An empirical analysis of the relation between corporate governance characteristics and the prevention of financial statement fraud

This paper provides insight into financial statement fraud instances investigated during the late 1980s through the 1990s within three volatile industries—technology, health care, and financial services—and highlights important corporate governance differences between fraud companies and no-fraud benchmarks on an industry-by-industry basis. The fraud techniques used vary substantially across industries, with revenue frauds most common in technology companies and asset frauds and misappropriations most common in financial-services firms. For each of these three industries, the sample fraud companies have very weak governance mechanisms relative to no-fraud industry benchmarks. Consistent with prior research, the fraud companies in the technology and financial-services industries have fewer audit committees, while fraud companies in all three industries have less independent audit committees and less independent boards. In addition, this study provides initial evidence that the fraud companies in the technology and health-care industries have fewer audit committee meetings, and fraud companies in all three industries have less internal audit support. This study of more current financial statement fraud instances contributes by updating our understanding of fraud techniques and risk factors in three key industries. Auditors should consider the industry context as they evaluate the risk of financial fraud, and they should compare clients' governance mechanisms to relevant no-fraud industry benchmarks.

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Islamic corporate governance and financial statements fraud: A study of Islamic banks

Journal of Governance and Regulation ◽

10.22495/jgrv10i2siart16 ◽

2021 ◽

Vol 10 (2, special issue) ◽

pp. 361-368

Author(s):

Hasan Mukhibad ◽

Prabowo Yudo Jayanto ◽

Indah Anisykurlillah

Keyword(s):

Corporate Governance ◽

Audit Committee ◽

Supervisory Board ◽

Financial Statements ◽

Financial Statement ◽

Islamic Banks ◽

Financial Statement Fraud ◽

External Auditors ◽

Or Economics ◽

Incorrect Information

Financial statement fraud (FSF) in Islamic banks is unethical because it generates incorrect information for the stakeholders (Anisykurlillah, Jayanto, Mukhibad, & Widyastuti, 2020; Obid & Demikha, 2011). We identify some institutional factors, specifically corporate governance, as factors that can control FSF. Using the sample of Islamic banks in Indonesia, we found that the attributes of the bank’s Sharia Supervisory Board (SSB), such as its expertise, the number of members, and the number of meetings it holds, can reduce FSF. Besides, the number of audit committee members, and the reputation of the external auditors, can also help control FSF. This research does not find any influence of the board of commissioners’ structure toward FSF. Another finding is that of the three SSB attributes used in this research, the most decisive influence for controlling FSF is each SSB’s expertise in accounting, finance, or economics. We suggest that every SSB should have experts in those fields to complement the expertise in Islamic legal fields.

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Olympus Corporation Financial Statement Fraud Case Study: The Role That National Culture Plays On Detecting And Deterring Fraud

Journal of Business Case Studies (JBCS) ◽

10.19030/jbcs.v10i2.8506 ◽

2014 ◽

Vol 10 (2) ◽

pp. 175-184 ◽

Cited By ~ 4

Author(s):

Anita R. Morgan ◽

Cori Burnside

Keyword(s):

Corporate Governance ◽

National Culture ◽

Corporate Culture ◽

Fraud Detection ◽

Financial Statement ◽

Japanese Culture ◽

Financial Statement Fraud ◽

The Impact ◽

Insight Into

Recent cases provide insight into the role that an unethical corporate culture plays in financial statement fraud. The case of financial statement fraud in Olympus Corporation, a Japanese firm, provides the opportunity to examine how national culture plays a role in corporate governance and fraud detection. This case study focuses on the impact of Japanese culture on the corporate culture of The Olympus Corporation, and how that corporate culture resulted in financial statement fraud.

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THE EFFECT OF PROFIT MANAGEMENT AND CORPORATE GOVERNANCE TOWARDS FINANCIAL STATEMENT FRAUD

JURNAL AL-IQTISHAD ◽

10.24014/jiq.v16i2.11447 ◽

2020 ◽

Vol 16 (2) ◽

pp. 138

Author(s):

Safira Novriana Yasmin Safira Novriana Yasmin ◽

Rieka Ramadhaniyah

Keyword(s):

Corporate Governance ◽

Financial Statement ◽

Financial Statement Fraud

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Preventing financial statement frauds through better corporate governance

Corporate Ownership and Control ◽

10.22495/cocv14i3c2art1 ◽

2017 ◽

Vol 14 (3) ◽

pp. 271-285 ◽

Cited By ~ 3

Author(s):

Barbara Sveva Magnanelli ◽

Luca Pirolo ◽

Luigi Nasta

Keyword(s):

Corporate Governance ◽

Multinomial Logistic Regression ◽

Negative Relationship ◽

Agency Problems ◽

Financial Statement ◽

Financial Statement Fraud ◽

Governance System ◽

Cross Sectional ◽

The Impact

Acting within the agency theory theoretical framework, the paper focuses on the role of the corporate governance as a system to monitor and predict the fraud occurrence and magnitude. Specifically, the study examines the impact of the quality of the corporate governance of the firms, for which a fraud was detected, on the fraud occurrence and magnitude. We posit that fraudulent behaviours, by those who can take advantage of information asymmetry and gain personal benefits from them, can occur when strong agency problems emerge and a weak governance exists. Thus, the financial statement fraud can be seen as the result of high agency problems and high conflicts of interests not solved by the company. Starting from a sample of 101 listed companies, for which a fraud was detected, using a principal component analysis, we develop a corporate governance index, which measures the quality of the governance system of the firms. To test the hypothesis, we run a multinomial logistic regression on a cross-sectional analysis, controlling the results with a matched sample of firms that did not experienced any fraud. Empirical evidences seem to confirm the existence of a negative relationship between the quality of the corporate governance system of a firm and both the financial statement fraud occurrence and magnitude, indicating the governance system of the firm as a fraud deterrent for any amount of financial statement fraud. These findings are even stronger for firms characterized by the presence of a blockholder. This study contributes to the governance literature by focusing on the corporate governance quality and its impact on financial statement frauds. Moreover, the analysis suggests that a good level of governance can help companies to mitigate the agency problems and to detect fraudulent behaviours, thus our empirical evidence can guide regulators in developing regulations to avoid the fraud occurrence.

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