scholarly journals Professional Demographic Factors That Influence Iranian Auditors Perceptions Of The Fraud-Detecting Effectiveness Of Red Flags

2010 ◽  
Vol 9 (1) ◽  
Author(s):  
Weifang Yang ◽  
Glen D. Moyes ◽  
Hamed Hamedian ◽  
Azar Rahdarian
Keyword(s):  
Financial Reporting ◽  
Demographic Factors ◽  
Red Flags ◽  
Fraudulent Financial Reporting ◽  
Internal Auditors ◽  
Red Flag ◽  
The Relationship

The purpose of this study is to explore the relationship between professional demographic factors concerning external and internal auditors and the perceived level of effectiveness of the Statement of Auditing Standard (SAS) No. 99 red flags in detecting fraudulent financial reporting activities as perceived by external and internal auditors. The six hypotheses are: (1) the type of auditors using red flags to detect fraud, (2) highest degrees received by auditors, (3) areas that auditors majored in at universities, (4) auditors’ accumulated knowledge of red flags, (5) auditors who have or have not used red flags to detect fraud, and (6) auditors whohave or have not received in-house red flag training.  The six hypotheses explore how six professional demographic factors may influence the level of fraud-detecting effectiveness of the SAS No. 99 red flags as perceived by 227 external and internal auditors in Iran.  The results of this study indicate that all six hypotheses were accepted.   In conclusion, the level of fraud-detecting effectiveness of these red flags as perceived by the Iranian auditors may be influenced by the following factors: (1) the type of auditors, (2) the highest degrees received by auditors, (3) areas that auditors majored in at universities, (4) knowledge about red flags accumulated by auditors, (5) auditors whohave or have not previously used red flags to detect fraud, and (6) auditors whohave or have not previously received in-house red flag training.

scholarly journals The Differences In Perceived Level Of Fraud-Detecting Effectiveness Of SAS No. 99 Red Flags Between External And Internal Auditors

2011 ◽  
Vol 5 (6) ◽  
Author(s):  
Glen D. Moyes
Keyword(s):  
Financial Reporting ◽  
Financial Statement ◽  
Red Flags ◽  
Perceived Effectiveness ◽  
Font Size ◽  
Fraudulent Financial Reporting ◽  
Internal Auditors ◽  
External Auditors ◽  
Effectiveness Rating ◽  
Red Flag

<p class="MsoNormal" style="text-align: justify; margin: 0in 34.2pt 0pt 0.5in;"><span style="font-size: 10pt;"><span style="font-family: Times New Roman;">The purpose of this study is to examine the differences and the causes for the differences between external and internal auditors regarding the perceived levels of fraud detection of the 42 red flags found in Statement of Auditing Standard (SAS) No. 99.<span style="mso-spacerun: yes;">&nbsp; </span>SAS No. 99 requires the 42 red flags to be used in financial statement audits in order to detect fraudulent financial reporting activity.<span style="mso-spacerun: yes;">&nbsp; </span>No differences were found between external and internal auditors with respect to overall perceptions.<span style="mso-spacerun: yes;">&nbsp; </span>However, 17 of the 42 red flags had significant differences regarding the effectiveness of red flags in the detection of fraud.<span style="mso-spacerun: yes;">&nbsp; </span>For the external auditors, the extent of use and exposure to red flags were significant predictors regarding perceived effectiveness.<span style="mso-spacerun: yes;">&nbsp; </span>For internal auditors, perceived fraud-detecting effectiveness was a function of one&rsquo;s internal and total audit experience.<span style="mso-spacerun: yes;">&nbsp; </span>Surprisingly, gender differences occurred with both external and internal auditors with females rating the red flag effectiveness consistently higher than male auditors.<span style="mso-spacerun: yes;">&nbsp; </span>With the exception of two red flags, external auditors displayed a higher degree of consensus regarding the effectiveness rating of each red flag than internal auditors.<span style="mso-spacerun: yes;">&nbsp; </span>When asked to identify the more effective red flags based on the SAS No. 99 categories, both groups of auditors perceived the attitude/rationalization red flag category as the most effective red flags. </span></span></p>

scholarly journals The Effectiveness Of The Auditing Standards To Detect Fraudulent Financial Reporting Activities In Financial Statement Audits In Malaysia

