Abstract

http://ssrn.com/abstract=1546675
 
 

References (79)



 
 

Citations (16)



 


 



Detecting and Predicting Accounting Irregularities: A Comparison of Commercial and Academic Risk Measures


Richard A. Price III


Utah State University - Huntsman School of Business

Nathan Y. Sharp


Texas A&M University - Department of Accounting

David A. Wood


Brigham Young University - School of Accountancy

June 2011


Abstract:     
Although a substantial body of academic research is devoted to developing and testing risk proxies that detect accounting irregularities, the academic literature has paid little attention to commercially developed risk measures. This is surprising given the general consensus that academic risk measures have relatively poor construct validity. We compare the commercially developed Accounting and Governance Risk (AGR) and Accounting Risk (AR) measures with academic risk measures to determine which best detects financial misstatements that result in Securities and Exchange Commission enforcement actions, egregious accounting restatements, and shareholder lawsuits related to accounting improprieties. We find that the commercially developed risk measures outperform the academic risk measures in all head-to-head tests for detecting misstatements. The commercial measures also perform as well as or better than the academic measures in new tests that predict future accounting irregularities using numbers reported one year before the misreporting even begins. Our results suggest commercially developed risk proxies may be useful to practitioners and academics trying to detect or predict accounting irregularities.

Number of Pages in PDF File: 43

Keywords: accounting irregularities, detecting fraud, predicting fraud, risk measures, commercial risk ratings

JEL Classification: M41, G30, K22

working papers series





Download This Paper

Date posted: February 2, 2010 ; Last revised: June 4, 2011

Suggested Citation

Price, Richard A. and Sharp, Nathan Y. and Wood, David A., Detecting and Predicting Accounting Irregularities: A Comparison of Commercial and Academic Risk Measures (June 2011). Available at SSRN: http://ssrn.com/abstract=1546675 or http://dx.doi.org/10.2139/ssrn.1546675

Contact Information

Richard A. Price III
Utah State University - Huntsman School of Business ( email )
3500 Old Main Hill
Logan, UT 84322-3500
United States
435-797-8352 (Phone)
435-797-1475 (Fax)
HOME PAGE: http://richardp.bus.usu.edu
Nathan Y. Sharp (Contact Author)
Texas A&M University (TAMU) - Department of Accounting ( email )
430 Wehner
College Station, TX 77843-4353
United States
979-845-0338 (Phone)

David A. Wood
Brigham Young University - School of Accountancy ( email )
529 TNRB
Brigham Young University
Provo, UT 84602
United States
801-422-8642 (Phone)
801-422-0621 (Fax)
HOME PAGE: http://marriottschool.byu.edu/employee/employee.cfm?emp=daw44
Feedback to SSRN


Paper statistics
Abstract Views: 6,104
Downloads: 1,319
Download Rank: 7,451
References:  79
Citations:  16

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo2 in 0.328 seconds