Fraudulent financial reporting and company characteristics: tax audit evidence

Juahir Mohd-Nor · Norsiah Ahmad · Norman Mohd Saleh

51 citations0/0 files storedJournal of financial reporting & accounting

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Auditing, Earnings Management, Governance Taxation and Compliance Studies Corporate Governance and Financial Management

Abstract

Purpose The purpose of this paper is to examine the relationship between fraudulent financial reporting and firms' characteristics, i.e. size, type of ownership and audit quality in companies audited by the Inland Revenue Board of Malaysia (IRBM) after the implementation of a self assessment system in Malaysia. Design/methodology/approach The paper employs an empirical research design, using data on companies audited by IRBM. The hypotheses of the study are tested using both univariate and multivariate statistical methods. Findings It was found that company size and audit quality have significant negative relationships with fraudulent financial reporting. Research limitations/implications The sample of companies used in this study is unlisted companies and the results are not generalisable to listed companies. Listed companies may have more stringent rules for listing and have better corporate governance mechanisms within the company as control. Practical implications The paper's findings may assist IRBM in identifying possible cases for audit in the future. Originality/value The paper describes the first empirical study that uses real tax cases where the non‐compliance with the Malaysian statues and tax laws are used as the measurement of the fraudulent financial reporting.

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References

1988Management ownership and market valuation 2000Investor protection and corporate governance 1981Auditor size and audit quality 1985Positive Accounting Theory 2000The separation of ownership and control in East Asian Corporations 1978Towards a Positive Theory of the Determination of Accounting Standards.1983Taxes and firm size 2003Causes, consequences, and deterence of financial statement fraud

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