2011 ◽  
Vol 8 (9) ◽  
Author(s):  
Glen D. Moyes ◽  
Hesri Faizal Mohamed Din ◽  
Normah H. Omar
Keyword(s):  
Financial Incentive ◽  
Demographic Factors ◽  
Developed Countries ◽  
Internal Controls ◽  
Demographic Factor ◽  
Financial Statement ◽  
Red Flags ◽  
Red Flag ◽  
The Relationship ◽  
Sas 99

In identifying relevant red flags to be used to detect possible fraud in financial statements, this study adopts the International Auditing Standard AI240 and adapts the US-based Statement of Auditing Standard No 99 (SAS 99). Both SAS 99 and AI240 classify the red flags into three categories: Opportunity, Pressure, and Rationalization. Opportunity Red Flags are found in situations that are ideal for people to commit fraud more easily due to ineffective internal controls, inadequate supervision or managers overriding internal controls. Pressure Red Flags are circumstances in which people have a financial incentive to commit fraud such as falsely overstating sales or profits to receive their bonuses or exerting pressure on managers to reduce actual expenses to be under budgeted costs. Rationalization Red Flags are situations where people have certain traits and abilities to commit fraud and justify it with false reasons which they believe are true. A Red Flag Questionnaire which contains 15 demographic multiple choice questions, followed by a five-point Likert scale with questions for 14 Opportunity Red Flags, 15 Pressure Red Flags and 11 Rationalization Red Flags was developed and distributed to three groups of auditors: External, internal and governmental. The study indicates the direct or inverse relationships between each demographic factor and each red flag. These relationships were identified by using multiple regression models. Three types of relationships are possible: direct, inverse and no relationship. These three types of relationships are as follows: (1) the relationship between the level of fraud-detecting effectiveness of each Opportunity Red Flag and each demographic factor, (2) the relationship between the level of fraud-detecting effectiveness of each Pressure Red Flag and each demographic factor, and (3) the relationship between the level of fraud-detecting effectiveness of each Rationalization Red Flag and each demographic factor. These relationships indicate which specific professional demographic factors are more likely associated with more effective fraud-detecting red flags. In contrast, other relationships also indicate which specific demographic factors are more likely associated with less effective fraud-detecting red flags. In conclusion, this research project should be conducted in other countries, so the result from one country can be compared to the results from other countries. Some results may vary between developed countries and developing countries. The learning curve or the period of time necessary for auditors to learn how to use red flags and then interpret the findings may also explain differences in the results between countries. This study may enhance the auditors understanding of the different levels of fraud-detecting effectiveness of red flags as well as when the auditors may benefit from using them in financial statement audits.

The relationship between knowledge-based economy and fraudulent financial reporting

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Abbas Koolivand ◽  
Mahdi Salehi ◽  
Meysam Arabzadeh ◽  
Hassan Ghodrati
Keyword(s):  
Financial Markets ◽  
Financial Reporting ◽  
Fixed Effects ◽  
Stock Exchange ◽  
Fraudulent Financial Reporting ◽  
Content Type ◽  
Knowledge Based ◽  
Robust Testing ◽  
Knowledge Based Economy ◽  
The Relationship

Purpose This paper aims to assess the relationship between a knowledge-based economy and fraudulent financial reporting. Design/methodology/approach The study is descriptive-correlation based on published information from enlisted firms on the Tehran Stock Exchange during 2013–2019 with a sample of 178 firms (1,246 observations). The method used for hypothesis testing is linear regression using the panel data. Findings The results show that a knowledge-based economy is associated negatively and significantly with financial reporting. Moreover, robust testing has also examined the hypotheses (including fixed effects, OLS and t + 1) that confirmed the study’s preliminary results. Originality/value As the study was carried out in the emergent financial markets, like Iran, to figure out the relationship between knowledge-based economy and financial reporting, it can provide helpful information for the practitioners in this field.

