Contemporaneous Risk Factors and the Prediction of Financial Statement Fraud

Abstract:     
This study identifies the contemporaneous risk factors empirically related to financial statement fraud. Extant research identifies a number of individual factors related to fraud in various settings. In this study we examine an array of potential fraud risk factors in order to identify a comprehensive set of coexistent factors that are consistently linked to the incidence of financial statement fraud. Further, using the identified fraud risk factors, we construct a robust fraud prediction model. The analysis yields a number of significant factors related to pressure and opportunity. Using the significant fraud risk factors we then construct a fraud prediction model. The model correctly classifies fraud and no-fraud firms approximately 69.77 percent of the time, a substantial improvement over other fraud prediction models.

Number of Pages in PDF File: 42

Keywords: Fraud prediction, fraud detection, risk factors, SAS No. 99

JEL Classification: M41, M49, M43, G34

working papers series