Theoretical Analysis of Creative Accounting

2021 ◽  
pp. 58-74
Author(s):  
Christianna Chimonaki
Keyword(s):  
Theoretical Analysis ◽  
Financial Statement ◽  
Accounting Fraud ◽  
Financial Statement Fraud ◽  
Financial Report ◽  
Creative Accounting ◽  
Accounting Scandals ◽  
The Relationship

This chapter begins with the definitions of creative accounting, fraud and financial statement fraud and explains the relationship between them. Next, it presents the classical theories on the determinants of financial statement fraud. Section 1.4 presents the profile of accounting scandals. Section 1.5 presents the components of financial report fraud as well as the parties involved in in creative accounting. Section 1.6 presents the reasons and motivations for creative accounting. Specifically, the authors analyse manipulation practices, the methods and the opportunities for creative accounting and address why financial frauds occur. Finally, they offer conclusions in Section 1.7.

scholarly journals An Ensemble Model for Financial Statement Fraud Detection

2021 ◽  
Author(s):  
Ahmed M. Khedr ◽  
Magdi El Bannany ◽  
Sakeena Kanakkayil
Keyword(s):  
Class Imbalance ◽  
Fraud Detection ◽  
Financial Statements ◽  
Global Market ◽  
Financial Statement ◽  
Machine Learning Techniques ◽  
Accounting Fraud ◽  
Financial Statement Fraud ◽  
Mena Region ◽  
Ensemble Technique

Fraudulent financial statements are deliberate furnishing and/or reporting incorrect statistics, and this has become a major economic and social concern as the global market is witnessing an upsurge in financial accounting fraud, costing businesses billions of dollars a year. Identifying companies that manipulate financial statements remains a challenge for auditors, as fraud strategies have become increasingly sophisticated over the years. We evaluate machine learning techniques for financial statement fraud detection, particularly a powerful ensemble technique, the XGBoost algorithm, that help to identify fraud on a set of sample companies drawn from the MENA region. The issue of the class imbalance in the dataset is addressed by applying the SMOTE algorithm. We found that XGBoost algorithm outperformed other algorithms in this study: Logistic Regression (LR), Decision Tree (DT), Vector Machine Support (SVM), Adaboost, and RandomForest. The XGBoost algorithm is then optimised to obtain the optimum performance.

scholarly journals THE VALUE OF RESTATEMENT TO FRAUD PREDICTION

2019 ◽  
Vol 20 (6) ◽  
pp. 1210-1237
Author(s):  
Shi Qiu ◽  
Hong-Qu He ◽  
Yuan-sheng Luo
Keyword(s):  
Balance Sheet ◽  
Financial Statements ◽  
Primary Objective ◽  
Financial Statement ◽  
Financial Statement Fraud ◽  
Financial Reports ◽  
Financial Report ◽  
Financial Restatements ◽  
Fraud Prediction ◽  
Different Characteristics

A financial report restatement reflects errors in the previous financial statement, and thus it increases investors’ doubt about the credibility of the financial statement. The primary objective of this paper is to examine whether restatement announcements imply increased fraud risks in Chinese firms in the context that up to one quarter of listed companies have restated their financial reports in China, and explore the implications of the content, severity and reasons for restatements with respect to fraud. In this paper, firms with financial restatements prove to be more likely to be labeled as fraudulent by regulators in China. Second, the following results also are revealed: (1) financial statements, except balance sheet restatements, provide insights into the revelation of fraudulent behaviors, (2) the severity of restatements is positively correlated with future fraud disclosures, and (3) restatements due to negligence are positively correlated with future fraud occurrences. These results imply that restatement announcements and their different characteristics provide important information for detecting financial statement fraud.

Misrepresentation of financial statements

2014 ◽  
Vol 21 (2) ◽  
pp. 215-225 ◽  
Author(s):  
Cenap Ilter
Keyword(s):  
Design Methodology ◽  
Financial Analysis ◽  
Balance Sheet ◽  
Financial Statements ◽  
Financial Statement ◽  
Accounting Fraud ◽  
Financial Statement Fraud ◽  
Content Type ◽  
The Public ◽  
Fraud Theory

