Using Nonfinancial Measures to Assess Fraud Risk - PDF

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For several decades, the audit profession has attempted to find efficient and effective methods of improving auditors' fraud risk assessments so as to enhance audit quality, reduce auditor liability, and improve investor protection. This study examines whether internal and external auditors or other interested parties (e.g., directors, lenders, investors or regulators) can effectively use nonfinancial measures to assess the reasonableness of financial performance and help detect financial statement fraud.

Findings include:

That the difference between nonfinancial measures and financial performance is significantly greater for fraud organizations than for their nonfraud competitors.
For fraud organizations, the performance portrayed by their financial statements is not supported by their nonfinancial measures.
That, nonfinancial measures can be effectively used to assess the likelihood of fraud.

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