Is depreciation fraud detectable using ADTFA and DAAT financial models? A case study
Abstract:
Purpose: Financial statement fraud, which is usually committed by insiders, aims to present a company positively and benefit fraudsters. Insiders commit fraud to deceive investors or hide their mistakes. This occurs in companies with weak control and unethical leaders. Prevention is important; however, early detection is crucial. Depreciation fraud manipulates the depreciation schedule to make financial statements look better. This involves inflating asset values and reducing expenses. Detecting depreciation fraud is difficult, and has severe consequences. Such activities can lead to penalties for both individuals and companies. Companies require accurate records, and auditors must review statements thoroughly to prevent and uncover fraud. New models were used to identify depreciation fraud in defaulting companies.
Research methodology: Forensic accountants may analyze depreciation fraud. We use Depreciation Accumulated after Tax (DAAT) to accurately find depreciation fraud by the company. A comparatively low or negative impact indicates depreciation fraud. The ADTFA and DAAT financial models can be used to trace depreciation fraud.
Results: The results are remarkable and should be tested in further depreciated fraud companies to detect their financial health position early.
Limitations: Detecting depreciation fraud is difficult because of various factors, including complex accounting methods, subjective estimates, and lack of external verification.
Contribution: This helps to account for users and investors, researchers detect depreciation fraud earliest, and present its financial accounting report.
Novelty: The researcher may adopt and push validated reliability through ADTFA and DAAT tests to detect depreciation fraud.
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Beneish, M. D., & Vorst, P. (2022). The cost of fraud prediction errors. The accounting review, 97(6), 91-121.
Chen, Y., & Wu, Z. (2022). Financial Fraud Detection of Listed Companies in China: A Machine Learning Approach. Sustainability, 15(1), 105.
Collins, J. (n.d.). How to Detect Depreciation Fraud. Retrieved from https://pocketsense.com/problems-depreciation-7798225.html
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Dechow, P. M., Sloan, R. G., & Sweeney, A. P. (1995). Detecting earnings management. Accounting review, 193-225.
Gerety, M., & Lehn, K. (1997). The causes and consequences of accounting fraud. Managerial and Decision Economics, 18(7?8), 587-599.
Handoyo, B. R. M., & Bayunitri, B. I. (2021). The influence of internal audit and internal control toward fraud prevention. International Journal of Financial, Accounting, and Management, 3(1), 45-64.
Heliantono, H., Gunawan, I. D., Khomsiyah, K., & Arsjah, R. J. (2020). Moral development as the influencer of fraud detection. International Journal of Financial, Accounting, and Management, 2(1), 1-11.
Hendieh, J., Schneider, M., & Sakr, T. (2023). Fraud Detection and Prevention. Middle-East Journal of Scientific Research, 31(1), 44-52.
Juric, D., O’Connell, B., Rankin, M., & Birt, J. (2018). Determinants of the severity of legal and employment consequences for CPAs named in SEC accounting and auditing enforcement releases. Journal of Business Ethics, 147, 545-563.
Kuncara, W. A. (2022). The influence of Whistleblowing System and internal control on fraud prevention at PT Pos Indonesia (Persero) Bandung City. International Journal of Financial, Accounting, and Management, 4(2), 101-113.
Olayinka, A. A. (2022). Financial statement analysis as a tool for investment decisions and assessment of companies’ performance. International Journal of Financial, Accounting, and Management, 4(1), 49-66.
Omodero, C. (2015). Genesis of accountability and its impact on accounting. Available at SSRN 2626967.
Roychowdhury, S. (2006). Earnings management through real activities manipulation. Journal of accounting and economics, 42(3), 335-370.
Saint-Leger, R. (2017). Problems With Depreciation. Retrieved from https://pocketsense.com/problems-depreciation-7798225.html
Schipper, K. (2002). A Review of Earnings Management Literature and Its Implications for Standard Setting Featured in Accounting Horizons.
Wells, J. T. (2001). Why employees commit fraud. Journal of Accountancy, 191(2), 89.
Wells, J. T. ( 2011). Detecting Accounting Fraud: Analysis and Ethics: John Wiley & Sons.
Westhausen, H. U. (2016). ACFE-Fraud Report 2016.
Zahra, S. A., Priem, R. L., & Rasheed, A. A. (2007). Understanding the causes and effects of top management fraud. Organizational dynamics, 36(2), 122-139.
- Beneish, M. D., & Vorst, P. (2022). The cost of fraud prediction errors. The accounting review, 97(6), 91-121.
- Chen, Y., & Wu, Z. (2022). Financial Fraud Detection of Listed Companies in China: A Machine Learning Approach. Sustainability, 15(1), 105.
- Collins, J. (n.d.). How to Detect Depreciation Fraud. Retrieved from https://pocketsense.com/problems-depreciation-7798225.html
- Crutchley, C. E., Jensen, M. R., & Marshall, B. B. (2007). Climate for scandal: corporate environments that contribute to accounting fraud. Financial review, 42(1), 53-73.
- Dechow, P. M., Sloan, R. G., & Sweeney, A. P. (1995). Detecting earnings management. Accounting review, 193-225.
- Gerety, M., & Lehn, K. (1997). The causes and consequences of accounting fraud. Managerial and Decision Economics, 18(7?8), 587-599.
- Handoyo, B. R. M., & Bayunitri, B. I. (2021). The influence of internal audit and internal control toward fraud prevention. International Journal of Financial, Accounting, and Management, 3(1), 45-64.
- Heliantono, H., Gunawan, I. D., Khomsiyah, K., & Arsjah, R. J. (2020). Moral development as the influencer of fraud detection. International Journal of Financial, Accounting, and Management, 2(1), 1-11.
- Hendieh, J., Schneider, M., & Sakr, T. (2023). Fraud Detection and Prevention. Middle-East Journal of Scientific Research, 31(1), 44-52.
- Juric, D., O’Connell, B., Rankin, M., & Birt, J. (2018). Determinants of the severity of legal and employment consequences for CPAs named in SEC accounting and auditing enforcement releases. Journal of Business Ethics, 147, 545-563.
- Kuncara, W. A. (2022). The influence of Whistleblowing System and internal control on fraud prevention at PT Pos Indonesia (Persero) Bandung City. International Journal of Financial, Accounting, and Management, 4(2), 101-113.
- Olayinka, A. A. (2022). Financial statement analysis as a tool for investment decisions and assessment of companies’ performance. International Journal of Financial, Accounting, and Management, 4(1), 49-66.
- Omodero, C. (2015). Genesis of accountability and its impact on accounting. Available at SSRN 2626967.
- Roychowdhury, S. (2006). Earnings management through real activities manipulation. Journal of accounting and economics, 42(3), 335-370.
- Saint-Leger, R. (2017). Problems With Depreciation. Retrieved from https://pocketsense.com/problems-depreciation-7798225.html
- Schipper, K. (2002). A Review of Earnings Management Literature and Its Implications for Standard Setting Featured in Accounting Horizons.
- Wells, J. T. (2001). Why employees commit fraud. Journal of Accountancy, 191(2), 89.
- Wells, J. T. ( 2011). Detecting Accounting Fraud: Analysis and Ethics: John Wiley & Sons.
- Westhausen, H. U. (2016). ACFE-Fraud Report 2016.
- Zahra, S. A., Priem, R. L., & Rasheed, A. A. (2007). Understanding the causes and effects of top management fraud. Organizational dynamics, 36(2), 122-139.
