Current Issue
Volume 13: Issue 1, January—June 2021
Table of Contents
- Improving Professional Skepticism by Altering the Detail of Data in Developing Expectations to Detect Fraudulent Behavior
- Auditor Litigation Risk: A Review of Past Perspectives, Recent Developments, and Emerging Issues
- Examining the Relationship Between Management Fraud and Economic Change
- BP’s Oil Spill, Disastrous Settlement Agreement, and Subsequent Buyer’s Remorse: How Not to Negotiate a Damage Claim
- Using Shell Entities for Money Laundering: Methods, Consequences, and Policy Implications
- Utilizing Methods of Proving Income in Fraud Investigations
- Analysts Promoted to Managing Director and Forecast Accuracy
- Determinants and Consequences of Non-Financial Disclosures in the New Zealand Port Industry
- Toward a Protocol for Tax Data Security
- Auditors’ Perception of the Effectiveness of Fraud Detection Techniques in Stock and Warehousing Cycle: Comparison between Ghana, U.S., and New Zealand
- Protecting the Protected
- Can the Fraud Triangle Explain Fraudulent Financial Statements? Evidence from Japan
- Tax Internship and Ethics: A Case
- Book Reviews
Improving Professional Skepticism by Altering the Detail of Data in Developing Expectations to Detect Fraudulent Behavior | Full Article (PDF)
David Breger
Lisa Breger
Abstract: Recent Public Company Accounting Oversight Board (PCAOB) inspections on substantive analytical procedures find that auditors often over-rely on management explanations and fail to gather and evaluate corroborating evidence. These results are concerning as management may provide an inappropriate explanation to support a fraudulent situation. This study examines how developing an expectation using aggregated vs. disaggregated data impacts the likelihood auditors will exert professional skepticism when receiving an explanation for an unexpected fluctuation. In an experiment involving senior auditors, results indicate that some auditors chose not to gather and evaluate corroborating evidence. However, they are more likely to gather and evaluate corroborating evidence when they used aggregated data in developing the expectation. These results add to an extensive body of literature in identifying methods to increase professional skepticism and prevent and detect fraudulent behavior.
Keywords: Audit; analytical procedures; disaggregation; source credibility; professional skepticism
Back to Top
Auditor Litigation Risk: A Review of Past Perspectives, Recent Developments, and Emerging Issues | Full Article (PDF)
Jillian Alderman
Abstract: This study synthesizes key perspectives and trends in research and practice on the topic of auditor litigation, beginning with the immediate post-SOX era and ending in 2019. Although fears of catastrophic auditor liability in this period have not yet materialized, audit firms may be facing new vulnerabilities. This article provides a summary of emerging concerns for the near future, with a focus on the outcome of recent court cases, SEC enforcement actions, increased litigation and insurance costs, changes in audit reporting standards, technological advancements, and cybersecurity. Future research is suggested to explore these topics.
Keywords: Auditor liability; literature review; fraud detection; internal controls; cybersecurity; Sarbanes-Oxley Act
Back to Top
Examining the Relationship Between Management Fraud and Economic Change | Full Article (PDF)
Brian Patrick Green
Lee Redding
Thomas G. Calderon
Abstract: Some studies report increases in management fraud during economic prosperity while others indicate increases during economic decline. The link between management fraud and macroeconomic activity is significant because current generally accepted auditing standards require auditors to gather evidence to identify and assess the risk of material fraud, but the standards focus on endogenous information that is specific to the client and downplay exogenous data such as aggregate economic risk measures that could affect management’s propensity to perpetrate fraud. In this study, we examine the relationship between changing macro-economic conditions and the frequency and magnitude of management fraud. We further extend prior studies by examining the availability of finance in the credit markets and levels of consumer confidence as possible drivers of such frauds. By examining a relatively large sample of management frauds reported in Securities and Exchange Commission’s (SEC) Accounting and Auditing Enforcement Releases (AAERs), we find that higher corporate profits, good macroeconomic economic conditions, and lower interest rates are significantly associated with increases in the magnitude of frauds. Further, our results show that consumer sentiment is a significant factor in explaining the frequency of both contemporaneous and future fraud incidents. Consistent with existing standards, prior research show that auditors commit more resources to fraud risk assessment during periods of economic decline. Our findings imply that auditors need to be vigilant in their assessment of fraud risk in good times as well as during periods of industry decline as indicated by risk assessment standards in auditing such as SAS No. 109 and AS No. 12.