Factors Affecting Internal Auditors' Consideration of Fraudulent Financial Reporting during Analytical Procedures

2001 ◽  
Vol 20 (1) ◽  
pp. 65-80 ◽  
Author(s):  
Bryan K. Church ◽  
Jeffrey J. McMillan ◽  
Arnold Schneider
Keyword(s):  
Financial Reporting ◽  
Practical Implication ◽  
Fraudulent Financial Reporting ◽  
Debt Covenants ◽  
Factors Affecting ◽  
Operating Income ◽  
Internal Auditors ◽  
Specific Factors ◽  
The Difference ◽  
Unexpected Difference

This study investigates internal auditors' consideration of fraudulent financial reporting as an explanation for an unexpected difference in operating income. We examine whether such consideration is affected by the direction of the difference, the use of earnings-based bonus plans, and the restrictiveness of debt covenants. We conduct an experiment in which 127 internal auditors list potential explanations for the unexpected difference. We find that these factors affect internal auditors' consideration of fraudulent financial reporting. Internal auditors list a larger proportion of explanations involving fraud (1) when income is greater than expected, and (2) when debt covenants are restrictive, conditioned on income being greater than expected. We also find that internal auditors assign a higher likelihood of fraud when (1) income is greater than expected, and (2) when an earnings-based bonus plan is used and debt covenants are restrictive. The practical implication is that specific factors can affect internal auditors' consideration of fraudulent financial reporting and potentially may impact audit plans.

scholarly journals Analisis Komparasi Metode Altman Z-Score – Financial Ratio dan Metode Beneish M-Score Model – Data Mining dalam Mendeteksi Fraudulent Financial Reporting

2018 ◽  
Vol 2 (1) ◽  
pp. 14
Author(s):  
Fanny Magdalena ◽  
Hendang Tanusdjaja
Keyword(s):  
Data Mining ◽  
Financial Reporting ◽  
Z Score ◽  
Model Data ◽  
Fraudulent Financial Reporting ◽  
Public Companies ◽  
Financial Ratio ◽  
Score Model ◽  
Using Data ◽  
The Relationship

Abstract: The research tries to investigate which methods i.e. Altman Z Score – Financial Ratio or the method of Beneish M-Score Model – Data Mining, detect significantly to the Fraudulent Financial Reporting by comparing analysis on those methodologies. We argue those methods could detect the Fraudulent Financial Reporting significantly on the basis of the financial reporting in the go public companies. It is assumed that the financial reporting is formulated as good as possible before publish to the outsiders for taking another purpose of it. Thus, the research formulizes the comparison analysis on the methods for detecting the fraudulent financial reporting. Following this logic, we hypothesize that the higher the relationship to the indicator of ratios may affect to which method could more significantly in detecting positive relationship to the fraudulent financial reporting. Moreover, we test this hypothesis for the industry in consumer sector using data from IDX Database and run by PLS – SEM. Evidence strongly supports our hypothesis for detecting the fraudulent financial reporting by those methods, but the method of Altman Z Score – Financial Ratio is more influence in detecting the fraudulent financial reporting than the other.Keywords: fraud, financial, Altman Z Score, financial ratio, Beneish M-Score, Data Mining. Abstrak: Riset ini mencoba untuk menginvestigasi metode manakah diantara, Altman Z Score – Financial Ratio and metode Beneish M-Score Model – Data Mining, yang mendeteksi secara signifikan terhadap Fraudulent Financial Reporting dengan menggunakan analisis komparasi diantara metodologi yang diatas. Kami berargumentasi bahwa kedua metode tersebut dapat digunakan untuk mendekteksi Fraudulent Financial Reporting pada perusahan terbuka. Hal tersebut diasumsikan bahwa laporan keuangan dibuat sedemikian rupa sebelum dipublikasikan kepada pihak luar dalam rangka penggunaan untuk tujuan tertentu. Oleh karena itu, riset ini memformulasikan sebuah analisis komparasi metode untuk mendeteksi fraudulent financial reporting. Secara logika, penelitian ini menunjukkan suatu hipotesis dimana semakin tinggi hubungan antara metode dengan indikator rasio, maka metode tersebut semakin signifikan dalam mendektesi secara positif terhadap fraudulent financial reporting. Oleh karena itu, kami melakukan uji hipotesis ini pada industri sektor barang konsumsi dengan menggunakan data dari IDX dan dijalankan dengan PLS – SEM. Hasil uji telah membuktikan bahwa hipotesis di atas dapat mendeteksi fraudulent financial reporting, akan tetapi metode Altman Z Score – Financial Ratio  lebih berpengaruh dalam mendeteksi fraudulent financial reporting daripada metode Beneish M-Score Model.Kata kunci: kecurangan, keuangan, Altman Z Score, rasio keuangan, Beneish M-Score, data mining

