Major Financial Reporting Frauds of the 21st Century: Corporate Governance and Risk Lessons Learned

摘要

This paper advocates a risk management strategy of using a combination of timeless corporate governance weaknesses, emerging fraud detection models, and key financial ratios. The corporate governance weaknesses occurred as red flags 81% of the time for nine companies that had major fraudulent financial reporting (FFR) in this century. The emerging fraud models and key ratios occurred 57% of the time for these FFR companies versus only 31% of the time for matched non-FFR companies. Thus, sufficient red flags or warnings should exist from this combination of corporate governance and financial factors for use by Boards of Directors, external and internal auditors, financial analysts, and government regulators.