Fraud Risk And Audit Quality: the Case of Us Public Firms

• Autorzy: Hela Frikha Chaari , Amel Belanès , Azhaar Lajmi
• Języki publikacji: EN

Abstrakty

EN

The study raises questions about the fraud detection technique and the relevance of audit quality to mitigate fraud. The paper suggests a more comprehensive proxy for fraud risk that relies on the combination of Z-score and Beneish M-score. Basing on Logit, regressions are applied to a sample of 5,613 US-listed public firms. The study reveals that the existence of an internal auditor and independent members within the audit committee would potentially reduce the fraud risk. Hiring a Big external auditor and paying it high fees is also helpful. Findings show that, unlike the firm leverage, both firm profitability and growth opportunities have a negative effect of on fraud risk. Leverage provides a motivation for fraudulent financial reporting. It is important to note that this research underscores the audit's monitoring role to mitigate fraud. Also, the adopted model helps regulators, bankers, managers and auditors to detect fraud at an early stage. So needed action can be taken at suitable time. Finally, in this study, we focus on financially distressed companies rather than those with financial restatements. We suggest a collective tool to predict fraud risk; which is expected to offer a more reliable proxy for fraud risk than do binary models.(original abstract)

Słowa kluczowe

EN

Fraud in the financial statements; Bankruptcy; Audit; Financial reporting

PL

Oszustwa w sprawozdaniach finansowych; Bankructwo; Audyt; Sprawozdawczość finansowa

• Czasopismo: Copernican Journal of Finance & Accounting
• Rocznik: 2022
• Tom: 11
• Numer: nr 1
• Strony: 29--47