Nonfinancial Measures and Fraud Risk:Evaluating Investors’ Reactions to Greater Transparency

2021 ◽  
Author(s):  
Joseph F. Brazel ◽  
Tina Carpenter ◽  
Keith Jones ◽  
Jane Thayer
Keyword(s):  
Financial Reporting ◽  
Relevant Information ◽  
Fraudulent Financial Reporting ◽  
Financial Measures ◽  
Nonprofessional Investors ◽  
Fraud Risk ◽  
Nonfinancial Measures ◽  
Red Flag ◽  
The Individual ◽  
Reporting Environment

We examine whether increased transparency in the comparison of financial measures and nonfinancial measures (NFMs) influences nonprofessional investors’ reactions to the risk of fraudulent financial reporting. We consider a comparison of key financial measures and NFMs to be transparent when the relevant information is presented in close proximity and formatted to provide an easy comparison of the individual measures. We manipulate the presence of an NFM red flag and the transparency of the comparison of financial measures and NFMs. We find that when the NFM red flag is present (i.e., higher fraud risk) and transparent, investors choose lower investment levels. However, without increased transparency, as is typical in the current reporting environment, we observe that investors are more likely to increase their investment levels in firms with elevated fraud risk. Additionally, we observe that the effect of transparency on investment levels is driven by investors with greater investing experience.

scholarly journals The Relationship between Accounting Frauds and Economic Fluctuations: A Case of Project Based Organizations in UAE

2020 ◽  
Vol 6 (1) ◽  
pp. p87
Author(s):  
Shatha Mustafa ◽  
Dr. Faisal Khan
Keyword(s):  
Business Cycles ◽  
Financial Reporting ◽  
Practical Implication ◽  
Economic Fluctuations ◽  
Exploratory Research ◽  
Fraudulent Financial Reporting ◽  
Structured Interviews ◽  
Accounting Research ◽  
Factors Influencing ◽  
The Relationship

Purpose: the purpose of this study is to provide a better understanding of the rate of accounting frauds (misappropriation of assets, fraudulent financial reporting), and how they occur in different business cycles (economic fluctuations). Further, it aims at exploring the relationship between factors influencing the economic fluctuations and the level of accounting frauds. Design/methodology approach: a qualitative research design used semi-structured interviews with a group of internal controllers and external auditors from the big four auditing companies in addition to other Leading and certified audit offices in UAE in order to identify how the factors influencing the GDP fluctuations could affect the degree of accounting frauds.Findings: GDP components that influence economic fluctuations associate with the accounting frauds rate, especially fraudulent financial reporting. Economic factors including the GDP, unemployment and inflation are very important in the steadiness of an economy. The probable drop of GDP, or raise in unemployment level, high rates of inflation are positively influence the occurrences of accounting frauds.Research limitation/implications: There are many ECONOMIC roots of business cycles and economic fluctuations such as variations in trading strategy, warfare, inflation caused by governmental finance or fears. But these represent non-economic data that is hard to be rationalized by economic theory. Typical macroeconomic theory inclines to illuminate business cycles by a number of mistake and emphasis on modifying this mistake either by dynamic strategy or by supporting a separate strategy (Raudino, 2016). Thus, it is very hard to capture all the factors influencing the economic fluctuations. However, most of the studies in the literature considers the GDP as the most important factors, in addition to inflation and unemployment. Practical implication: This study contributes to both economic and accounting research by proving findings from an investigation of the elements modifying the economical fluctuation and how these fluctuations might impact the rate of accounting Frauds (AF), with implications for economists and financiers, shareholders, stakeholders, stockholders and external inspectors of auditing companies an additional visions about the audit risk in PBOs at altered stages of GDP. Originality/value: This study contributes to both economic and accounting research by exploratory research into the GDP fluctuation, inflation, and unemployment and accounting frauds rate.

Sign in / Sign up

Export Citation Format

Share Document