Keywords: Management fraud; auditing; macro-economic conditions; business cycles; consumer confidence
Back to Top
BP’s Oil Spill, Disastrous Settlement Agreement, and Subsequent Buyer’s Remorse: How Not to Negotiate a Damage Claim | Full Article (PDF)
D. Larry Crumbley
Donald L. Ariail
Abstract: The 2010 explosion in the Gulf of Mexico of British Petroleum’s (BP) Transocean Deepwater Horizon oil rig resulted in the largest accidental marine oil spill disaster in history. By the time the underwater well was capped, approximately 4.9 billion gallons of oil had been spilled, resulting in damage to claimants located mainly in the states of Florida, Alabama, Mississippi, Louisiana, and Texas. After more than ten years, settlements with BP are winding down. However, BP’s original estimate of claimant damages of $7 billion had by 2019 mushroomed to over $67 billion in costs. This article provides a summary of the background and aftermath of this environmental disaster, and the convoluted 2014 settlement agreement negotiated by BP is examined and critiqued. This agreement allowed claimants to substitute proof of loss for proof of causation, which differed in the specific zone in which the claimants were located. In addition, the agreement allowed 12 different claim types. Shortly after signing the agreement, BP tried to renegotiate it, an effort that plaintiff attorneys referred to as “buyers’ remorse.” An explanation is provided of the agreement’s legal framework, which included loss determination using the unusual “V-shaped” revenue pattern. In addition, subsequent court actions by BP, including some cases brought by claimants are summarized. The authors posit that the negative impact of this flawed agreement, which may have looked good initially, could have been foreseen if better use had been made of forensic accountants.
Keywords: British Petroleum; BP; Deepwater Horizon; V-shaped revenue pattern; Deepwater Horizon Economic Claims Center; fraudulent claims; buyer’s remorse; Policy 495
Back to Top
Using Shell Entities for Money Laundering: Methods, Consequences, and Policy Implications | Full Article (PDF)
Carl Pacini
Jerry W. Lin
Gary Patterson
Abstract: This article examines the use and application of shell entities in money laundering and discusses subsequent policy responses. This research provides an overview of different money laundering techniques used to evade detection by international law enforcement, regulators, and forensic accountants. We detail the types and characteristics of shell entities, review actual cases to demonstrate how criminals manipulate shells, outlines ways in which shells disguise beneficial ownership, and analyze policy responses to combat the global abuse of shell entities. This study details how money launderers use different types of shell entities, which frequently involves layering an intricate network to conceal the identity of the beneficial owner. The article also focuses on the different methods used to diminish ownership transparency and enhance concealment of shell entities, which often involves the services of accountants, lawyers, and trust company service providers. The study’s analysis sets forth the reasons money launderers hide trillions of dollars in illicit gains and serve to destabilize the global financial system. The article also explores the attempts by international organizations such as the Financial Action Task Force, G-20, and European Union, to improve ownership transparency and information exchange on shell entities.
Keywords: Money laundering; fraud; ownership transparency; beneficial ownership; shell entity
Back to Top
Utilizing Methods of Proving Income in Fraud Investigations | Full Article (PDF)
Oscar Harvin
Michael Killey
Phebian L. Davis
David Solar
Abstract:This article discusses the benefits of utilizing certain methods of proving income while conducting a fraud investigation. The research informs professionals as well as educators of the various methods of proving income that may be used to supplement the techniques that are typically performed during an investigation of various fraudulent schemes. Performing a fraud audit is a multi-facet activity that may utilize accounting, criminal justice, computer science technology, law, as well as other skills that may allow the accountant to perform a thorough investigation of a potential fraudulent scheme. Utilizing direct and indirect methods of proving income during a fraud audit can be a powerful tool for the accountant whether the investigation is being conducted by a civil organization such as an internal audit department, a forensic accountant, or law enforcement such as a federal law enforcement agency. A direct method uses specific items of proof, and indirect methods of proof also are discussed, including the bank deposit, net-worth, and expenditure methods.
