Academic journal article Accounting & Taxation

Detection and Prediction of Managerial Fraud in the Financial Statements of Tunisian Banks

Academic journal article Accounting & Taxation

Detection and Prediction of Managerial Fraud in the Financial Statements of Tunisian Banks

Article excerpt


This article models the detection and prediction of managerial fraud in the financial statements of Tunisian banks. The methodology used consist of examining a battery of financial ratios used by the Federal Deposit Insurance Corporation (FDIC) as indicators of the financial situation of a bank. We test the predictive power of these ratios using logistic regression. The results show that we can detect managerial fraud in the financial statements of Tunisian banks using performance ratios three years before its occurrence with a classification rate of 71.1%.

JEL: M41, M42, C23, C25, G21

KEYWORDS: Fraud, Ratio, Financial Statements, Bank, Detection, Prevention, Logistic Regression Model

(ProQuest: ... denotes formulae omitted.)


Gamer (2009) defines fraud as "A knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his or her detriment". The professional and academic literature defines fraud in financial statements differently. The International Federation of Accountants (IFAC) devoted an entire standard for auditor responsibility relating to fraud. The International Standard on Auditing (ISA) 240 (IFAC (2009)) defines fraud as "an intentional act by one or more individuals among management, those charged with governance, employees, or third parties, involving the use of deception to obtain an unjust or illegal advantage".

Moreover, the American Institute of Certified Public Accountants (AICPA) in the Statement on Auditing Standard (SAS) N°99 -Consideration of Fraud in a Financial Statement Auditrefers to fraud as "an intentional act that results in a material misstatement of financial statements that are the subject of an audit". In the SAS 99, two types of fraud are considered. The first type are misstatements arising from fraudulent financial reporting such as falsification of accounting records or intentional omission from the financial statements of events, transactions, or other significant information. The second are misstatements arising from misappropriation of assets such as theft of assets, embezzling receipts or causing an entity to pay for goods or services not received.

The results of the latest report published by the Association of Certified Fraud Examiners (ACFE) in 2012 are alarming. Indeed, the lighthouse observation of this report is that fraud costs 5% of total annual turnover of the companies affected. The Committee of Sponsoring Organizations of the Treadway Commission (COSO), in its third report published in 2010 showed that for a sample of 347 fraudulent companies, the median fraud is $12.1 million. For 30 cases of fraud, each case includes anomalies or misappropriation of $500 million or more.

The study of fraud in financial statements of public companies in Tunisia is especially needed after the revolution. Cases of fraudulent financial reporting, misappropriation of assets or embezzlement, have been in the courts. This study focuses on Tunisian banks since the banking sector had been subject to misuse of funds in the form of granting large credits for projects without securing them or at an interest rate lower than it should be. This remainder of the paper proceeds as follows. Section 2 presents a brief review of literature and the hypothesis. Section 3 presents the methodology. Section 4 presents the results. Section 5 concludes.


Motivations for companies to commit financial statements fraud are numerous. Economic incentives are common causes of fraud in the financial statements, as well as psychotic motivations, self-centeredness and ideology. These motivations can play an important role in financial statement fraud. Pressures and economic incentives to match analysts' forecasts are fundamental motivations for listed companies to commit financial fraud. Psychological motivations associated with criminal behavior are rare in our case. Egocentric motivations are outlined in the fact that, through fraud, the person increases his personal prestige. …

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