| Summary: | The goals of this study are to empirically identify fraud risk
factors and construct a model to predi~t the likelihood offinancial
statement frauds based on SAS No. 99. Employing logistic regression
on 143firms, this research finds thatfraud riskfactor proxies
for Pressure-net profit/total assets-and Opportunity- inventory/
total assets ratio, related party transactions, and Big 4-are significantly
associated with fraudulent financial statements, whereas
none of the fraud risk factor proxies for Rationalization is significantly
associated with fraudulent financial statements. Consistent
with prior research, it seems that the likelihood of fraudulent
financial statements is easier to be observed publicly using fraud
risk factor proxies for Pressure and Opportunity rather than Rationalization.
The constructed model can correctly classify firms with
a relatively high success rate.
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