Keywords: Indirect and direct methods; bank deposit method; net worth method; expenditure method; proving income; criminal tax investigation; fraud
Back to Top
Analysts Promoted to Managing Director and Forecast Accuracy | Full Article (PDF)
David Breger
Lisa Breger
Abstract: Recent Public Company Accounting Oversight Board (PCAOB) inspections on substantive analytical procedures find that auditors often over-rely on management explanations and fail to gather and evaluate corroborating evidence. These results are concerning as management may provide an inappropriate explanation to support a fraudulent situation. This study examines how developing an expectation using aggregated vs. disaggregated data impacts the likelihood auditors will exert professional skepticism when receiving an explanation for an unexpected fluctuation. In an experiment involving senior auditors, results indicate that some auditors chose not to gather and evaluate corroborating evidence. However, they are more likely to gather and evaluate corroborating evidence when they used aggregated data in developing the expectation. These results add to an extensive body of literature in identifying methods to increase professional skepticism and prevent and detect fraudulent behavior.
Keywords: Audit; analytical procedures; disaggregation; source credibility; professional skepticism
Back to Top
Jillian Alderman
Abstract: This study synthesizes key perspectives and trends in research and practice on the topic of auditor litigation, beginning with the immediate post-SOX era and ending in 2019. Although fears of catastrophic auditor liability in this period have not yet materialized, audit firms may be facing new vulnerabilities. This article provides a summary of emerging concerns for the near future, with a focus on the outcome of recent court cases, SEC enforcement actions, increased litigation and insurance costs, changes in audit reporting standards, technological advancements, and cybersecurity. Future research is suggested to explore these topics.
Keywords: Auditor liability; literature review; fraud detection; internal controls; cybersecurity; Sarbanes-Oxley Act
Back to Top
Brian Patrick Green
Lee Redding
Thomas G. Calderon
Abstract: Some studies report increases in management fraud during economic prosperity while others indicate increases during economic decline. The link between management fraud and macroeconomic activity is significant because current generally accepted auditing standards require auditors to gather evidence to identify and assess the risk of material fraud, but the standards focus on endogenous information that is specific to the client and downplay exogenous data such as aggregate economic risk measures that could affect management’s propensity to perpetrate fraud. In this study, we examine the relationship between changing macro-economic conditions and the frequency and magnitude of management fraud. We further extend prior studies by examining the availability of finance in the credit markets and levels of consumer confidence as possible drivers of such frauds. By examining a relatively large sample of management frauds reported in Securities and Exchange Commission’s (SEC) Accounting and Auditing Enforcement Releases (AAERs), we find that higher corporate profits, good macroeconomic economic conditions, and lower interest rates are significantly associated with increases in the magnitude of frauds. Further, our results show that consumer sentiment is a significant factor in explaining the frequency of both contemporaneous and future fraud incidents. Consistent with existing standards, prior research show that auditors commit more resources to fraud risk assessment during periods of economic decline. Our findings imply that auditors need to be vigilant in their assessment of fraud risk in good times as well as during periods of industry decline as indicated by risk assessment standards in auditing such as SAS No. 109 and AS No. 12.