Twórcy

autor

Hela Frikha Chaari

• University of Tunis, Tunisia

autor

Amel Belanès

• University of Jeddah, ; University of Tunis, Tunisia

autor

Azhaar Lajmi

• University of Tunis, Tunisia

Bibliografia

• Altman, E.I. (1986). Handbook of corporate finance. New York: John Wiley and Sons.
• Altman, E.I. (1968). Financial ratios, discriminant analysis and the prediction of corporate bankruptcy. The Journal of Finance, 23(4), 589-609. http://dx.doi.org/10.1111/j.1540-6261.1968.tb00843.x.
• Altman, E.I. (2002). Revisiting Credit Scoring Models in a Basel 2 Environment. NYU Working Paper, S-FI-02-11. https://ssrn.com/abstract=1298829.
• American Institute of Certified Public Accountants (AICPA) (2002). Consideration of fraud in a financial statement audit: AU Section 316. New York: AICPA.
• Ammar, A., Shaique, M., & Ul Haq, M.A. (2018). Do Big Four auditors always provide higher audit quality? Evidence from Pakistan. International Journal of Financial Studies, 6(2), 58, 1-22. http://dx.doi.org/10.3390/ijfs6020058.
• Bajra, U., & Cadež, S. (2018). Audit committees and financial reporting quality: The 8th EU Company Law Directive perspective. Economic Systems, 42(1), 151-163. http://dx.doi.org/10.1016/j.ecosys.2017.03.002.
• Beneish, M.D. (1999). The detection of earnings manipulation. Financial Analysts Journal, 55(5), 24-36. http://dx.doi.org/10.2469/faj.v55.n5.2296.
• Beneish, M.D., Lee, C.M.C., & Nichols, D.C. (2012). Fraud Detection and Expected Returns. Financial Accounting eJournal. http://dx.doi.org/10.2139/ssrn.1998387.
• Bilal, B., Chen, S., & Komal, B. (2018). Audit committee financial expertise and earning quality: a meta-analysis. Journal of Business Research, 84, 253-270. http://dx.doi.org/10.1016/j.jbusres.2017.11.048.
• Bryan, D.B., & Mason, T.W. (2016). The influence of earnings management conducted through the use of accretive stock repurchases on audit fees. Advances in Accounting, 34, 99-109. http://dx.doi.org/10.1016/j.adiac.2016.08.001.
• Chen, J., Cumming, D., Hou, W., & Lee, E. (2013). Executive integrity, audit opinion, et fraud in Chinese listed firms. Emerging Markets Review, 15, 72-91. http://dx.doi.org/10.1016/j.ememar.2012.12.003.
• Coram, P., Ferguson, C., & Moroney, R. (2008). Internal audit, alternative internal audit structures et the level of misappropriation of assets fraud. Accounting and Finance Journal, 48(4), 543-559. http://dx.doi.org/10.1111/j.1467-629x.2007.00247.x.
• Dakhlaoui, M., Lajmi, A., & Gana, M. (2017). Financial information quality and cost of equity capital: evidence from Tunisia. Journal of Applied Economics and Business Research, 7(1), 38-58.
• Gullkvist, B., & Jokipii, A. (2013). Perceived importance of red flags across fraud types. Critical Perspectives on Accounting, 24(1), 44-61. http://dx.doi.org/10.1016/j.cpa.2012.01.004.
• Iazzolino, G., Migliano, G., & Gregorace, E. (2013). Evaluating intellectual capital for supporting credit risk assessment: An empirical study. Investment Management and Financial Innovations, 10(2), 44-54.
• Jacob, J., Desai, N.K., & Agarwalla, S. (2018). An Examination of Factors Driving Big Four Audit Fee Premiums: Evidence from India's Audit Market. Accounting Horizons, 33(2), 43-58. http://dx.doi.org/10.2308/acch-52347.
• Jensen, M., & Meckling, W. (1976). A theory of the firm: managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3, 305-360. http://dx.doi.org/10.1016/0304-405X(76)90026-X.
• Lajmi, A., & Gana, M. (2013). Audit committee and external audit quality: substitution or complementarity? Empirical evidence on Euronext Brussels. International Journal of Financial Management Research and Development, 3(2), 22-38.
• Lajmi, A., & Yab, M. (2021). The impact of internal corporate governance mechanisms on audit report lag: evidence from Tunisian listed companies. Euro Med Journal of Business. http://dx.doi.org/10.1108/EMJB-05-2021-0070.
• Lajmi, A., Khiari, W., & Ouertani, O. (2021). Legal audit quality and fraud risk: the case of Tunisian listed companies. International Journal of Accounting and Finance Review, 6(2), 1-15. http://dx.doi.org/10.46281/ijafr.v6i2.1039.
• Li, B., & Ma, C. (2018). Can audit fees inhibit accounting misstatements? Moderating effects of auditor reputation from Chinese experience. Asia-pacific Journal of Accounting and Economics, 1-20. http://dx.doi.org/10.1080/16081625.2018.1475243.
• Mironiuc, M., & Robu, I.B. (2012). Empirical study on the analysis of the influence of the audit fees and non-audit fees ratio to the fraud risk. Procedia-Social and Behavioral Sciences, 62, 179-183. http://dx.doi.org/10.1016/j.sbspro.2012.09.028.
• Neffati, E., Khiari, W., & Lajmi, A. (2021). Corporate governance and post-merger performance: Evidence from US banks. Copernican Journal of Finance and Accounting, 9(3), 99-113. http://dx.doi.org/10.12775/CJFA.2020.014.
• Ozcelik, H. (2020). An analysis of fraudulent financial reporting using the fraud diamond theory perspective: an empirical study on the manufacturing sector companies listed on the Borsa Instanbul. Contemporary Issues in Audit Management and Forensic Accounting, 102, 131-153. http://dx.doi.org/10.1108/S1569-375920200000102012.
• Petrascu, D., & Tieanu, A. (2014). The role of internal audit in fraud prevention and detection. Procedia Economics and Finance, 16, 489-497. http://dx.doi.org/10.1016/S2212-5671(14)00829-6.
• Poretti, C., Schatt, A., & Bruynseels, L. (2018). Audit committees' independence and the information content of earnings announcements in Western Europe. Journal of Accounting Literature, 40(1), 29-53. http://dx.doi.org/10.1016/j.acclit.2017.11.002.
• Rainsbury, E.A., Bradbury, M., & Cahan, S.F. (2009). The impact of audit committee quality on financial reporting quality and audit fees. Journal of Contemporary Accounting and Economics, 5(1), 20-33. http://dx.doi.org/10.1016/j.jcae.2009.03.002.
• Rezaee, Z. (2005). Causes, consequences, and deterrence of financial statement fraud. Critical Perspectives on Accounting, 16(3), 277-298. http://dx.doi.org/10.1016/S1045-2354(03)00072-8.
• Roshayani, A., Sharinah, M.I., & Normah, O. (2015). Prediction of Business Failure and Fraudulent Financial Reporting: Evidence from Malaysia. Indian Journal of Corporate Governance, 8(1), 34-53. http://dx.doi.org/10.1177/0974686215574424.
• Saheed, D.O., Ajibola, I.M., & Adedoyin, L. (2021). Efficacity of audit fee on audit quality of selected pharmaceutical firms in Nigeria. Copernican Journal of Finance & Accounting, 10(1), 53-66. http://dx.doi.org/10.12775/CJFA.2021.003.
• Sanusi, Z.M., & Mohamed, N. (2015). Effects of internal controls, fraud motives and experience in assessing the likelihood of fraud risk. Journal of Economics Business and Management, 3(2), 194-200. http://dx.doi.org/10.7763/JOEBM.2015.V3.179.
• Zager, L., Malis, S.S., & Novak, A. (2016). The role and responsibility of auditors in prevention and detection of fraudulent financial reporting. Procedia Economics and Finance, 39, 693-700. http://dx.doi.org/10.1016/S2212-5671.
• Zalata, A.M., Tauringana, V., & Tingbani, I. (2018). Audit committee financial expertise, gender, and earnings management: Does the gender of the financial expert matter? International Review of Financial Analysis, 55, 170-183. http://dx.doi.org/10.1016/j.irfa.2017.11.002.
• Zeng, H., Yang, L., & Shi, J. (2020). Does the supervisory ability of internal audit executives affect the occurrence of corporate fraud? Evidence from small and mediumsized listed enterprises in China. International Journal of Accounting & Information Management, 29(1), 1-26. http://dx.doi.org/10.1108/IJAIM-02-2020-0020.

Identyfikatory

DOI

10.12775/CJFA.2022.002