Statistical Evaluation of the Fraud Risk in order to Base the Audit Opinion, using Duration Models
Author:
Professor Elisabeta JABA, Ph.D., Lecturer Christiana Brigitte BALAN, Ph.D., Ioan-Bogdan ROBU, Ph.D. Student, Professor Mihai ROMAN, Ph.D.
JEL:
C33, G32, M42
DOI:
Keywords:
fraud risk, financial leverage, audit opinion, Kaplan-Meier estimator, Cox model
Abstract:
The accuracy of the author’s opinion concerning financial fraud depends on the quality of audit evidence. Obtaining enough and appropriate proofs that can support the opinion of the financial auditor requires using as safe as possible procedures for evaluating the risk of fraud in a company.\r\nThis study aims to statistically evaluate the risk of fraud according to the activity field and the financial structure of the company, using financial analysis techniques combined with duration models based on the Kaplan-Meier estimator and on the Cox model. In their approach, the authors consider the definition of financial fraud suggested by ISA 240, the factors that determine fraud, synthesized in the conceptual schema “the fraud triangle”, as well as the financial indicators that the Anglo-Saxon specialized literature calls “red flags”.\r\nThe results of their analysis show that the risk of fraud is mainly influenced by the financial leverage, differentiated according to activity fields. The estimated probabilities of occurrence of fraud are used as a proof in evaluating the quality of financial statements.\r\n