Keywords: Management fraud; auditing; macro-economic conditions; business cycles; consumer confidence
Back to Top
D. Larry Crumbley
Donald L. Ariail
Abstract: The 2010 explosion in the Gulf of Mexico of British Petroleum’s (BP) Transocean Deepwater Horizon oil rig resulted in the largest accidental marine oil spill disaster in history. By the time the underwater well was capped, approximately 4.9 billion gallons of oil had been spilled, resulting in damage to claimants located mainly in the states of Florida, Alabama, Mississippi, Louisiana, and Texas. After more than ten years, settlements with BP are winding down. However, BP’s original estimate of claimant damages of $7 billion had by 2019 mushroomed to over $67 billion in costs. This article provides a summary of the background and aftermath of this environmental disaster, and the convoluted 2014 settlement agreement negotiated by BP is examined and critiqued. This agreement allowed claimants to substitute proof of loss for proof of causation, which differed in the specific zone in which the claimants were located. In addition, the agreement allowed 12 different claim types. Shortly after signing the agreement, BP tried to renegotiate it, an effort that plaintiff attorneys referred to as “buyers’ remorse.” An explanation is provided of the agreement’s legal framework, which included loss determination using the unusual “V-shaped” revenue pattern. In addition, subsequent court actions by BP, including some cases brought by claimants are summarized. The authors posit that the negative impact of this flawed agreement, which may have looked good initially, could have been foreseen if better use had been made of forensic accountants.
Keywords: British Petroleum; BP; Deepwater Horizon; V-shaped revenue pattern; Deepwater Horizon Economic Claims Center; fraudulent claims; buyer’s remorse; Policy 495
Back to Top
Carl Pacini
Jerry W. Lin
Gary Patterson
Abstract: This article examines the use and application of shell entities in money laundering and discusses subsequent policy responses. This research provides an overview of different money laundering techniques used to evade detection by international law enforcement, regulators, and forensic accountants. We detail the types and characteristics of shell entities, review actual cases to demonstrate how criminals manipulate shells, outlines ways in which shells disguise beneficial ownership, and analyze policy responses to combat the global abuse of shell entities. This study details how money launderers use different types of shell entities, which frequently involves layering an intricate network to conceal the identity of the beneficial owner. The article also focuses on the different methods used to diminish ownership transparency and enhance concealment of shell entities, which often involves the services of accountants, lawyers, and trust company service providers. The study’s analysis sets forth the reasons money launderers hide trillions of dollars in illicit gains and serve to destabilize the global financial system. The article also explores the attempts by international organizations such as the Financial Action Task Force, G-20, and European Union, to improve ownership transparency and information exchange on shell entities.
Keywords: Money laundering; fraud; ownership transparency; beneficial ownership; shell entity
Back to Top
Oscar Harvin
Michael Killey
Phebian L. Davis
David Solar
Abstract:This article discusses the benefits of utilizing certain methods of proving income while conducting a fraud investigation. The research informs professionals as well as educators of the various methods of proving income that may be used to supplement the techniques that are typically performed during an investigation of various fraudulent schemes. Performing a fraud audit is a multi-facet activity that may utilize accounting, criminal justice, computer science technology, law, as well as other skills that may allow the accountant to perform a thorough investigation of a potential fraudulent scheme. Utilizing direct and indirect methods of proving income during a fraud audit can be a powerful tool for the accountant whether the investigation is being conducted by a civil organization such as an internal audit department, a forensic accountant, or law enforcement such as a federal law enforcement agency. A direct method uses specific items of proof, and indirect methods of proof also are discussed, including the bank deposit, net-worth, and expenditure methods.
Keywords: Indirect and direct methods; bank deposit method; net worth method; expenditure method; proving income; criminal tax investigation; fraud
Back to Top
Elio Alfonso
Robert Hogan
Andrey Simonov
Abstract: Financial analysts often experience career advancement and promotions to higher ranks within a brokerage firm’s hierarchical organization. We investigate the economic determinants of analysts’ promotions as well as the effects of the quality of the research that analysts produce on promotions to the position of managing director. We hand-collect data on analysts’ promotions to managing director over the period 1996 to 2012 from LinkedIn and brokerage firms’ official websites. Consistent with prior research, we find a positive relation between managing directorship and forecast accuracy indicating that brokerage firms promote the most capable analysts to the top position. Furthermore, we find that the relation between managing director analysts and forecast accuracy is driven mainly by analysts who are internally promoted within the brokerage firm. Our results are robust to endogeneity concerns related to brokerage firms’ selection of promoted analysts. Overall, we provide direct evidence on the importance of analysts’ promotions and internal hirings as economic incentives for analysts’ career concerns.
