Presenting the Developed Model of Fraud Prediction Considering Financial Reporting Quality and Audit Quality Criteria

Document Type : Research Paper

Authors

1 Ph.D Student in Accounting, Department of Accounting, Faculty of Management, North Tehran Branch, Islamic Azad University, Tehran, Iran

2 Assistant Professor in Accounting, Department of Accounting & Auditing, Faculty of Management, North Tehran Branch, Islamic Azad University, Tehran, Iran

3 Assistant professor, Department of Accounting, Faculty of Management, North Tehran Branch, Islamic Azad University, Tehran, Iran

Abstract

 
It is often hard to accurately estimate the cost of fraud, as many acts of fraud and abuse were not detected and undisclosed cases. The purpose of this study is to present an extended model of fraud forecasting by focusing on financial reporting quality and audit quality in Tehran Stock Exchange listed firms.
 
 
Research Questions or hypothesis
 
Hypothesis 1: The accuracy of estimating fraud likelihood based on the Benish's initial and adjusted model and Kurdestani & Tatli's developed model, is different depending on the desired portfolios.
Hypothesis 2: There is a significant difference between the accuracy of the developed current research model and other native and non-native models in predicting the fraud likelihood.
 
 
Methods
 
Statistical analyses include 104 firms which were listed in Tehran Securities & Exchange over the period 2010 to 2022. In this study, earnings manipulation indicators have been used to detect fraud and determine fraudulent and non-fraudulent firms using five indicators consisting of total accruals, discretionary accruals, earnings smoothing in three levels such as gross profit, operating profit and net profit. Furthermore, some factors such as financial reporting quality, audit quality, fraud triangle and the role of fraud whistleblowers based on corporate governance index used to predict the likelihood of fraud, resulting in development of a fraud detection model.
 
 
Results
 
Findings indicate that the accuracy of the Benish's initial model is higher than the Benish's developed model and the Kurdestani & Tatli's developed model; and using variables such as audit quality, disclosure, fraud triangle and internal auditing can lead to an accurate model regarding Iran’s economic environment.
 
 
Conclusion
 
According to the findings, some variables such as audit quality, voluntary disclosure, the control test score in audit institute and internal audit are the most important factors affecting the fraud detection. Also, Beneish's model and other modified models should be adapted to the prevailing market environment and economic cycle and the affective factors should be considered in developing such models.
 
 

Keywords

References

 
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History

  • Receive Date: 23 November 2022
  • Revise Date: 01 July 2023
  • Accept Date: 24 June 2023

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