Search results

Several studies, especially in Asian economies, have investigated the antecedents, implications and consequences of related-party transactions (RPTs). This paper aims to review this literature to collate, gauge and critically discuss understandings of the relationship between RPTs and risk, with a particular focus on audit risk.

The paper discusses RPTs and how they have been associated with corporate scandals and the expropriation of shareholders’ wealth. RPTs are defined as per accounting standards and the main types of RPTs are described based on the extant literature. Two key research design issues are discussed: measures used to operationalize RPTs and observable variations in sample size across RPT studies. Evidence is presented on the negative effects of RPTs and the role of regulation, corporate governance and auditing in reducing risks.

Prior studies have associated RPTs with the expropriation of shareholders’ wealth, declining firm valuations, lower-quality financial reporting, increased risk of material misstatements and decreases in long-term firm performance. Further, the evidence suggests that regulation, corporate governance and auditing can mitigate the negative effects of RPTs.

This paper provides insights for regulators on the effects of enforcement, corporate governance and external audits on reducing the negative effects of RPTs, and highlights the increased risk of material misstatements in financial statements when RPTs are conducted. Moreover, it reveals how RPTs affect risk assessments for auditors.

This paper represents the first comprehensive review of the empirical RPT literature. It provides a starting point for future investigations of RPTs, not least because it reveals important limitations with the extant body of research in this domain. It also offers salient insights and implications for practitioners and policy makers.

This paper aims to investigate the links between accounting values in Chinese listed companies’ balance sheets and the exposure of their fraudulent activities.

Every balance sheet account is proposed to be a potential vehicle to manipulate financial statements.

Other receivables, inventories, prepaid expenses, employee benefits payables and long-term payables are important indicators of fraudulent financial statements. These results confirm that asset account manipulation is frequently carried out and cast doubt on earlier conclusions by researchers that inflation of liabilities is the most common source of financial statement manipulation.

Previous practices of solely scaling balance sheet values by assets are revealed to produce spurious relationships, while scaling by both assets and sales effectively detects fraudulent financial statements and provides a useful fraud prediction tool for Chinese auditors, regulators and investors.

This study aims to assess the relationship between internal control weakness and different types of auditor opinions in fraudulent and non-fraudulent firms. The study's main objective is to investigate fraud in business firms and analyze internal controls and types of proposed opinions by the auditor about his desired firm. The outbreak of fraud in firms is of utmost importance to a broad spectrum of society. Internal controls and the auditor's role in preventing and detecting frauds should not be taken for granted.

The present study's statistical population includes 179 listed firms on the Stock Exchange selected as the study sample using the systematic elimination method during 2012–2019. As the study's dependent variable (the type of auditor’s opinion), research hypotheses were analyzed using the Logit regression model.

The results show that the relationship between internal control weakness and opinion type is significantly different in fraudulent and non-fraudulent firms. Moreover, the relationship between internal control weakness and type of auditor opinion in fraudulent firms and the relationship between internal control weakness and type of auditor opinion in non-fraudulent firms are significant.

By assessing the related literature, the authors have found no study to directly assess the comparative relationship between internal control weakness and the type of auditor opinion, which can be named as the main objective of the study.

Prior research suggests that evaluating employee reactions can help understand the human costs of unethical behavior. However, there is limited research exploring emotional reactions to unethical behavior and no studies that explore emotional reactions when financial statement fraud occurs. In an attempt to fill a gap in the literature, the purpose of this study is to explore whether practicing accountants feel certain negative emotions when asked by a member of management to manipulate earnings. We find that practicing accountants feel emotions of anger, disappointment, and regret when asked by a member of management to complete an action that results in financial statement fraud. The implications of these findings are discussed.

Accounting-based financial scandals caused by fraudulent financial reports negatively affect the financial markets and cause loss of confidence in investors. Financial reporting quality needs to be improved in order to build and maintain trust in financial markets. To increase the quality of financial reports, fraudulent financial reporting risks should be defined. At this point, regulators, practitioners, and researchers are in constant search.

There are improved approaches to the detection of financial reporting frauds in the literature. Many studies have been conducted on the “Fraud Triangle Theory” and the “Fraud Diamond Theory” approaches. The Fraud Triangle Theory argues that while fraudulent action is taking place in defining the elements of press, rationalization, and opportunity, the Fraud Diamond Theory approach argues that in order to achieve these three elements, the capability to carry out a fraud in individuals must be improved.

In this study, it is aimed to investigate the effect of Fraud Diamond elements on fraudulent financial reports. For the scope of the research, data of 26 companies from Manufacturing Industry enterprises operating in BORSA ISTANBUL between 2013 and 2017 were used. Financial reports of the companies are divided into two groups: (1) Fraudulent Financial Reports and (2) Non-Fraud Financial Reports. The hypotheses developed within the scope of the research were tested using the Logistic Regression analysis in IBM SPSS Statistic 20 program.

As a result of the study, it has been determined that there is a negative correlation between borrowing level, asset profitability, independent audit firm, auditor exchanges and institutionalization level, and fraudulent financial reports. It was understood that the change in assets and the size of the audit committee did not have any effect on the fraudulent financial reports.

This study aims to trace the impact of corporate governance and its mechanisms in preventing companies from turning to fraudulent financial reporting.