Keywords: Analyst promotions; financial analysts; forecast accuracy; career concerns
Back to Top
Determinants and Consequences of Non-Financial Disclosures in the New Zealand Port Industry | Full Article (PDF)
Sunil Lakhani
Ahsan Habib
Michael Bradbury
Abstract: The purpose of this article is to provide an understanding of voluntary, non-financial disclosure practices in the New Zealand port industry. The paper then discusses the factors that influence those disclosures, and the consequences of those disclosures on ports’ operating performance. This study applies descriptive analysis of the key non-financial disclosures by creating clusters to group these disclosures by category and calculates a non-financial disclosure score for each port. Regression analysis has been performed for the period 2015–2018 to identify determinants of these voluntary, non-financial disclosures and to understand the consequences of these disclosures comparing 2015 with 2018. A majority of New Zealand ports provide an increased level of non-financial disclosures. The determinants for those disclosures are port size, listing status, leverage, and council ownership. It was also found that the ports’ operating performance has a significant association with container throughput, bulk cargo volumes and containers-per-containership. The study reveals the level of increased non-financial disclosures, their determinants and consequences in the New Zealand port industry. This study should assist stakeholders with a view to assessing ports based on their provision of non-financial disclosures and could be of importance to those Accounting Standard Setters and legislators who wish to regulate the future level of non-financial disclosures provided by New Zealand firms. Non-financial disclosures in the New Zealand industry provide a significant link with the growth of the New Zealand economy and improve the decision-making perspective of various stakeholders.
Keywords: Voluntary non-financial indicators; New Zealand ports; decision-making; Accounting Standard Setters
Back to Top
Toward a Protocol for Tax Data Security | Full Article (PDF)
Thomas Calderon
Melanie G. McCoskey
Colin Onita
Abstract: Taxpayer data security is an important issue in the U.S. tax system. There are many points of vulnerability, and the potential exposure can be vast. The public perceptions regarding tax data security are relatively neutral, although there seem to be concerns about fraud and the need for security. There is a large network of entities that may be affected, including federal tax services, individual taxpayers, tax preparers, and financial services companies. A potential data breach can occur at the individual, employer, financial/tax services, or government levels. The consequences could be severe and cascade beyond the single individual or tax entity initially affected. The common types of incident security breaches include interception, interruption and denial of service, penetration by malicious parties, unauthorized data modification, and fabrication of tax data. Organizations must protect against these types of security incidents by using a holistic tax data security protocol, which must include proactive prevention measures, reactive measures, risk transference measures, and education. We propose a comprehensive tax data security protocol that builds on existing security protocols, pulls all of those measures into context, and offers tax entities an actionable framework for a more holistic approach to protecting tax data. This approach recognizes the interconnected and cascading nature of security breaches and accordingly advocates a broad approach that touches the major aspects of tax data security risks.
Keywords: Tax data; tax data security; cybersecurity; protocol; U.S. tax system
Back to Top
Auditors’ Perception of the Effectiveness of Fraud Detection Techniques in Stock and Warehousing Cycle: Comparison between Ghana, U.S., and New Zealand | Full Article (PDF)
Randolph Nsor-Ambala
Abstract: The study explores perceptual differences among external auditors in Ghana, U.S. and New Zealand about the effectiveness of 56 audit procedures in the stock and warehousing cycle applied for fraud detection. The research applies a quantitative method in categorizing the audit procedures as ‘more effective,’ ‘moderately effective,’ and ‘less effective’ and then uses interviews to gain insights as to the reasons for auditor perceptions. The Ghanaian dataset reveals a comparatively higher number of highly effective audit procedures. Ghanaian respondents only classified a measure as ‘more effective’ if it gathers direct evidence from primary data sources (rather than client pre-prepared reports) and affected audit planning. Female respondents still deployed the 56 audit procedures, where they are all applicable, with equal focus; however, male respondents significantly prioritize perceived ‘more effective’ audit procedures. While female respondents considered an ethical responsibility in their deployment action as well as the need to be compliant with auditing guidelines, male respondents considered audit fees and the need to appear competent to the clients in their deployment action. Additionally, male respondents prioritize ‘more effective’ audit procedures because they believed it meets client expectation and reduces auditor-client tension.
