Framework for Detecting Risk of Financial Statement Fraud: Mapping the Fraudulent Environment

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. [ABSTRACT FROM AUTHOR]; Copyright of Brazilian Business Review (English Edition) is the property of Brazilian Business Review and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)