（2004）Improving Fraud Risk Assessments through Analytical Procedures.pdfVIP

Improving Fraud Risk Assessments through Analytical Procedures Keith Jones Department of Accounting George Mason University September 2004 Comments welcome ____________________ appreciate the helpful comments and suggestions of my dissertation committee Leslie Eldenburg, William Felix (Chair), and Jeff Schatzberg and the comments of Mark Zimbelman. also appreciate all the helpful comments and support from the entire accounting department at the University of Arizona. Abstract This study incorporates concepts from accounting and criminology literatures to develop a model of financial statement variables that provides researchers and auditors with information about the likelihood of fraudulent financial reporting. This study is also one of the first to test whether the predictive ability of fraud indicators has changed over time. Game theory suggests that if fraud firms consistently manifest similar characteristics then auditors will identify those fraud indicators and react to them. The results show that accruals, market value of equity, and lack of a Big Four auditor are the most influential fraud risk indicators. Fraud firms generally have higher abnormal market returns in the year of the fraud and higher market value of equity compared to nonfraud firms. While the lack of a Big Four auditor was not significant in the 1970’s and 1980’s, it was significant in the 1990’s. Fraud firms in the 1970’s and 1980’s appear to have more debt relative to the industry and are less profitable. Fraud firms in the 1990 ’s appear to be more profitable relative to the industry and do not have more debt. This finding may be due to more stock options and other performance-based incentives in the 1990’s and a greater emphasis on be