Keywords: Audit techniques; audit procedures; audit firms; external audit; stocks; perception; effectiveness
Back to Top
Protecting the Protected | Full Article (PDF)
Husam Abu-Khadra
Tim Mulholland
Donald Todd
Gretchen Rachel Hammond
Abstract: This article discusses the details of alleged fraud against elderly and developmentally disabled individuals through an examination of cases brought before the Oakland County Probate Court in the Detroit, Michigan suburbs. The research discusses different aspects of exploitation and fraud, allegedly perpetrated by professional guardians and conservators, with a focus on the financial facets including understated sales of real estate, as well as other questionable financial decisions, misclassifications, and Medicaid program enrollment. The study sheds light on this issue to create an awareness and to better educate the public about the need for more progressive change in guardianship and conservatorship procedures, compliance, and oversight in order to help protect elderly and developmentally disabled populations. Finally, the article offers several recommendations to reduce the instances of guardianship and/or conservatorship fraud from happening in the future.
Keywords: Elder financial abuse; protected persons; court cases; fraud awareness; investigation; segregation of duties.
Back to Top
Can the Fraud Triangle Explain Fraudulent Financial Statements? Evidence from Japan | Full Article (PDF)
Masumi Nakashima
Abstract: The reliability of the capital market in Japan has fallen due to accounting fraud that occurred at a prestigious firm in 2015. The number of cases of fraudulent financial reporting has increased in Japan (Nakashima and Ziebart,2019). Why did these occur? First,thegovernance mechanisms and the internal control system probably did not function efficiently. Second,although the theory of fraud is taught in auditing courses in some institutions, forensic accounting, welldeveloped in the U.S., is not widely taught in business degree programs at tertiary institutionsin Japan. Furthermore, not all business administration departments or schools include auditing courses in their curriculums. Studies to clarify a fraud mechanism and a method to detect fraud are urgently needed. I examine whether the fraud triangle can explain financial statement fraud. The effectiveness of the fraud triangle should be clarified through this analysis. The univariate analysis shows that there is a significant difference in the three factors of the fraud triangle between the fraud firms and the non-fraud firms. Also, the logit analysis result suggests that the three factors, such as incentives/pressures, opportunity, and attitudes/rationalizations impact on the possibility of the fraudulent financial statements.
Keywords: Forensicaccounting;fraud triangle theory; fraudulent financial statements; incentives/pressures; opportunity; attitude/rationalization
Back to Top
Tax Internship and Ethics: A Case | Full Article (PDF)
Nicholas Robinson
Sierra Weber
Glenn Skrubbeltrang
Darlene Greathouse
Abstract: This case study explores an ethical dilemma of a senior accounting student at a medium-sized East Coast university. He has completed a private sector internship the prior summer and has just begun a public firm tax internship. His personal experiences at college have afforded him some insider knowledge of the business dealings of one of his firm’s largest tax client, and consequently, he does not trust the workpapers that he reviews which claim lower revenues than he suspects are true. The student is wondering the best way to address this issue, as he is conflicted with wanting to do what is right and not wanting to upset the firm with one of their best clients, especially considering he knows that he does not have concrete evidence (just a strong suspicion). The case presents the doubts that accounting students may feel when first thrown into a tax internship and faced with an ethical dilemma. The case also poses questions about professional responsibility, professional advice, and researching tax penalties.
