Fraud Risk Management from the Perspective of CFEBT Risk Triangle of Accounting Errors and Frauds

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The objective of the present contribution is to evaluate the risk of the impact of accounting errors and frauds on reported accounting records on the basis of the CFEBT risk triangle of accounting errors and frauds. The analysis is conducted in the framework of a case study that examines a selected accounting unit predominantly operating in trade, with respect to financial statements reported during the years 2011–2015. The evaluation of the risk of impacts of accounting errors and frauds forms a part of one of the three vertices of the CFEBT risk triangle. The contribution presents results of the CFEBT approach at three levels of the M‑score and analyses significant discrepancies between the generation of earnings and increase in cash flow during the observed periods. The CFEBT risk triangle was designed as a tool for detection, evaluation and management of the risk of accounting errors and frauds in circumstances of the Czech accounting standards and International Financial Reporting Standards (IFRS). The essential aim of the triangle is to reduce information asymmetry between authors and users of accounting records, or, in other words, to increase the quality of available information with respect to decision‑making on the basis of available accounting information.