A Forensic Accounting Examination of Financial Reporting Fraud at the Segment Level

The purpose of this study is to assess various financial reporting frauds that occurred at the segment-level. This study describes firm characteristics, the types of fraudulent activities, some of the financial effects, as well as the perpetrator of the fraud. Although one of the primary objectives of segment reporting is to increase the transparency of the firm, most of the emphasis in financial reporting is at the consolidated level. As the analysis here suggests, a more thorough examination of the segment level may uncover fraudulent transactions in a timelier manner. The data suggests that firms with significant bill and hold transactions may be more at risk for fraud at the segment level. We find that during the fraud period our sample firms appear to be performing better on average than comparable firms. This is not to say all above-average performing firms are committing fraud, but rather suggesting it could be one of many indicators that fraud may be occurring. These are possible fraud indicators that could be explored in future segment fraud research