A Decision Aid for Assessing the Likelihood of Fraudulent Financial Reporting

The auditor's responsibility for detecting fraudulent financial reporting is of continuing importance to both the profession and society. The Auditing Standards Board has recently issued SAS No. 82, Consideration of Fraud in a Financial Statement Audit, which makes the auditor's responsibility for the detection of material fraud more explicit without increasing the level of responsibility. Using a sample of 77 fraud engagements and 305 nonfraud engagements, we develop and test a logistic regression model that estimates the likelihood of fraudulent financial reporting for an audit client, conditioned on the presence or absence of several fraud-risk factors. The significant risk factors included in the final model are: weak internal control environment, rapid company growth, inadequate or inconsistent relative profitability, management places undue emphasis on meeting earnings projections, management lied to the auditors or was overly evasive, the ownership status (public vs. private) of the entity, and an interaction term between a weak control environment and an aggressive management attitude toward financial reporting. The logistic model was significantly more accurate than practicing auditors in assessing risk for the 77 fraud observations. There was not a significant difference between model assessments and those of practicing auditors for the sample of nonfraud cases. These findings suggest that a relatively simple decision aid performs quite well in differentiating between fraud and nonfraud observations. Practitioners might consider using this model, or one developed using a similar procedure, in fulfilling the SAS No. 82 requirement to “assess the risk of material misstatement of the financial statements due to fraud.”

Download Full-text

Effects Of A Decision Aid For The Assessment Of Fraudulent Financial Reporting: An Application Of SAS No. 82

Journal of Business & Economics Research (JBER) ◽

10.19030/jber.v4i9.2696 ◽

2011 ◽

Vol 4 (9) ◽

Author(s):

Yee-Chy Tseng ◽

Ruey-Dang Chang

Keyword(s):

Risk Factors ◽

Logistic Regression ◽

Financial Reporting ◽

Logistic Model ◽

Decision Aid ◽

Logistic Regression Model ◽

Financial Statement ◽

Font Size ◽

Fraudulent Financial Reporting ◽

Financial Statement Audit

The Statement on Auditing Standards (SAS) No.82, Consideration of Fraud in a Financial Statement Audit, requires the auditor to assess the risk of material misstatement due to a fraud and to consider the assessment in designing appropriate audit procedures to be performed. The SAS No. 82 has thus explicitly made the detection of material fraud the auditor’s responsibility. The purpose of the study is to use the risk factors identified in SAS No. 82 as the foundation to develop a decision aid to help auditors assess the likelihood of fraudulent financial reporting and to empirically test the effects of the decision aid on assessing the likelihood of fraudulent financial reporting. Using a sample of 45 fraud engagements and 206 nonfraud engagements, we developed and tested a logistic regression model that estimates the likelihood of fraudulent financial reporting. We found that the logistic model (proxied as a decision aid in the study) outperforms the practicing auditors in assessing risk for fraud and nonfraud cases.

Download Full-text

Dickinson Technologies, Inc.: Assessing Control Environment and Fraud Risk

Issues in Accounting Education ◽

10.2308/iace.2003.18.1.71 ◽

2003 ◽

Vol 18 (1) ◽

pp. 71-78 ◽

Cited By ~ 6

Author(s):

Christopher P. Agoglia ◽

Kevin F. Brown ◽

Dennis M. Hanno

Keyword(s):

Risk Assessment ◽

Internal Control ◽

Financial Statement ◽

Risk Assessments ◽

Background Information ◽

Control Environment ◽

Abstract Concepts ◽

Fraud Risk ◽

Financial Statement Audit ◽

Fraud Risk Assessments

This instructional case provides you an opportunity to perform realistic audit tasks using evidence obtained from an actual company. Through the use of engaging materials, the case helps you to develop an understanding of the control environment concepts presented in SAS No. 78 (AICPA 1995), Consideration of Internal Control in a Financial Statement Audit, and fraud risk assessment presented in SAS No. 99 (AICPA 2002), Consideration of Fraud in a Financial Statement Audit. This case involves making a series of fraud risk assessments based on company background information and a detailed and realistic control environment questionnaire, which provide you a context that makes the often abstract concepts relating to control environment and fraud risk assessment more concrete.

