Identifying fraud using restatement information

DOIhttps://doi.org/10.1108/JFC-07-2016-0046
Date02 October 2017
Published date02 October 2017
Pages620-627
AuthorNourhene BenYoussef,Saqib Khan
Subject MatterAccounting & Finance,Financial risk/company failure,Financial crime
Identifying fraud using
restatement information
Nourhene BenYoussef and Saqib Khan
Faculty of Business Administration, University of Regina, Saskatchew an, Canada
Abstract
Purpose The purposeof this paper is to analyzethe restatement information disclosed in the Form 8K and
the Press Release. It examines the relationship between manipulating the quantity, quality, manner and
timing of restatementinformation and the probability of committing fraud.
Design/methodology/approach The authors used 18 informational indicators developedbyBenYoussef
andBreton(2016),and applied the prediction methodology basedonF-scores,developedbyDechowet al.(2011).
Findings Results indicate that the information content of restatement announcements provides signicant
insights into the likelihood of fraud occurrence. A rm that manipulated previous earnings will continue to do so,
and will try to mislead investors by releasing inaccurate and incomplete information in the Form 8K and the Press
Release. The model helps identify this manipulation and hence can be used as a tool for fraud detection.
Research implications/limitations This paper applies the constructs drawn from Information
ManipulationTheory to restatement contexts to detect fraud.
Practical implications The paper is of use to regulators, investors and nancial crime experts, as it
providesinsights to better fraud detection.
Originality/value The paper is based on proprietary data thatwere hand collected, and is being used
rst time to predictfraud.
Keywords Fraud, Accounting restatement, Form 8K, Informational properties, Press release
Paper type Research paper
1. Introduction
This study analyzes the restatement information disclosed in the Form 8K and the Press
Release (8K_PR) to detect fraudulent restatement. It examines the relationship between
manipulating the quantity, quality,manner and timing of restatement information released
on the 8K_PR, and the probability to commit fraud. Particularly, we employ the 18
informational indictors developed by BenYoussef and Breton (2016) to predict fraudulent
restatement, and apply the approachof Dechow et al. (2011) that uses the F-score prediction.
Using a proprietary hand-collected data set comprising 254 observations, the results of our
analysis indicate that the information content of restatement announcements (RAs) provides
signicant insights into the likelihood of fraud occurrence. A rm that manipulated previous
earnings will continue to do so, and will try to mislead investors by releasing inaccurate and
incomplete information in the 8K_PR. Our model helps identify this manipulation and hence
can be used as a tool for fraud detection.
This study extends the previous literature on fraud detection. While prior studies
employed corporate governance variables (Shi et al., 2016;Soltani, 2014;Chen et al., 2006;
Agrawal and Chadha, 2006,Summers and Sweeney, 1998,Beasley, 1996;Beasley et al.,
2000), market-related variables (Beneish, 1999;Dechow et al.,1995), non-nancial variables
(Dechow et al., 2011;Brazel et al.,2009) and off-balance sheet variables (Dechow et al., 2011),
The research was partly funded by the University of Regina, Faculty of Business Deans Research Grant.
JFC
24,4
620
Journalof Financial Crime
Vol.24 No. 4, 2017
pp. 620-627
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-07-2016-0046
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1359-0790.htm

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