Fraudulent financial reporting and related party transactions

Abstract

The study assessed the possibility of accounting fraud among Zambian listed companies with a focus on the mining sector and the relationship between related party transactions (RPTs) and financial statement manipulation (FSM). The financial statements (2012 to 2020) of listed companies were analysed to detect accounting fraud using the M-score and the Z-score. Descriptive statistics were used to explain the extent of FSM. The Chi-Square test of independence was employed to test the relationship between FSM and RPTs. Both the Z-Score and M-Score indicate that the mining companies were possibly involved in FSM. There is a relationship between the FSM and RPTs. The Total Accruals to Total Assets, Days in Sales in Receivables Index and Sales Growth Index show that revenue and profits were the most manipulated. The RPTs disclosures were the lowest for mining companies. Relevant authorities should not neglect FSM as a form of fraud despite the routine external audit of financial statements. There is the potential loss of tax revenue through accounting fraud.