Download Full-text

A Task-Centered, Multiple Method Approach To Teaching Fraud Risk Assessment

Journal of College Teaching & Learning (TLC) ◽

10.19030/tlc.v3i3.1736 ◽

2011 ◽

Vol 3 (3) ◽

Author(s):

Bonnie W. Morris ◽

Ann B. Pushkin ◽

William E. Spangler

Keyword(s):

Risk Assessment ◽

Financial Reporting ◽

Financial Statement ◽

Occurrence Rate ◽

Fraudulent Financial Reporting ◽

Fraud Risk ◽

Financial Statement Audit ◽

Multiple Method ◽

Approach To Teaching ◽

Research In Education

This manuscript provides an approach to teaching fraud risk assessment that is based on an analysis of the task and relevant research in education, cognitive psychology, and artificial intelligence. Fraud risk assessment (FRA) in financial reporting is an important and difficult task that must be performed in every financial statement audit. When auditors fail to detect fraudulent financial reporting (FFR), they are likely to become targets of shareholder and creditor litigation. Although FFR has a low occurrence rate considering the large number of financial statement audits conducted, it has a devastating impact on the investors, creditors and the profession.

Download Full-text

Fraud Risk Factor Of The Fraud Triangle Assessing The Likelihood Of Fraudulent Financial Reporting

Journal of Business & Economics Research (JBER) ◽

10.19030/jber.v7i2.2262 ◽

2011 ◽

Vol 7 (2) ◽

Cited By ~ 11

Author(s):

Yung-I Lou ◽

Ming-Long Wang

Keyword(s):

Risk Factors ◽

Financial Reporting ◽

Forecast Error ◽

Fraud Triangle ◽

Font Size ◽

Fraudulent Financial Reporting ◽

Fraud Risk ◽

Related Party Transaction ◽

Financial Pressure ◽

Simple Logistic

This research examines risk factors of the fraud triangle, core of all fraud auditing standards, for assessing likelihood of fraudulent financial reporting. Significant variables, including analyst’s forecast error, debt ratio, directors’ and supervisors’ stock pledged ratio, percentage of sales related party transaction, number of historical restatements, and number of auditor switch, belong to pressure/incentive, opportunity and attitude/rationalization. Results indicate fraudulent reporting positively correlated to one of the following conditions: more financial pressure of a firm or supervisor of a firm, higher percentage of complex transactions of a firm, more questionable integrity of a firm’s managers, or more deterioration in relation between a firm and its auditor. A simple logistic model based on examples of fraud risk factors of ISA 240 and SAS 99 gauges the likelihood of fraudulent financial reporting and can benefit practitioners.

Download Full-text

Fraud Risk Factors that Affect the Audit Program Plan: The Case of Kurdistan Region, Iraq

UKH Journal of Social Sciences ◽

10.25079/ukhjss.v4n2y2020.pp9-19 ◽

2020 ◽

Vol 4 (2) ◽

pp. 9-19

Author(s):

Samer H. Alssabagh

Keyword(s):

Risk Factors ◽

Risk Assessment ◽

Financial Reporting ◽

Stepwise Regression ◽

Kurdistan Region ◽

Fraudulent Financial Reporting ◽

External Auditors ◽

Fraud Risk ◽

Program Plan ◽

Audit Program

This paper aims to identify the most frequent fraud risk factors that affect the nature, timing, and extent of planned audit procedures. The perceptions of both international and local external auditors in the Kurdistan Region, Iraq, were investigated. In general, it was found that the respondents were more interested in assessing fraud risk factors related to misappropriation of assets (84.61%) compared with those related to fraudulent financial reporting (75.43%). Stepwise regression analysis indicates a positive and significant effect of each fraud risk factor related to fraudulent financial reporting that resulted from incentives or pressures and attitudes or rationalization, and the fraud risk factors related to the misappropriation of assets that resulted from attitudes or rationalization on the nature, timing, and extent of the planned audit procedures. However, other fraud risk factors in the study model did not show a significant effect on the audit program plan. The findings of this paper contribute to the existing literature in the area of fraud risk assessment and its effect on planning audit programs in eastern developing countries such as the Kurdistan Region, Iraq.

