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Framework for Detecting Risk of Financial StatementFraud: Mapping the Fraudulent Environment

Author

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  • Fernando Dal-Ri Murcia

    (University of São Paulo)

  • José Alonso Borba

    (Federal University of Santa Catarina)

Abstract

The theme of financial statement fraud is still incipient in the Brazilian academic literature. This work seeks to contribute in this area by constructing a framework of red flags to detect such fraud. To establish this framework, we consulted various sources of information, including academic journals, dissertations, books and pronouncements from regulatory bodies. Based on this analysis, we selected six works to form the framework proposed: the American Institute of Certified Public Accountants (2002), Conselho Federal de Contabilidade (1999), Albrecht and Romney (1986), Eining, Jones and Loebbecke, (1997), Bell and Carcello (2000) and Wells (2005). Together, these works present a total of 266 red flags. As a criterion, we only selected the red flags mentioned by at least two sources, leaving 45 red flags, which we divided into six clusters: internal structure or environment, sector/industry, management, financial situation, accounting reports and auditing services. In general, the formulation of this framework permitted the identification of risk factors found in fraudulent environments.

Suggested Citation

  • Fernando Dal-Ri Murcia & José Alonso Borba, 2007. "Framework for Detecting Risk of Financial StatementFraud: Mapping the Fraudulent Environment," Brazilian Business Review, Fucape Business School, vol. 4(3), pages 162-177, September.
    • Handle: RePEc:bbz:fcpbbr:v:4:y:2007:i:3:p:162-177
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    References listed on IDEAS

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    1. Zimbelman, MF, 1997. "The effects of SAS no. 82 on auditors' attention to fraud risk factors and audit planning decisions," Journal of Accounting Research, Wiley Blackwell, vol. 35, pages 75-97.
    2. Ball, R & Brown, P, 1968. "Empirical Evaluation Of Accounting Income Numbers," Journal of Accounting Research, Wiley Blackwell, vol. 6(2), pages 159-178.
    3. Knapp, Carol A. & Knapp, Michael C., 2001. "The effects of experience and explicit fraud risk assessment in detecting fraud with analytical procedures," Accounting, Organizations and Society, Elsevier, vol. 26(1), pages 25-37, January.
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    Cited by:

    1. Iavor Bachev, 2019. "Combating Financial Statement Fraud – an Analysis and Model for the Republic of Bulgaria," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 3, pages 42-71.

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