An Analysis of Financial Statement Fraud at the Audit Assertion Level

Abstract: Prior literature has examined financial statement fraud at the account balance and transaction level. This study increases our understanding by narrowing the focus to the audit assertions violated. Using a sample of companies with alleged involvement in accounting manipulations as documented in Accounting and Auditing Enforcement Releases, the descriptive analysis suggests that the Occurrence and Cutoff assertions about classes of transactions are the major assertions at risk for revenue transactions and Accuracy for expense transactions. The results from a multivariate analysis indicate that the factors influencing fraud vary across assertions. Occurrence assertion is more likely to be violated when there is greater concentration of managerial power. The findings emphasise the importance of considering concentration of managerial power and potential management override of controls in detecting fraudulent financial statements at the assertion level.