607 research outputs found
THE DETECTION OF FRAUDULENT FINANCIAL STATEMENTS: AN INTEGRATED LANGUAGE MODEL
Among the growing number of Chinese companies that went public overseas, many have been detected and alleged as conducting financial fraud by market research firms or U.S. Securities and Exchange Commission (SEC). Then investors lost money and even confidence to all overseas-listed Chinese companies. Likewise, these companies suffered serious stock sank or were even delisted from the stock exchange. Conventional auditing practices failed in these cases when misleading financial reports presented. This is partly because existing auditing practices and academic researches primarily focus on statistical analysis of structured financial ratios and market activity data in auditing process, while ignoring large amount of textual information about those companies in financial statements. In this paper, we build integrated language model, which combines statistical language model (SLM) and latent semantic analysis (LSA), to detect the strategic use of deceptive language in financial statements. By integrating SLM with LSA framework, the integrated model not only overcomes SLMās inability to capture long-span information, but also extracts the semantic patterns which distinguish fraudulent financial statements from non-fraudulent ones. Four different modes of the integrated model are also studied and compared. With application to assess fraud risk in overseas-listed Chinese companies, the integrated model shows high accuracy to flag fraudulent financial statements
Analyzing The Risk and Financial Impact of Phishing Attacks Using a Knowledge Based Approach
We assess the severity of phishing attacks in terms of their risk levels and the potential loss in market value to the firms. We analyze 1,030 phishing alerts released on a public database as well as financial data related to the targeted firms using a hybrid text and data mining method that predicts the severity of the attack with high accuracy. Our research identifies the important textual and financial variables that impact the severity of the attacks and determine that different antecedents influence risk level and potential financial loss associated with phishing attacks
Essays on Auditorsā Judgments and Decisions in Negotiation and Communication
Paper III is excluded from the dissertation until it will be published.Auditors conduct various audit tasks during an audit in order to arrive at an audit opinion regarding whether the financial statements are fairly presented in accordance with the applicable financial reporting framework. To perform these audit tasks and arrive at a decision about the audit opinion, auditing standards require auditors to exercise their professional judgment. From this requirement, two important terms emerge, judgment and decision. Bonner (1999, p. 385) defines judgment as āforming an idea, opinion, or estimate about an object, an event, a state, or another type of phenomenon,ā and a decision as āmaking up oneās mind about the issue at hand and taking a course of action.ā In short, judgment involves subjective assessment established before taking actions, and decision refers to actions taken to perform tasks or solve problems (Solomon & Trotman, 2003). In a more formal term defined by the auditing standards, professional judgment refers to āthe application of relevant training, knowledge, and experience, within the context provided by auditing, accounting, and ethical standards, in making informed decisions about the courses of action that are appropriate in the circumstances of the audit engagementā (IAASB, 2018, para. 13).publishedVersio
Are independent directors effective in lowering earnings management in China?
This study examines whether board independence is an effective corporate
governance mechanism in reducing earnings management in China, a country with
significantly different institutional and legal characteristics from the Anglo-Saxon
countries. I investigate: (i) whether voluntary adoption of board independence prior to
the China Regulatory Securities Commission (CSRC) regulation on board independence
is associated with lower earnings management; and (ii) the extent to which the CSRC
regulation is effective in achieving the aim of inhibiting earnings management. I employ
two stage least squares techniques to control for potential simultaneity problems between
earnings management and board independence and documents that failing to control for
such problems will lead to biased and inconsistent estimates. Using three different
measures of earnings management, I show that firms that voluntarily move towards
board independence (i) have lower levels of discretionary accruals; (ii) employ less
severe income smoothing strategies; and (iii) are less likely to manage return on equity
to meet regulatory thresholds. In contrast, firms adopting board independence following
the CSRC regulation in 2002 do not experience any changes in the levels of earnings management before and after the regulation. These results suggest that regulation alone
is not a sufficient solution to motivate effective independent boards
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