Question

accounting researchers have found a highly successful way to detect companies engaging in financial statement fraud via a comparison of financial and nonfinancial (e.g. square feet of sales locations, number of employees, number of warehouses) measures. why are managers engaging in financial statement fraud not manipulating both types of numbers? is the method described by brazel superior to as 2401 (consideration of fraud in a financial statement audit)?

Answer 1

Managers engaging in financial statement fraud may choose to manipulate either financial or nonfinancial measures. The method described by Brazel, which involves comparing financial and nonfinancial measures, can be more effective in detecting financial statement fraud.

Step-by-step explanation:

Managers engaging in financial statement fraud may choose to manipulate either financial or nonfinancial measures, depending on their goals and the level of scrutiny they anticipate from auditors and investigators. By manipulating only one type of measure, they may be able to create the appearance of improved financial performance without triggering suspicion from a comprehensive analysis.

However, the method described by Brazel, which involves comparing financial and nonfinancial measures, can be more effective in detecting financial statement fraud. By examining multiple types of measures, inconsistencies and anomalies are more likely to be identified, increasing the chances of detecting fraudulent activity.