Keywords: Ethics; accounting; tax; professional responsibility; fraud
Back to Top
Robert Hogan
Andrey Simonov
Abstract: Financial analysts often experience career advancement and promotions to higher ranks within a brokerage firm’s hierarchical organization. We investigate the economic determinants of analysts’ promotions as well as the effects of the quality of the research that analysts produce on promotions to the position of managing director. We hand-collect data on analysts’ promotions to managing director over the period 1996 to 2012 from LinkedIn and brokerage firms’ official websites. Consistent with prior research, we find a positive relation between managing directorship and forecast accuracy indicating that brokerage firms promote the most capable analysts to the top position. Furthermore, we find that the relation between managing director analysts and forecast accuracy is driven mainly by analysts who are internally promoted within the brokerage firm. Our results are robust to endogeneity concerns related to brokerage firms’ selection of promoted analysts. Overall, we provide direct evidence on the importance of analysts’ promotions and internal hirings as economic incentives for analysts’ career concerns.
Keywords: Analyst promotions; financial analysts; forecast accuracy; career concerns
Back to Top
Sunil Lakhani
Ahsan Habib
Michael Bradbury
Abstract: The purpose of this article is to provide an understanding of voluntary, non-financial disclosure practices in the New Zealand port industry. The paper then discusses the factors that influence those disclosures, and the consequences of those disclosures on ports’ operating performance. This study applies descriptive analysis of the key non-financial disclosures by creating clusters to group these disclosures by category and calculates a non-financial disclosure score for each port. Regression analysis has been performed for the period 2015–2018 to identify determinants of these voluntary, non-financial disclosures and to understand the consequences of these disclosures comparing 2015 with 2018. A majority of New Zealand ports provide an increased level of non-financial disclosures. The determinants for those disclosures are port size, listing status, leverage, and council ownership. It was also found that the ports’ operating performance has a significant association with container throughput, bulk cargo volumes and containers-per-containership. The study reveals the level of increased non-financial disclosures, their determinants and consequences in the New Zealand port industry. This study should assist stakeholders with a view to assessing ports based on their provision of non-financial disclosures and could be of importance to those Accounting Standard Setters and legislators who wish to regulate the future level of non-financial disclosures provided by New Zealand firms. Non-financial disclosures in the New Zealand industry provide a significant link with the growth of the New Zealand economy and improve the decision-making perspective of various stakeholders.
Keywords: Voluntary non-financial indicators; New Zealand ports; decision-making; Accounting Standard Setters
Back to Top
Toward a Protocol for Tax Data Security | Full Article (PDF)
Thomas Calderon
Melanie G. McCoskey
Colin Onita
Abstract: Taxpayer data security is an important issue in the U.S. tax system. There are many points of vulnerability, and the potential exposure can be vast. The public perceptions regarding tax data security are relatively neutral, although there seem to be concerns about fraud and the need for security. There is a large network of entities that may be affected, including federal tax services, individual taxpayers, tax preparers, and financial services companies. A potential data breach can occur at the individual, employer, financial/tax services, or government levels. The consequences could be severe and cascade beyond the single individual or tax entity initially affected. The common types of incident security breaches include interception, interruption and denial of service, penetration by malicious parties, unauthorized data modification, and fabrication of tax data. Organizations must protect against these types of security incidents by using a holistic tax data security protocol, which must include proactive prevention measures, reactive measures, risk transference measures, and education. We propose a comprehensive tax data security protocol that builds on existing security protocols, pulls all of those measures into context, and offers tax entities an actionable framework for a more holistic approach to protecting tax data. This approach recognizes the interconnected and cascading nature of security breaches and accordingly advocates a broad approach that touches the major aspects of tax data security risks.
Keywords: Tax data; tax data security; cybersecurity; protocol; U.S. tax system
Back to Top
Auditors’ Perception of the Effectiveness of Fraud Detection Techniques in Stock and Warehousing Cycle: Comparison between Ghana, U.S., and New Zealand | Full Article (PDF)
Randolph Nsor-Ambala
Abstract: The study explores perceptual differences among external auditors in Ghana, U.S. and New Zealand about the effectiveness of 56 audit procedures in the stock and warehousing cycle applied for fraud detection. The research applies a quantitative method in categorizing the audit procedures as ‘more effective,’ ‘moderately effective,’ and ‘less effective’ and then uses interviews to gain insights as to the reasons for auditor perceptions. The Ghanaian dataset reveals a comparatively higher number of highly effective audit procedures. Ghanaian respondents only classified a measure as ‘more effective’ if it gathers direct evidence from primary data sources (rather than client pre-prepared reports) and affected audit planning. Female respondents still deployed the 56 audit procedures, where they are all applicable, with equal focus; however, male respondents significantly prioritize perceived ‘more effective’ audit procedures. While female respondents considered an ethical responsibility in their deployment action as well as the need to be compliant with auditing guidelines, male respondents considered audit fees and the need to appear competent to the clients in their deployment action. Additionally, male respondents prioritize ‘more effective’ audit procedures because they believed it meets client expectation and reduces auditor-client tension.