For this purpose, using the systematic elimination pattern, the information of 187 listed companies on the Tehran Stock Exchange over six years from 2013 to 2019 were collected, and the hypotheses were examined using a linear regression model. To measure fraudulent financial reporting, the adjusted model of Beneish (1999) was used to evaluate corporate governance. Its mechanisms based on nine corporate governance mechanisms, including board independence, board remuneration, CEO financial expertise, expertise in CEO industry, board financial expertise, board industry expertise, board effort, CEO duality and managerial ownership, have been examined. These mechanisms are calculated as a combined index of corporate governance.

The findings indicate that robust corporate governance significantly reduces companies’ intention toward fraudulent financial reporting. In the same way, a negative and significant relationship was observed between each of the nine corporate governance mechanisms, except for board compensation and fraudulent financial reporting.

This study’s findings provide valuable insight into the importance of strengthening companies to prevent companies’ managers from engaging in fraudulent financial reporting activities. Hence, it is suggested that professional references bodies more seriously follow the rules to dictate to companies for using and empowering their corporate governance.

The purpose of this paper is to review, critique, and integrate certain trends, events, and research streams involving earnings management, fraudulent financial reporting, corporate governance and ethics.

The paper provides a brief history of relevant events and trends in financial reporting for the period 1987‐2007. Within this historical context, financial reporting and earnings quality are discussed from the academic and practitioner points of view. The influence of corporate governance and the role of ethics and behavior are introduced as part of an integrated discussion of academic and practitioner viewpoints of earnings management and fraudulent financial reporting. The last section of the paper provides final observations and recommendations for future research.

The paper concludes that academic research in earnings management and fraudulent financial reporting has become increasingly narrow in addressing important issues and problems in practice.

The paper is limited in its depth of analysis in each individual research stream due to the breadth of research and time period that are addressed. The implications for future research are enhanced by the integration of several streams of research relevant to earnings management and fraudulent financial reporting.

The paper may be useful to regulators and policy makers to better understand the significance and relevance of academic research.

The paper introduces and integrates ethics and behavior as important aspects for understanding earnings management and fraudulent financial reporting.

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).

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.

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.

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.

This paper aims to examine cases of fraudulent financial reporting (FFR) which were subject to published enforcement actions by the Securities Commission Malaysia (SC) from 1998 to 2012 for reasons of alleged financial misreporting. It investigates the main attempts used (how) and sensible motives (why) for these fraudulent reporting.

This study undertakes a close examination of the financial reports manipulated – annual accounts, interim reports and financial reports in listing proposals, initial public offering prospectuses and corporate restructuring proposals. Due to the limited number of FFR published, a close examination of these cases is the best way to reach a more comprehensive and detailed understanding of “how” FFR takes place, rather than performing large sample statistical analyses. This study also collects data which provide evidence for the possible motivations in resorting to the FFR.

The most common attempt used by the sample companies was to overstate their reported revenue by recognising fictitious sales from bogus customers. Sample companies who attempted this initial manipulation often followed with consequential manipulations and in some cases also embarked on masking manipulations. Sensible motives for the sample companies to manipulate their financial statements include capital raising exercises, closeness to defaulting on debt repayments and sustaining equity overvaluations.

The primary limitation of this study is its lack of breadth due to the limited number of reported cases available. Moreover, taking the sample companies used from enforcement action releases published by the SC presupposes that the SC has diligently and correctly identified all the FFR cases – whereas there is a possibility that some companies involved in FFR may not yet have been detected or publicly revealed. Notwithstanding these limitations, our findings provide a comprehensive insight, which is sufficient in depth, into the operational aspects of FFR in Malaysia.

One practical lesson from the findings on “how” within the chain of manipulations is that auditors ought to review the effectiveness of their analytical and substantive procedures, as a number of the FFR cases remained undetected by the audit process. A second is that accounting standards setters may wish to reconsider the amount of discretion given to managers in financial reporting. On the one hand, some managers have used this discretion to provide useful information to the market; however, others have opportunistically used it for personal gain.

From the societal perspective, it is time for managers, as agents of capital providers, to self-review their responsibilities and stewardship in financial reporting. There needs to be a paradigm shift in their attitudes towards the perceived incentives of, and opportunities for, FFR. Managers’ wrongdoings in these accounting scandals have had significant adverse consequences for society – including minority shareholders, investor confidence, future accountants and managers in the making.

This study provides direct and practical evidence on the “how” and “why” of FFR in the context of a developing country – Malaysia. Such evidence is limited in the existing literature and relevant to practitioners.

This study aims to examine the ability of big data analytics (BDA) to investigate financial reporting quality (FRQ), identify the knowledge base and conceptual structure of this research field and explore BDA techniques used over time.

This study uses a comprehensive bibliometric analysis approach (performance analysis and science mapping) using software packages, including Biblioshiny and VOSviewer. Multiple analyses are conducted, including authors, sources, keywords, co-citations, thematic evolution and trend topic analysis.

This study reveals that the intellectual structure of using BDA in investigating FRQ encompasses three clusters. These clusters include applying data mining to detect financial reporting fraud (FRF), using machine learning (ML) to examine FRQ and detecting earnings management as a measure of FRQ. Additionally, the results demonstrate that ML and DM algorithms are the most effective techniques for investigating FRQ by providing various prediction and detection models of FRF and EM. Moreover, BDA offers text mining techniques to detect managerial fraud in narrative reports. The findings indicate that artificial intelligence, deep learning and ML are currently trending methods and are expected to continue in the coming years.

To the best of the authors’ knowledge, this study is the first to provide a comprehensive analysis of the current state of the use of BDA in investigating FRQ.