Audit characteristics and the likelihood of fraudulent financial reporting

• Autores: Rúbia Frehner Poffo, Adhmir Renan Voltolini Gomes, Stephan Klaus Bubeck, Nelson Hein
• Localización: RBGN: Revista Brasileira de Gestão de Negócios, ISSN 1806-4892, Vol. 27, Nº. 2, 2025, págs. 1-17
• Idioma: inglés
• DOI: 10.7819/rbgn.v27i02.4299
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• Resumen

  • Purpose – To analyze the relationship between audit characteristics and the likelihood of fraudulent financial reporting within companies.

    Theoretical framework – Agency theory.

    Design/methodology/approach – A descriptive, documentary study with a quantitative approach using rough set theory, k-means clustering, and logistic regression methods. The sample consists of 211 Brazilian companies listed on the [B]3 from the Refinitiv database from 2016 to 2021.

    Findings – The results suggest that audits by the Big Four reduce the likelihood of fraudulent-looking financial reports (FLFRs) in Brazil, providing greater security to stakeholders. However, changing auditors and the financial independence of the audit firm do not significantly impact the detection of FLFRs. Furthermore, qualified opinions increase the likelihood of FLFRs by 3.625 times and abstentions from an opinion increase the likelihood by 62.22 times. These types of opinions are thus highlighted as the main indicators for identifying FLFRs.

    Practical & social implications of research – Considering the number of publicly traded companies that comprise the [B]3 and the volume of shares traded daily in Brazil, understanding the relationship between audit characteristics and FLFRs is crucial for navigating the Brazilian organizational landscape.

    Originality/value – Drawing from a global trend, this article offers an in-depth analysis of the investments of the “Big Three” as shareholders in Brazilian companies. The paper also discusses the intensification of financialization and its connection to the growth of institutional investors as shareholders in large corporations.

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