), the Institute of Internal Auditors (IIA), the Institute of Management Accountants (IMA), the Association of Certified Fraud Examiners (ACFE), the US Government Accounting Office (GAO), and other national and foreign professional associations, in promulgating auditing standards and procedures to prevent fraud in financial statements and other white‐collar crimes. It also examines several fraud cases and the impact of management and employee fraud on the various business sectors such as insurance, banking, health care, and manufacturing, as well as the role of management, the boards of directors, the audit committees, auditors, and fraud examiners and their liability in the fraud prevention and investigation.

Details

Managerial Auditing Journal, vol. 13 no. 1
Type: Research Article
ISSN: 0268-6902

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Article
Publication date: 5 July 2021

Nadia Smaili, Paulina Arroyo and Faridath Antoinette Issa

The purpose of this study is to investigate whether large blockholders are associated with financial statement fraud at their companies. Although a substantial body of…

Abstract

Purpose

The purpose of this study is to investigate whether large blockholders are associated with financial statement fraud at their companies. Although a substantial body of prior studies has focused on chief executive officers’ motivations to manipulate financial statements, the correlation between majority shareholders and financial statement fraud has received little attention. This paper aims to fill this gap by investigating whether the sample firms have controlling shareholders or executives (i.e. blockholders vs management) and whether financial statement fraud schemes, motivations and consequences differ between blockholder- and management-controlled firms.

Design/methodology/approach

Using a clinical approach, the authors Study 12 Canadian financial statement fraud cases uncovered by the Ontario Securities Commission between 1997 and 2020.

Findings

First, the authors find blockholder control in six cases. These findings infer that these large shareholders received private benefits at the expense of minority shareholders. The comparative analyzes suggest that fraudulent firms controlled by blockholders go bankrupt more often than those controlled by managers. The authors also find that improper disclosure is the most common fraud scheme in blockholder-controlled firms.

Originality/value

The authors conduct a deep analysis of financial statement fraud cases to examine the of blockholder control on the likelihood of financial statement fraud. This paper adds new insights to the research on financial crime by investigating whether large shareholders affect the probability of fraud and the extent to which they might do so.

Details

Journal of Financial Crime, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1359-0790

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Article
Publication date: 4 November 2020

Ahmed Aboud and Barry Robinson

This paper aims to explore the effectiveness of fraud prevention and detection techniques, including data analytics, machine learning and data mining, and to understand…

Abstract

Purpose

This paper aims to explore the effectiveness of fraud prevention and detection techniques, including data analytics, machine learning and data mining, and to understand how widespread the use of data analytics is across different sectors and to identify and understand the potential barriers to implementing these techniques to detect and prevent fraud.

Design/methodology/approach

A survey was administered to 73 Irish businesses to determine to what extent traditional approach, data mining or text mining are being used to prevent or detect fraudulent financial reporting, and to determine the perception level of their effectiveness.

Findings

The study suggests that whilst data analytics is widely used by businesses in Ireland there is an under-utilisation of data analytics as an effective tool in the fight against fraud. The study suggests there are barriers that may be preventing companies from implementing advanced data analytics to detect financial statement fraud and identifies how those barriers may be overcome.

Originality/value

In contrast to the majority of literature on big data analytics and auditing, which lacks empirical insight into the diffusion, effectiveness and obstacles of data analytics, this explanatory study contributes by providing useful insights from the field on big data analytics. While the extant auditing literature generally addresses the avenues of big data utilisation in auditing domain, our study explores particularly the use big data analytics as a fraud prevention and detection techniques.

Details

Accounting Research Journal, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1030-9616

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Article
Publication date: 29 April 2021

Afsaneh Lotfi, Mahdi Salehi and Mahmoud Lari Dashtbayaz

The purpose of this present study is to assess the impact of intellectual capital (IC) on fraud in listed firms' financial statements on the Tehran Stock Exchange (TSE)…

Abstract

Purpose

The purpose of this present study is to assess the impact of intellectual capital (IC) on fraud in listed firms' financial statements on the Tehran Stock Exchange (TSE). In other words, this paper seeks to figure out whether IC and its components, namely, the efficiency of human capital (HC), structural capital (SC), relational capital (RC) and customer capital (CC).

Design/methodology/approach

The logistic regression model is used for analyzing the material of this study. Research hypotheses are also examined using a sample of 187 listed firms on the TSE during 2011–2018 by employing the logistic regression pattern based on synthetic data technique. Moreover, some robustness checks are also used to ensure the correctness of the obtained results.

