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An International Meeting of American Accounting
Association
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What Can Nonfinancial Measures Tell Us About the Likelihood of Fraud? |
Joe Brazel
North Carolina State University
Keith L. Jones
George Mason University
Mark F. Zimbelman
Brigham Young University
Abstract: This study examines whether auditors can effectively use nonfinancial measures (NFMs) in their assessment of fraud risk. Given that auditors can identify NFMs (e.g., facilities growth) that are positively correlated with financial measures (e.g., revenue growth) and NFMs are less easily manipulated by fraud perpetrators than financial statements, inconsistencies between NFMs and financial performance measures may be indicative of higher fraud risk. We find that the differences between NFMs and financial measures are significantly greater for fraud firms than their non-fraud competitors. We also find these inconsistencies between NFMs and financial measures appear to be a significant fraud indicator when included in a model 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 NFMs in their analyses of fraud.