Characteristics of companies with a higher risk of financial statement fraud: A survey of the literature

Abstract

E du Toit Department of Financial ManagementUniversity of Pretoria Lynnwood road, Hillcrest, Pretoria, South Africa, 0002 E-mail: elda.dutoit@up.ac.zaFraud and corruption in companies is a serious problem in this day and age. One only needs to think of Enron, Parmalat and Macmed. Companies are constantly identifying new and ingenious ways to defraud their customers, investors, the governrnent and others.For this reason it is important for stakeholders with an interest in a company to devise ways of detecting and identifying fraud to protect their interests. Managers are primarily responsible for the prevention and detection of financial statement fraud. However, they may be the primary perpetrators of fraud. The responsibility to detect and identify financial statement fraud should also not rest solely with the auditors, as they cannot be expected to provide absolute assurance that all material misstatements are detected and identified.This research set out to find whether there are any characteristics and behavioural aspects in a company by means of which accounting risk and possible financial statement fraud can be detected and identified. Numerous authors gave their insight on the topic in the past, but few came to a clear-cut conclusion of fraud indicators.The article commences with an explanation of financial statement fraud. It further analyses various authors' statements on the characteristics and behaviours displayed by companies with a higher accounting risk and a propensity for financial statement fraud. The study confirmed that there are behavioural characteristics which can identify the risk of financial statement fraud in

Company financial health: Financial statement users’ and compilers’ perceptions

“…The financial statements of a company should hold the potential to reveal the presence of accounting irregularities if one is able to observe the right company characteristics (Du Toit, 2008). Such characteristics may reveal the presence of accounting irregularities that, in turn, affect the financial health of a company and the trustworthiness of its financial statements.…”

Analysis of Income-Creating / Expense Reducing Activities Under Fraudulent Financial Reporting

“…Özet olarak hileli finansal raporlama bir işletmenin kazancının kağıt üzerinde daha iyi görünmesini ya da daha kötü görünmesini sağlamak amacıyla oluşturulan politikalar şeklinde ifade edilebilir (Du Toit, 2008).…”