Findings

The findings show a negative and significant relationship between IC and its components, including the efficiency of HC, SC, RC and CC, and fraud in financial statements. This means that by investing in the IC and its components, the amount of fraud in business firms' financial statements decreases.

Originality/value

Since few studies are carried out by existing literature, this paper is among the pioneer efforts assessing IC's potential impact on fraud commitment. The findings apply to policymakers to improve the clarity of the business atmosphere of Iran.

Details

The TQM Journal, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1754-2731

Keywords

Content available
Article
Publication date: 28 August 2019

Mark Lokanan, Vincent Tran and Nam Hoai Vuong

The purpose of this paper is to evaluate the possibility of rating the credit worthiness of a firm’s quarterly financial report using a dynamic anomaly detection method.

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8486

Abstract

Purpose

The purpose of this paper is to evaluate the possibility of rating the credit worthiness of a firm’s quarterly financial report using a dynamic anomaly detection method.

Design/methodology/approach

The study uses a data set containing financial statements from Quarter 1 – 2001 to Quarter 4 – 2016 of 937 Vietnamese listed firms. In sum, 24 fundamental financial indices are chosen as control variables. The study employs the Mahalanobis distance to measure the proximity of each data point from the centroid of the distribution to point out the extent of the anomaly.

Findings

The finding shows that the model is capable of ranking quarterly financial reports in terms of credit worthiness. The execution of the model on all observations also revealed that most financial statements of Vietnamese listed firms are trustworthy, while almost a quarter of them are highly anomalous and questionable.

Research limitations/implications

The study faces several limitations, including the availability of genuine accounting data from stock exchanges, the strong assumptions of a simple statistical distribution, the restricted timeframe of financial data and the sensitivity of the thresholds for anomaly levels.

Practical implications

The study opens an avenue for ordinary users of financial information to process the data and question the validity of the numbers presented by listed firms. Furthermore, if fraud information is available, similar research can be conducted to examine the tendency for companies with anomalous financial reports to commit fraud.

Originality/value

This is the first paper of its kind that attempts to build an anomaly detection model for Vietnamese listed companies.

Details

Asian Journal of Accounting Research, vol. 4 no. 2
Type: Research Article
ISSN: 2443-4175

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Article
Publication date: 7 February 2020

Kizito Ojilong’ Omukaga

The purpose of this study was to determine the influence of the elements of the fraud diamond theory in detecting financial statement fraud among non-financial firms in…

Abstract

Purpose

The purpose of this study was to determine the influence of the elements of the fraud diamond theory in detecting financial statement fraud among non-financial firms in Kenya. Secondary data used to calculate ratios and figures representing the study variables was collected using a checklist for each of the targeted firms listed in the Nairobi Securities Exchange in Kenya for the 2013-2017 period.

Design/methodology/approach

Secondary data used to calculate ratios and figures representing the study variables was collected using a checklist for each of the targeted firms listed in the Nairobi Securities Exchange in Kenya for the 2013-2017 period. Convenience sampling technique was used to come up with a sample size of 35 out of the targeted population of 45 non-financial firms listed in Kenya (78% representation). This sample size was representative enough of the targeted population.

Findings

The results strongly supported that all the four elements of the fraud diamond triangle influenced financial statement fraud in Kenya. However, using three parameters, namely R2, predicted sign and standard error, to compare the applicability of either the Yoon et al. (2006) or the modified Jones (1991), our study findings are mixed. It is therefore imperative that a new model should be developed in detecting earnings management in the Kenyan context. Note that including other variables will to a greater extent increase the explanatory power in detecting earnings management practiced by non-financial firms listed in Kenya.

Research limitations/implications

Use of secondary information in the study was one limitation. Certain financial information was missing from some of the targeted firms’ official websites and the Nairobi Securities Exchange research handbooks. The researcher ensured that only non-financial firms whose audited financial statements were easily accessible were included in the study. Firms whose records were not readily available were excluded from the survey.

Practical implications

Practically, this study enables regulatory authorities in Kenya to understand the extent with which each element of the fraud diamond theory could be relied on in detecting financial statement fraud. Moreover, it will advise them on the areas to lay more emphasis when attempting to detect financial statement fraud using this model.

Originality/value

The main value of this study is the determination of the key elements of the fraud diamond theory, which have influence on financial statement fraud among non-financial firms listed in Kenya.

Details

Journal of Financial Crime, vol. 28 no. 3
Type: Research Article
ISSN: 1359-0790

Keywords

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