Article2012

BEYOND THE NUMBERS: MINING THE ANNUAL REPORTS FOR HIDDEN CUES INDICATIVE OF FINANCIAL STATEMENT FRAUD

97 citations0/0 files storedIntelligent systems in accounting, finance and management/Intelligent systems in accounting, finance & management

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Auditing, Earnings Management, Governance Financial Distress and Bankruptcy Prediction Benford’s Law and Fraud Detection

Abstract

SUMMARY Unlike previous fraud detection research, a vast majority of which has focused primarily on the use of quantitative financial information to predict fraud, in this study we examine qualitative textual content in annual reports to predict fraud and see whether there are discernible differences in the writing and presentation style between companies that committed fraud and those that did not. We believe that while numeric financial information in the annual reports can hide details of fraud, textual information relating to writing and presentation styles in such reports provides valuable clues pertaining to the existence of fraud. In this study we use the chi‐square test to analyse our data and test hypotheses about predictors of fraud that may explain linguistic feature variations in fraudulent and nonfraudulent annual reports. We provide new results on the usefulness of the qualitative content of annual reports in detecting fraud. Copyright © 2012 John Wiley & Sons, Ltd.

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References

2007Giving Content to Investor Sentiment: The Role of Media in the Stock Market 1997An Empirical Analysis of the Relation between the Board of Director Composition and Financial Statement Fraud 2008Annual report readability, current earnings, and earnings persistence 2011Predicting Material Accounting Misstatements*2010The Information Content of Forward‐Looking Statements in Corporate Filings—A Naïve Bayesian Machine Learning Approach 1999The Detection of Earnings Manipulation 2009The Effect of Disclosures by Management, Analysts, and Business Press on Cost of Capital, Return Volatility, and Analyst Forecasts: A Study Using Content Analysis 2000The effects of audit committee activity and independence on corporate fraud

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