Financial Statement Fraud: Insights from the Academic Literature

TLDR

The study reviews academic research on financial statement fraud to inform the PCAOB project and provide insights for academics, standard setters, and practitioners. The authors examine firm characteristics, the fraud triangle, auditor detection procedures, fraud risk assessments, and high‑risk areas identified by the PCAOB to explain how fraud occurs and is detected. The review concludes with a synthesis of existing findings and recommends directions for future research on financial statement fraud.

Abstract

SUMMARY: We summarize relevant academic research findings to contribute to the Public Company Accounting Oversight Board (PCAOB) project on financial statement fraud and to offer insights and conclusions relevant to academics, standard setters, and practitioners. We discuss the characteristics of firms committing financial statement fraud, as identified in the literature, and research related to the fraud triangle. We then discuss research related to the procedures and abilities of auditors to detect fraud, and how fraud risk assessments impact audit planning and testing. In addition, we discuss several “high risk” areas and other issues as identified by the PCAOB. Finally, we summarize prior findings and offer conclusions and suggestions for areas where future research is needed.