NDLI: What Can Nonfinancial Performance Measures Tell Us About the Likelihood of Fraud ?

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What Can Nonfinancial Performance Measures Tell Us About the Likelihood of Fraud ?

Content Provider	Semantic Scholar
Author	Brazel, Joe
Copyright Year	2005
Abstract	For audit firms, failing to detect fraud at their clients is usually accompanied by substantial monetary penalties and/or negative publicity for the audit firm. Thus, the profession has re-evaluated its fraud assessment processes and has attempted to find new ways in which material misstatements due to fraud can be identified. A factor or an analysis which can improve auditors' fraud risk assessments could simultaneously enhance audit quality and reduce auditor liability substantially. The purpose of this study is to empirically examine whether auditors can effectively use nonfinancial performance measures (NFPMs) in their analyses of fraud. Given that auditors can identify NFPMs (e.g., facilities growth) that are positively correlated with financial measures (e.g., revenue growth) and NFPMs are less easily manipulated by fraud perpetrators than financial statements, inconsistencies between NFPMs and financial performance measures may be indicative of higher fraud risk. We find that the differences between NFPMs and financial measures are significantly greater for fraud firms than their competitors (non-fraud firms). In short, for fraud-firms, NFPMs did not support the growth communicated by their financial statements. We also find these inconsistencies between NFPMs and financial measures appear to be a significant fraud indicator when included in models containing financial measures that have been previously linked to the likelihood of fraud. Therefore, our results empirically show that auditors may benefit from considering factors outside of the financial statements and including NFPMs in their analyses of fraud.
File Format	PDF HTM / HTML
Alternate Webpage(s)	http://www4.ncsu.edu/~jfbrazel/MyTeaching/Advanced%20Auditing/Brazel%20et%20al.%202005.pdf
Language	English
Access Restriction	Open
Content Type	Text
Resource Type	Article

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