Purpose – The purpose of this paper is to show the public, in general, and auditors, in particular, that in the absence of control there is always a risk of fraud. Fraud can be done in various forms. Larceny may be the most obvious case of fraud, but fraud may be done in many other ways too. Balance sheet fraud or financial statements fraud is a broader issue; it is far-fetched than a few hundred dollars of a larceny case. In financial statement fraud, the deep down effect may be millions or billions of dollars. Design/methodology/approach – The paper has been designed based on a fraud theory. The author has observed the implications of a possible fraud in a real audit case. The fraud theory has been tested through financial analysis and audit tests. The theory has then been revised and the existence of a financial statement fraud has been proven. Findings – The paper explores that banks and group companies controlled by unreliable owners can lead to misuse of public's funds in accordance with the directives of the owner. Public's money can be transferred to other group companies in an illegal manner – in excessive amounts – and never returned to the bank by means of applying different accounting fraud techniques. Research limitations/implications – Auditors, who may audit group companies that include a bank or banks with deposit receiving and lending rights, should pay attention to the transactions between the group's bank and the other group companies. The lending may be excessive in amount and/or never paid back and the financial statements would be misrepresented covering various fraud schemes. Originality/value – The case that the paper deals with reflects the author's own audit experiences. The names of the companies have been changed but not the essence of the events. From this perspective, it sheds light onto the path of an auditor who happens to be in a similar situation.

scholarly journals Measurement of Creative Accounting by Transparency and Disclosure Index (TDI) Method in Automobile Industry

2021 ◽  
Vol 66 (3) ◽  
pp. 381-396
Author(s):  
Ervin Denich ◽  
Dániel Hajdu
Keyword(s):  
Corporate Governance ◽  
Automobile Industry ◽  
Corporate Structure ◽  
Related Information ◽  
Creative Accounting ◽  
Accounting Scandals ◽  
Financial Performance Measures ◽  
Transparency And Disclosure ◽  
The Relationship ◽  
A Company

Investigation of relationship between corporate governance and creative accounting came to the front after some accounting scandals (like Enron, WorldCom or Satyam). Corporate governance is an actual topic to discuss due to the its correlation to creative accounting. Application of creative accounting techniques might suggest some weaknesses of a company. In this study we investigate the relationship between corporate governance and creative accounting by applying Transparency and Disclosure Index (TDI) method, which enables to evaluate corporate structure, transparency of operation and disclosure of company related information, based on publicly available data. Then, in order to measure the accounting manipulation, we analyse financial performance measures. Furthermore, we perform a correlation analysis to assess the strength of relationship between corporate governance and creative accounting. As a conclusion, we are able to describe a medium negative correlation between the two aspects under investigation.

scholarly journals DETECTING OF BOND DEFAULTS INDICATIONS USING FINANCIAL STATEMENT AND SHENANIGANS INDICATORS

2021 ◽  
Vol 5 (02) ◽  
pp. 69
Author(s):  
Arya Wedha Rieantiari ◽  
Ancella Anitawati Hermawan
Keyword(s):  
Financial Statements ◽  
Financial Statement ◽  
Annual Reports ◽  
Financial Indicators ◽  
Financial Report ◽  
Creative Accounting ◽  
Big 4 ◽  
Report Data ◽  
Investment Grade

<em>This study aims to detect indications of bond defaults by conducting a thorough analysis of PT Trikomsel Oke, Tbk (TRIO)'s financial statements. TRIO's financial statements show that the company's revenue and profits increased during 2009-2014. However, the Indonesia rating agency (PEFINDO) declared default on the two bonds issued by TRIO in November 2015, even though the signal TRIO gave to its financial statements was an unqualified opinion from one of the big 4 Public Accountants for six consecutive years and PEFINDO's investment grade. This study uses a case study method.. Financial report data are analyzed by financial ratios and financial indicators of shenanigans. Evidence shows that there are indications of creative accounting and shenanigans before bonds were declared defaulted in 2015. With these results, this study suggests investors and creditors be more vigilant in analyzing published annual reports</em>

scholarly journals DETECTING FINANCIAL STATEMENTS FRAUD IN SELECTED PHARMACEUTICAL COMPANIES IN INDIA

2020 ◽  
pp. 1-4
Author(s):  
Chetana R. Marvadi
Keyword(s):  
Earnings Quality ◽  
Fraud Detection ◽  
Financial Statements ◽  
Business Environment ◽  
Lessons Learned ◽  
Financial Statement ◽  
Pharmaceutical Companies ◽  
Financial Statement Fraud ◽  
Creative Accounting ◽  
The Common

In the business environment, rms are expected to disclose accurate and reliable nancial information. Financial statement fraud is actions which are taken to intentionally distort a company's reported nancial performance. Major corporate nancial statement Frauds get away in the name of creative accounting. But, they need to be studied for lessons learned and strategies to avoid or reduce the incidence of such frauds in the future. It is essential for shareholders, particularly the common man who does not have any access to the company except reported nancial numbers. This research paper attempts to detect the practices of nancial statement fraud in the Pharmaceutical Sector in India for investors' interest using Earnings quality, De Angelo and Beneish models of fraud detection. The result conrms the presence of nancial statement fraud in the companies under study. It is therefore expected that the study will help to improves investor's belief of a company's performance, as reected in their nancial numbers.

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