NLP Sentiment Analysis and Accounting Transparency: A New Era of Financial Record Keeping

Abstract

Transparency in financial reporting is crucial for maintaining trust in financial markets, yet fraudulent financial statements remain challenging to detect and prevent. This study introduces a novel approach to detecting financial statement fraud by applying sentiment analysis to analyse the textual data within financial reports. This research aims to identify patterns and anomalies that might indicate fraudulent activities by examining the language and sentiment expressed across multiple fiscal years. The study focuses on three companies known for financial statement fraud: Wirecard, Tesco, and Under Armour. Utilising Natural Language Processing (NLP) techniques, the research analyses polarity (positive or negative sentiment) and subjectivity (degree of personal opinion) within the financial statements, revealing intriguing patterns. Wirecard showed a consistent tone with a slight decrease in 2018, Tesco exhibited marked changes in the fraud year, and Under Armour presented subtler shifts during the fraud years. While the findings present promising trends, the study emphasises that sentiment analysis alone cannot definitively detect financial statement fraud. It provides insights into the tone and mood of the text but cannot reveal intentional deception or financial discrepancies. The results serve as supplementary information, enriching traditional financial analysis methods. This research contributes to the field by exploring the potential of sentiment analysis in financial fraud detection, offering a unique perspective that complements quantitative methods. It opens new avenues for investigation and underscores the need for an integrated, multidimensional approach to fraud detection.

Automating financial reporting with natural language processing: A review and case analysis

“…Sentiment analysis, as explored by Faccia, McDonald, and George (2023), stands out as a critical NLP technique in evaluating the tone and sentiment of financial disclosures. Their study underscores the potential of sentiment analysis in detecting anomalies and patterns within financial statements, which could indicate fraudulent activities.…”