A Statistical Model of Fraud Risk in Financial Statements. Case for Romania Companies

Andrada-Ioana Sabău (Popa),Ioana Lavinia Safta,Codruța Mare

doi:10.3390/risks9060116

Andrada-Ioana Sabău (Popa), Ioana Lavinia Safta + Show 1 more

Open Access

https://doi.org/10.3390/risks9060116

Copy DOI

Journal: Risks	Publication Date: Jun 10, 2021
Citations: 11	License type: CC BY 4.0

Affiliation: Babeș-Bolyai University

Abstract

Tax avoidance is one of the most frequent reasons for which companies tend to resort to creative accounting techniques. The purpose of the study is to identify which of the eight-variables from the Beneish influences the most or least the outcome of the final score, as a percent, by developing a statistical model. The sample was selected from the Bucharest Stock Exchange and consists of 66 companies traded on the main market, for the years 2015–2019. The results show that from the total of the eight variables, GMI (Gross Margin Index), AQI (Asset Quality Index), DEPI (Depreciation Index) and TATA (Total Accruals to Total Assets) are significantly influencing the probability to commit fraud. The developed model is validated with only 10% of the non-fraud companies being mistakenly considered as fraud based on our model and vice versa.

Highlights

IntroductionThe act of fraud has been practiced since ancient times, when it was expressed in various ways
Statistical Model of Fraud Risk inThe act of fraud has been practiced since ancient times, when it was expressed in various ways
The results show that the variables which significantly influence the probability to commit fraud are: Gross Margin Index (GMI)

Summary

Introduction

The act of fraud has been practiced since ancient times, when it was expressed in various ways. The first definition of it was stated in Hammurabi’s Code, about 1800 years before the new era (Halilbegovic et al 2020). In the literature it is specified that between corporate taxpayers and the taxing authorities is a continuous “war”, and that tax avoidance might be as old as the taxes itself (Ibrahim et al 2013). The actions taken by companies to manipulate the financial statement continues, and the managers and accountants have gotten more and more creative in order to resort to different methods. The fraudulent action is considered to either be detected, or undetected (Mohammad et al.2020). Specialists have developed and are constantly improving the models that can help identify the presence of financial fraud

Objectives

Methods

Results

Conclusion