Determinants of Fraudulent Financial Reporting: Evidence from Malaysia

Hasnan, Suhaily; Rahman, Rashidah Abdul; Mahenthiran, Sakthi

doi:10.17576/pengurusan-2014-42-09

Cited by 15 publications

(23 citation statements)

References 39 publications

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“…Accruals earnings management as a proxy variable for discretionary accruals is measured using Jones model as used in studies by Hasnan, Abdul Rahman, and Mahenthiran (2014) and Kothari, Leone, and Wasley (2005). To estimate the accruals earnings management, total accruals (TAC) are measured as the change in non-cash current assets minus the change in current liabilities excluding the current portion of long-term debt, minus depreciation and amortization, scaled by lagged total assets which are given as: …”

Section: Measurementmentioning

confidence: 99%

Earnings Management and Fraudulent Financial Reporting: The Malaysian Story

Rahman¹,

Abdul

Arabia³

et al. 2016

JMAA

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Earnings management research has a long and rich history. The agency conflict, incentives, rationalization, opportunity plus having the capability among the managers to manipulate the financial statements lead them to commit fraud. The loopholes in the standards or the deviation from real operational activities promote this situation to prolong. In relation to this issue, this study examines the earnings management behavior among fraud firms in Malaysia. Further, this study examines the relationship between accruals earnings management as a proxy variable for discretionary accruals and real earnings management as the proxy variable for discretionary cash flow. Sample of 57 alleged fraud firms was selected based on the fraudulent financial reporting offences announced in Bursa Malaysia website. The sample data are collected from public firms which committed fraud from 2001 to 2013. This study found a significant negative relationship between accruals earnings management and real earnings management among the fraud firms in Malaysia suggesting that these firms aggressively manage earnings downwards or upwards essentially to avoid regulators scrutiny apart from aiming to achieve personal incentives. The study significantly finds evidence that fraud firms manage earnings on a sequential basis between accruals earnings management and real earnings management prior to fraud year. The findings indicate that firms opt for real earnings management and make full use of its distinguished features of not easily traceable to continue managing earnings immediately subsequent to fraud year. This study may assist regulators, auditors, and policymakers to curb earnings management patterns that have high likelihood of becoming part of fraud antecedent.

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Section: Measurementmentioning

confidence: 99%

Earnings Management and Fraudulent Financial Reporting: The Malaysian Story

Rahman¹,

Abdul

Arabia³

et al. 2016

JMAA

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“…Despite the findings, little is known whether these corporate governance characteristics hold the potential to mitigate FFR especially in developing countries such as Malaysia, which have different institutional settings from developed countries like the United States. Hasnan et al (2013) provide the initial evidence on FFR in Malaysia, in which they find that firms engaging in fraudulent activities have a high level of earnings management prior to committing fraud. Hasnan et al (2014) suggest that firms might involve in fraudulent activities because of accounting failure and poor corporate governance.…”

Section: Introductionmentioning

confidence: 99%

“…Hasnan et al (2013) provide the initial evidence on FFR in Malaysia, in which they find that firms engaging in fraudulent activities have a high level of earnings management prior to committing fraud. Hasnan et al (2014) suggest that firms might involve in fraudulent activities because of accounting failure and poor corporate governance. Md Nasir et al (2018) then extend Hasnan et al's (2013;2014) research by examining whether these firms engage in either real or accruals earnings management prior to committing fraud.…”

Section: Introductionmentioning

confidence: 99%

Audit Committee Characteristics, Board Diversity, and Fraudulent Financial Reporting in Malaysia

Marzuki

Haji-Abdullah

Othman

et al. 2019

AAMJ

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We investigate the relationship between audit committee characteristics, board diversity, and the propensity of committing fraud among Malaysian firms. Based on a matched-pair sample of 64 observations for the years 2002-2014, we find limited evidence to suggest that audit committee characteristics matters. However, we find a negative relationship between the percentage of female directors and the likelihood of fraud. Results highlight the importance of the audit committee (in) effectiveness and the relative importance of female directors in Malaysia. Our results are robust when we consider a structural change in corporate governance policies in Malaysia.

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“…With respect of the audit quality variable, , consistent with Che Haat et al (2008) and Hasnan et al (2013), the study measure audit quality by the ratio of audit fees to total assets. Che Haat et al (2008) and Hasnan et al (2013) state that the use of audit fees provides more robust result compared to the use of dummy variable for audit firm size and Big4 vs non-Big4 firms. It is argued that audit fees reflect the magnitude of audit effort, and higher audit fees are expected to indicate more audit work, which contributes to higher audit quality.…”

Section: Figure 1: Flow Chart Of Sample Formation and Data Collectionmentioning

confidence: 78%

“…In order to meet such objectives, firms overstate income by overstating revenues, assets and profits, or, understating expenses, liabilities and losses (Dechow et al, 2011;Dalnial, Kamaluddin, Sanusi, & Khairuddin, 2014). And, poor monitoring from the external force provide greater opportunity for financial misstatement to take place (Abdullah et al, 2010;Hasnan et al, 2013;Shanmugam et al 2019aShanmugam et al , 2019b). Thus, this study attempts to examine whether there is a significant difference in mean for profitability, market incentive and audit quality variables between restatement and non-restatement firms.…”

Section: Introductionmentioning

confidence: 99%

Profitability, Market Incentive and Audit Quality of Financial Misstatements: Evidence from Malaysian Public Listed Companies (PLCs)

Hussain*,

Hasnan*,

Sanusi

2019

IJRTE

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The purpose of this study is to examine whether there is mean difference in profitability (Profit), market incentive (EPrice) and audit quality (AudQ) variables between restatement and non-restatement firms in Malaysia. The sample comprises of 285 public listed companies on the Main Board of Bursa Malaysia for the years between 2005 and 2013. A descriptive statistics analysis is performed to differentiate the characteristics of restatement and non- restatement firms. The study finds significant difference between restatement and non-restatement firms in the profitability and market incentive variables. The results show that restatement firms reported higher profit than non- restatement firms in the year prior to the restatement year. And, restatement firms have higher earnings-to-price ratio (proxy for market incentive) relative to the non-restatement firms that are matched by total assets, but lower than non-restatement firms which not matched by total assets. This indicates that restatement firms are able to maintain high growth expectations embedded in the firm’s share price. The study finds no significant difference in audit quality between misstatement and non-misstatement firms. The comparable audit fees between restatement and non-restatement firms indicate that the external auditors of restatement firms failed to appropriately assess the audit risk of these firms.

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Determinants of Fraudulent Financial Reporting: Evidence from Malaysia

Abstract: This study examines two issues relating to fraudulent financial reporting in

Cited by 15 publications

References 39 publications

Earnings Management and Fraudulent Financial Reporting: The Malaysian Story

Earnings Management and Fraudulent Financial Reporting: The Malaysian Story

Audit Committee Characteristics, Board Diversity, and Fraudulent Financial Reporting in Malaysia

Profitability, Market Incentive and Audit Quality of Financial Misstatements: Evidence from Malaysian Public Listed Companies (PLCs)

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