Download Full-text

They Protect Us from Computer Fraud: Who Protects Us from Them? SafeNet, Inc.: A Case of Fraudulent Financial Reporting

Issues in Accounting Education ◽

10.2308/iace-51120 ◽

2015 ◽

Vol 30 (4) ◽

pp. 353-372 ◽

Cited By ~ 2

Author(s):

Leisa L. Marshall ◽

James Cali

Keyword(s):

Financial Reporting ◽

Internal Control ◽

Stock Options ◽

Governance Structure ◽

Fraud Triangle ◽

Fraudulent Financial Reporting ◽

Corporate Governance Structure ◽

Chief Operating Officer ◽

Tone At The Top ◽

Prevention Methods

ABSTRACT This case focuses on fraudulent financial reporting as related to the tone at the top, primarily the chief operating officer, Carole Argo, of SafeNet, Inc. (SafeNet). This case provides students a real-world example by which to apply basic fraud concepts including the fraud triangle, fraud prevention, and red flags (fraud symptoms). Students analyze SafeNet to identify deficiencies and prevention methods, from the perspective of COSO's (2013) Internal Control—Integrated Framework's internal control objectives, components, and principles. Students also analyze SafeNet's corporate governance structure by comparing SafeNet's Board of Directors and its subcommittees pre- and post-SOX. Students learn of stock options as a form of compensation. However, this case does not focus on the details of accounting for stock options. This case is appropriate for students with the financial accounting principles course background. This case was classroom tested in a basic fraud examination course and an internal auditing course. Students' responses in both courses support the use of the case as a learning tool.

Download Full-text

Analysis of Factors Affecting Fraudulent Financial Reporting with Independent Commissioners as Moderation Variable

GATR Journal of Accounting and Finance Review (AFR) Vol. 4 (4) Oct-Dec 2019 - GATR Accounting and Finance Review ◽

10.35609/afr.2021.5.4(1) ◽

2021 ◽

Vol 5 (4) ◽

pp. 01-12

Author(s):

Andalia Andalia ◽

Amiruddin Amiruddin ◽

Grace T. Pontoh

Keyword(s):

Regression Analysis ◽

Financial Reporting ◽

Internal Control ◽

Sampling Method ◽

Stock Exchange ◽

Jel Classification ◽

Fraudulent Financial Reporting ◽

Factors Affecting ◽

Effect Of Pressure ◽

Analysis Technique

Objective - This study aims to examine and analyze the effect of pressure, opportunity, rationalization, ability and arrogance on fraudulent financial reporting with independent commissioners as the moderating variable. Methodology/Technique - The object of this research is all companies listed on the Indonesian Stock Exchange during 2019. The research sample was obtained through purposive sampling method and resulted in 215 companies. The analysis technique used is multiple regression analysis and Moderated Regression Analysis (MRA). Findings - The results show that pressure, opportunity, rationalization, ability and arrogance had a significant effect on fraudulent financial reporting. The results of the moderation regression analysis show that independent commissioners moderate the effect of pressure and arrogance on fraudulent financial reporting. Meanwhile, independent commissioners did not moderate opportunities, rationalization, and capacity for fraudulent financial reporting. Novelty - This research contributes to the pentagon fraud theory, which proves that the elements contained in this theory can be used as a basis for analyzing fraud committed by companies, and contributing to the company so that the company's internal control is improved and the presence of an independent board of commissioners is not only a fulfillment of the company's internal control. regulations made by the IDX. Type of Paper: Empirical. JEL Classification: G32, M21, M41, M42. Keywords: Pressure; Opportunities; Rationalization; Arrogance; Fraudulent Financial Reporting Reference to this paper should be made as follows: Andalia; Amiruddin; Pontoh, G.T. (2021). Analysis of Factors Affecting Fraudulent Financial Reporting with Independent Commissioners as Moderation Variable, Accounting and Finance Review, 5(4): 01 – 12. https://doi.org/10.35609/afr.2021.5.4(1)

Download Full-text

Non-Intensive Continuous Treatment with a Tyrosine Kinase Inhibitor (TKI) Followed By Allo-HSCT Is an Effective Therapeutic Strategy for Adult Ph-Positive Acute Lymphoblastic Leukemia: Outcomes of the Russian Prospective Multicenter RALL Study

Blood ◽

10.1182/blood-2021-153068 ◽

2021 ◽

Vol 138 (Supplement 1) ◽

pp. 4395-4395

Author(s):

Olga A. Gavrilina ◽

Elena N. Parovichnikova ◽

Vera V. Troitskaya ◽

Zalina Kh. Akhmerzaeva ◽

Sergey N. Bondarenko ◽

...