Keywords: Audit techniques; audit procedures; audit firms; external audit; stocks; perception; effectiveness
Back to Top
Protecting the Protected | Full Article (PDF)
Husam Abu-Khadra
Tim Mulholland
Donald Todd
Gretchen Rachel Hammond
Abstract: This article discusses the details of alleged fraud against elderly and developmentally disabled individuals through an examination of cases brought before the Oakland County Probate Court in the Detroit, Michigan suburbs. The research discusses different aspects of exploitation and fraud, allegedly perpetrated by professional guardians and conservators, with a focus on the financial facets including understated sales of real estate, as well as other questionable financial decisions, misclassifications, and Medicaid program enrollment. The study sheds light on this issue to create an awareness and to better educate the public about the need for more progressive change in guardianship and conservatorship procedures, compliance, and oversight in order to help protect elderly and developmentally disabled populations. Finally, the article offers several recommendations to reduce the instances of guardianship and/or conservatorship fraud from happening in the future.
Keywords: Elder financial abuse; protected persons; court cases; fraud awareness; investigation; segregation of duties.
Back to Top
Can the Fraud Triangle Explain Fraudulent Financial Statements? Evidence from Japan | Full Article (PDF)
Masumi Nakashima
Abstract: The reliability of the capital market in Japan has fallen due to accounting fraud that occurred at a prestigious firm in 2015. The number of cases of fraudulent financial reporting has increased in Japan (Nakashima and Ziebart,2019). Why did these occur? First,thegovernance mechanisms and the internal control system probably did not function efficiently. Second,although the theory of fraud is taught in auditing courses in some institutions, forensic accounting, welldeveloped in the U.S., is not widely taught in business degree programs at tertiary institutionsin Japan. Furthermore, not all business administration departments or schools include auditing courses in their curriculums. Studies to clarify a fraud mechanism and a method to detect fraud are urgently needed. I examine whether the fraud triangle can explain financial statement fraud. The effectiveness of the fraud triangle should be clarified through this analysis. The univariate analysis shows that there is a significant difference in the three factors of the fraud triangle between the fraud firms and the non-fraud firms. Also, the logit analysis result suggests that the three factors, such as incentives/pressures, opportunity, and attitudes/rationalizations impact on the possibility of the fraudulent financial statements.
Keywords: Forensicaccounting;fraud triangle theory; fraudulent financial statements; incentives/pressures; opportunity; attitude/rationalization
Back to Top
Tax Internship and Ethics: A Case | Full Article (PDF)
Nicholas Robinson
Sierra Weber
Glenn Skrubbeltrang
Darlene Greathouse
Abstract: This case study explores an ethical dilemma of a senior accounting student at a medium-sized East Coast university. He has completed a private sector internship the prior summer and has just begun a public firm tax internship. His personal experiences at college have afforded him some insider knowledge of the business dealings of one of his firm’s largest tax client, and consequently, he does not trust the workpapers that he reviews which claim lower revenues than he suspects are true. The student is wondering the best way to address this issue, as he is conflicted with wanting to do what is right and not wanting to upset the firm with one of their best clients, especially considering he knows that he does not have concrete evidence (just a strong suspicion). The case presents the doubts that accounting students may feel when first thrown into a tax internship and faced with an ethical dilemma. The case also poses questions about professional responsibility, professional advice, and researching tax penalties.
Keywords: Ethics; accounting; tax; professional responsibility; fraud
Back to Top
