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The changing face of regulators' investigations into financial statement fraud

Richard Lane (School of Business, James Cook University, Townsville, Australia)
Brendan T. O'Connell (School of Accounting and Law, RMIT University, Melbourne, Australia)

Accounting Research Journal

ISSN: 1030-9616

Article publication date: 11 September 2009

3636

Abstract

Purpose

This paper builds on the Committee of Sponsoring Organizations (COSO) Report, which examined US Accounting and Auditing Enforcement Releases (AAERs). The purpose of this paper is to provide valuable insights into the characteristics and realities of financial statement fraud in the post‐Enron regulatory environment.

Design/methodology/approach

This paper analyses a sample of AAERs from 2002 to 2005. It also provides case studies of an additional five high‐profile case studies from that period.

Findings

This paper finds evidence of changes in Securities and Exchange Commission (SEC) enforcement activities since the COSO Report. Specifically, it is found that enforcement activities have increased substantially post‐Enron and the companies subject to AAERs are, on average, much larger, more profitable and the frauds are more substantial than those exhibited in the COSO Report. These findings suggest that the SEC has become more aggressive at pursuing larger companies for financial statement fraud in the post‐Enron environment.

Research limitations/implications

This paper relies on AAERs as the source of analysis of financial statement fraud, its findings must be viewed in light of the limitations of using these documents. Specifically, the prevailing prosecutions agenda of the US SEC may be reflected in these results.

Practical implications

The study findings are of great practical relevance to accounting regulators and practitioners as they provide valuable insights into the nature and characteristics of financial statement fraud.

Originality/value

The paper provides empirical evidence concerning the changing face of financial statement fraud enforcement and provides a more in‐depth comparison of fraud than possible with most previous studies that have tended to focus on quantitative measures. This is possible because the present investigation utilises qualitative data from AAERs to supplement quantitative findings. Its originality is also due to the use of institutional theory which is not commonly applied in the corporate governance field.

Keywords

Citation

Lane, R. and O'Connell, B.T. (2009), "The changing face of regulators' investigations into financial statement fraud", Accounting Research Journal, Vol. 22 No. 2, pp. 118-143. https://doi.org/10.1108/10309610910987484

Publisher

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Emerald Group Publishing Limited

Copyright © 2009, Emerald Group Publishing Limited

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