Keyword(s):

Risk Factors ◽

Lymphoblastic Leukemia ◽

Significant Risk ◽

Continuous Treatment ◽

Molecular Response ◽

Monosomy 7 ◽

Long Term Outcome ◽

Landmark Analysis ◽

Significant Difference ◽

New Generation

Abstract Introduction. As Ph-positive (Ph+) ALL in adults remains less favorable in prognosis than other ALL, and by expert opinion needs non-intensive chemotherapy protocols and new generation TKI with the majority of pts undergoing allo-HSCT, the results of treatment based on the different approach: de-escalated but continuous treatment with the change of TKI according to the molecular response and allo-HSCT may be of interest and provide new insights to the treatment of Ph+ ALL. Aim. To evaluate survival and outcomes in different risk groups in pts with Ph+ ALL in the RALL-study (Ph+ALL-2009, Ph+ALL-2012 and Ph+ALL-2012m protocols). Patients and methods. Between January 2010 and June 2021, 74 new Ph+ ALL cases were diagnosed in 6 centers of the RALL-group and 63 of them were evaluable for analysis (median age 37 years (17-73), m/f 32(43%)/42(57%), CNS disease in 13(21%) pts, WBC>30*10 9/l in 27(43%) pts, bcr/abl transcript p190/p210/p190+210 in 31(60%)/12(23%)/9(17%) cases). Standard cytogenetic was performed in all 63 pts, 1 had no mitosis, 6(10%) monosomy 7 and 2 (3%) complex karyotypes were detected. All pts were treated according to RALL protocols with continuous Imatinib. Ph+ALL-2009 protocol included 600 mg Imatinib with prednisone, VNCR, L-asp, Dauno, Cph, followed by 6-MP and MTX. Imatinib had to be changed to Dasatinib (140 mg) after non-achievement of molecular complete response (MolCR) on day 70. MolCR was defined as bcr/abl chimeric transcript <0,01% by PCR with 10 -4 sensitivity. In protocols Ph+ALL-2012 and Ph+ALLm, we de-intensified chemotherapy: reduced Dauno, Cph and L-asp doses, accordingly. All pts were considered as candidates for allogeneic HSCT in CR1 if HLA-identical donor was available. 36 (57%) pts underwent HSCT in the first-line therapy: 2(6%) autologous, 9 (25%) matched related, 20 (56%) matched unrelated and 5 (13%) haplo-HSCT. Results. Hematological complete remission (CR) was achieved in 60 (95%) of 63 pts (1 early death and 2 refractory cases occurred). On day 70, MolCR was achieved in 21(38%) of 56 pts. Death on therapy in CR (within 5 months of induction/consolidation) was registered in 4 (6%) cases. The major causes of the non-relapsed mortality in unrelated allo-HSCT (n=9) were aGVHD and severe infections, at a median +4 months after HSCT. The 5-year overall survival (OS) and disease-free survival (DFS) for all 63 pts were 58% and 45%, respectively. The long-term outcome on different protocols (Ph+ALL-2009, Ph+ALL-2012 and Ph+ALL-2012m) were similar: 3-year OS - 55% vs 51% vs 75% (p=0,27), 3-year DFS - 56% vs 44% vs 50% (p=0,54), respectively. The 5-year OS was 65% vs 61% (p=0,84), and DFS was 57% vs 31% (p=0,24) in transplanted vs non-transplanted patients by landmark analysis with a median 5,3 month of CR. Landmark analysis of 5-year OS for transplanted and non-transplanted pts depending on age showed no significant difference for both groups: >45y 40% vs 80%; and ≤45y 70% vs 49%, respectively (p=0,1625), although data for 5-year OS was still not mature at the time of analysis. DFS was significantly different in transplanted vs. non-transplanted pts: >45y 40% vs 71%; ≤45y 61% vs 0%; respectively (p=0,0439). In a multivariate analysis for Ph+ ALL among common risk factors (age > 45y, WBC>30, LDH>2N, immunophenotype, late MolCR >70d, CNS leukemia) WBC>30, HSCT were significant risk factors for OS and DFS. Conclusions. Our data demonstrate that de-intensification of chemotherapy does not affect the efficacy of Ph+ ALL therapy in the era of TKIs. We confirmed that patients older than 45y old could be treated by chemotherapy with TKI (new generation TKI if needed) only, but all pts younger than 45y should be considered for HSCT. Figure 1 Figure 1. Disclosures No relevant conflicts of interest to declare.

