Accounting Ratios and False Financial Statements Detection: Evidence From Nigerian Quoted Companies

Abstract

The broad objective of the study was to investigate accounting ratios and false financial statements detection. The study was a descriptive survey in design. This study employed pooled data from firms listed in the Nigerian Exchange Group PLC, covering a period of 5 years (2017- 2021). A total of 239 firms quoted on the Nigerian Exchange constituted the population of the study. The study relied on secondary data. Historical data were obtained from the annual financial reports of accounts of 10 purposively sampled service sector firms. Data obtained were analysed using descriptive statistics, Pearson correlation and Pooled Data Binary logit regression analysis. The findings of the study revealed that profitability has a positive relationship with false Financial Statement detection. However, profitability and leverage ratios do not significantly relate to the probability of Financial Statement fraud occurrence. Based on the findings, it was recommended that the firm’s financial managers should note with caution, the negative relationship between financial ratios and the firm’s profitability. Hence, if the purpose of financial management is to improve fraudulent detection, then such efforts must be improved in using financial ratios to detect fraudulent financial reporting.