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Using Nonfinancial Measures to Assess Fraud Risk

This study examines whether internal and external auditors or other interested parties can effectively use nonfinancial measures to assess the reasonableness of financial performance and help detect financial statement fraud.

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This report on Using Nonfinancial Measures to Assess Fraud Risk is provided as a service to members of The IIA.

Learn more about the value of an IIA Membership.

Please note: This secured PDF document does not allow printing.

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:
  • 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.
  • Nonfinancial measures can be effectively used to assess the likelihood of fraud.
The Internal Audit Foundation is a 501(c)(3) corporation formed to expand knowledge and understanding of internal auditing by providing relevant research and educational products to advance the profession globally. Learn more about the Foundation.

Item Number: 10.5048

This report on Using Nonfinancial Measures to Assess Fraud Risk is provided as a service to members of The IIA.

Learn more about the value of an IIA Membership.

Please note: This secured PDF document does not allow printing.

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:
  • 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.
  • Nonfinancial measures can be effectively used to assess the likelihood of fraud.
The Internal Audit Foundation is a 501(c)(3) corporation formed to expand knowledge and understanding of internal auditing by providing relevant research and educational products to advance the profession globally. Learn more about the Foundation.

Item Number: 10.5048