Auditing the Risk of Financial Fraud Using the Red Flags Technique

Abstract

Major financial irregularities have contributed significantly to the destabilization of the world economy and the financial environment, by short circuiting investment flows and discrediting financial markets, with significant financial, social, and political consequences. Through the auditor’s key role of providing an independent, objective and professional opinion on the correctness of financial statements, the accounting profession has promoted a new procedure, the anti-fraud audit, which is responsible solely for financial prevention and fraud detection. Fraud detection audits have a methodology and a set of customized tools that help auditors in their mission to ensure the smooth execution of their audits. The purpose of this research is to conduct a comprehensive examination of both theoretical and practical aspects, with the objective of determining the risk profile of financial fraud among auditors. This will aid in preventing, detecting, and correcting such harmful practices. Through an empirical study of a fraudulent corporate entity, the quality of information contained within financial reports will be assessed, as well as the effectiveness of managerial decision-making substantiation. The data processing was carried out using the statistical software SPSS 19.0. when making graphs and interpreting the obtained results.

Keywords

• audit
• fraud detection
• fraud risk
• audit trails
• red flags
• factor analysis