Application of Chosen Fraudulent Detection Technique in the Slovak Business Environment

Katarina Kramarova,Katarina Valaskova,T Kliestik

doi:10.1051/shsconf/20207401019

Abstract

The paper analyses the possibility of applying chosen fraudulent detection technique in the condition of Slovakia and then evaluates its explanatory power. The authors based on the idea that in addition to positive effects of globalization, negative effects on the activity of economic entities are also manifestations of this process. As the society has become more dependent on information technologies, increased globalisation and greater interconnectedness, certain exposure to negatives has expanded right along with them. One of this negative effect is clearly a financial crime of various type, including fraudulent financial reporting. The financial statements should “describe” factually and truthfully the financial and economic health of a company because it is the main sources of information for various type of stakeholders. Handling of it (considering in the context of financial crime) is primary the responsibility of owners or managers (provided the separation of the ownership structure from the management structure). Reasons for doing so are different. Their common denominator is the artificial creation of information asymmetry to obtain different “benefits”. It is therefore logical that the need for constructing techniques that would reveal an unacceptable legal action by a company in a financial reporting process is at the forefront.

Highlights

Fraudulent financial reporting has increased in frequency in last two decades and usually occurs in the form of deliberate falsification of the financial statements in order to obtain some form of benefits
The results of the analysis show that companies, which committed financial statement fraud had low asset quality and gross margin ratio and were highly leveraged. [17 – 21]
The highest volatility we identified in the case of the Asset Quality Index (AQI) (1.5706; enamours changes in the periods 2013/2012 and 2014/2015), which is a ratio that measures changes in the structure of assets taking into account other than current assets and non-current assets, in this case namely plant, property and equipment

Summary

Introduction

Fraudulent financial reporting has increased in frequency in last two decades and usually occurs in the form of deliberate falsification of the financial statements in order to obtain some form of benefits. On Accounting as amended and on amendments of some act (Section 17 (1)), the financial statements is “structure presentations of facts representing the subject of accounting, made available to persons who use such information (in this Act referred to as “users”)”. Kováčová – Rowland consider a deliberate falsification of the financial statements to be the highest form of fraudulent financial reporting. They distinguish its two other “lighter forms” – creative accounting that moves within the existing legislative framework or exploits its weaknesses and unintentional errors in accounting mirroring in the financial statements. Wells considers fraudulent financial reporting, asset misappropriation and corruption the highest level of fraud tree. [11, 12] Reasons behind fraudulent financial reporting are different, e.g. bias wrecker of tax duties (management/owner), increasing the value of a company (management/owner), gaining more favourable conditions of debt financing (management/owner), gaining grants (manager/owners), deceiving business partners (e.g. suppliers/buyers, insurance companies), existing and potential investors (management/owner), rewards based on financial results of a company (management/employees), conceal losses and stolen property (managements/employees)

Objectives

Methods

Results

Conclusion