Testing Financial Statement Fraud: Perspective of the M-Score Model in Nigeria and South Africa

Abstract

In the past several years, financial statements fraud has cost market participants huge sum of loss and it has eroded market participants confidence in the audit financial report of organisations. This study therefore, examined the determinants of financial statement fraud in Nigeria and South Africa. The study specifically focus on firm size, leverage, board independence, institutional ownership, firm profitability and capital structure. The population of the study comprised 510 quoted non-financial companies in the Nigeria Stock Exchange and Johannesburg Stock Exchange for the periods 2012 to 2018. A sample size of 70 was selected using random sampling techniques. The data collected were analysed using descriptive statistics and robust least square regression analysis. It was observed from the descriptive statistics that there is presence of financial statement fraud reporting among the quoted non-financial companies in Nigeria and South Africa. The results revealed that firm size was statistically significant in Nigeria and South Africa, leverage was statistically insignificant in Nigeria and South Africa, board independence was statistically significant in Nigeria but insignificant in South Africa, institutional ownership was statistically significant in Nigeria and insignificant in South Africa, firm profitability was statistically significant in South Africa but insignificant in Nigeria while capital structure was statistically insignificant in Nigeria and South Africa. The study recommended that the results have direct implications for further improvement of firm size, board independence, institutional investors and capital structure.