Download Full-text

Socioeconomic, Psychiatric and Materiality Determinants and Risk of Postpartum Depression in Border City of Ilam, Western Iran

Depression Research and Treatment ◽

10.1155/2013/653471 ◽

2013 ◽

Vol 2013 ◽

pp. 1-7 ◽

Cited By ~ 8

Author(s):

Pegah Taherifard ◽

Ali Delpisheh ◽

Ramin Shirali ◽

Abdorrahim Afkhamzadeh ◽

Yousef Veisani

Keyword(s):

Risk Factors ◽

Postpartum Depression ◽

Low Socioeconomic Status ◽

Data Gathering ◽

Significant Risk ◽

Cross Sectional Study ◽

Cross Sectional ◽

Western Iran ◽

Border City ◽

Significant Difference

Background. Postpartum depression (PPD) is considered as one of the mood disturbances occurring during 2-3 months after delivery. The present study aimed to determine the prevalence of PPD and its associated risk factors in border city of Ilam, western Iran.Methods. Through a descriptive cross-sectional study in 2011, overall, 197 women who attended Obstetrics & Gynecology clinics postpartumly in the border city of Ilam, western Iran, were randomly recruited. A standard questionnaire that was completed by a trained midwife through face to face interviews was used for data gathering.Results. Mean age ± standard deviations was 27.9 ± 5.2 years. Prevalence of PPD was estimated to be 34.8% (95% CI: 27.7–41.7). A significant difference was observed among depression scores before and after delivery (P≤0.001). Type of delivery (P=0.044), low socioeconomic status (P=0.011), and women having low educational level (P=0.009) were the most important significant risk factors associated with PPD. The regression analysis showed that employed mothers compared to housekeepers were more at risk for PPD (adjusted OR = 2.01, 95% CI: 1.22–2.28,P=0.003).Conclusions. Prevalence of PPD in western Iran was slightly higher than the corresponding rate from either national or international reports.

Download Full-text

The Effects of Auditors' Accessibility to “Tone at the Top” Knowledge on Audit Judgments

Behavioral Research in Accounting ◽

10.2308/bria-50824 ◽

2014 ◽

Vol 26 (2) ◽

pp. 73-96 ◽

Cited By ~ 8

Author(s):

Regan N. Schmidt

Keyword(s):

Mental Representation ◽

Decision Aid ◽

Audit Quality ◽

Mental Representations ◽

Data Availability ◽

Control Environment ◽

Audit Process ◽

Mediation Analyses ◽

Fraud Risk ◽

Tone At The Top

ABSTRACT: This study examines how external auditors' accessibility to “tone at the top” knowledge impacts subsequent audit judgments. To examine this relationship, a decision aid is investigated that differentially facilitates the auditors' retrieval of “tone at the top” evidence from memory. Results of an experiment indicate that, holding the client's “tone at the top” constant, the structure of a control environment decision aid influences the auditors' mental representation of the “tone at the top.” Further, favorable “tone at the top” mental representations transfer to induce relatively favorable control environment and fraud risk assessments, and greater reliance on management's explanation for variances detected in analytical procedures. Mediation analyses identify the control environment assessment as a mediator between the influenced mental representation and the subsequent fraud risk and analytical procedure judgments. The results of the paper underscore the importance of how auditors develop their “tone at the top” mental representations, the influence of these mental representations on subsequent audit judgments, and the stage in the audit process where interventions can improve audit quality. Data Availability: Contact the author.

Download Full-text