This monograph is intended to inform readers about the detection of financial statement fraud, with a primary focus on the analysis of fraud prediction models. Our intended audience includes academic researchers, doctoral candidates, and graduate students in accounting, finance, and economics with an interest in the empirical study of financial statement fraud. We also hope to inform practitioners and regulators who rely on academic research to support their efforts in detecting or preventing fraudulent financial reporting. Our central interest lies in detecting the most severe form of financial misreporting, that is, intentional financial statement fraud. However, we also consider the broader context in which such behavior occurs. For example, we discuss the incentives and opportunities that more generally give rise to financial misreporting, including less severe forms of misreporting such as accrual and real earnings management, the expanding role of auditors in detecting fraud, and how the combination of reporting incentives, constraints, and trade-offs associated with these less egregious practices can, over time, contribute to a progression along what we term the “road to fraud.” Nonetheless, our primary focus remains on the methodological challenges of fraud prediction, including the limitations of prediction models, the metrics used to assess prediction model performance, and potential avenues for future financial statement fraud prediction research.
Structural estimation of executive compensation combines cross-sectional and longitudinal data relating firm performance to the wages, grants and wealth holdings of managers to quantify principal-agent models characterized by asymmetric information. The estimated models are used to measure the importance of information asymmetries, such as the degree of conflict between executives and the firms they manage, the role of human capital in mitigating conflicting interests, and the social welfare loss from moral hazard. Following a brief guide to this survey and a short review of related literature, we begin by describing the data used to estimate these models, explain the theory behind a simple static model of moral hazard, and provide a first approach to estimating them, before analyzing identification in more depth. The latter sections then show how the simplest models of moral hazard can be extended to account for other sources of hidden information and dynamic considerations that arise from the life cycle aspirations of managers.
Carbon accounting can be designed in the image of financial accounting, reporting balance sheets and income statements under the same accounting principles. The parallel carbon accounting conveys similar information to financial reporting, but with the unit of account in tons of CO2 rather than money. With similar properties, carbon accounting statements and financial accounting statements are mutually referential; “carbon statement analysis” mirrors financial statement analysis, providing the “double materiality” feature for sustainability reporting more generally. Double-entry bookkeeping revolutionized financial accountability centuries ago, and today, its principles are shaping a new frontier—carbon accounting. The articles in this issue on Perspectives on Carbon Accounting and Reporting were contributed by leading academic and practitioner experts on carbon accounting. The authors highlight key challenges, including responsibility for Scope 3 emissions, reliance on third-party estimates, the allocation of emissions to products, the importance of integrating carbon accounting with traditional financial and managerial accounting systems, and the need for commonly accepted carbon accounting standards. Double-entry bookkeeping revolutionized financial accountability centuries ago, and today, its principles are shaping a new frontier—carbon accounting. The articles in this issue on Perspectives on Carbon Accounting and Reporting were contributed by leading academic and practitioner experts on carbon accounting. The authors highlight key challenges, including responsibility for Scope 3 emissions, reliance on third-party estimates, the allocation of emissions to products, the importance of integrating carbon accounting with traditional financial and managerial accounting systems, and the need for commonly accepted carbon accounting standards.
Increasing rates of emission-free driving will significantly reduce use phase emissions of cars (Scope 3 downstream). As a result, the carbon footprint of car manufacturing (Scope 3 upstream) will increasingly determine the carbon impact of automotive manufacturers and define their ability to contribute to the targets of the Paris Agreement. In the absence of meaningful decarbonization measures, the supply chain of battery electric vehicles (BEV) can have a carbon impact twice as high as that of a conventional product. The automotive supply chain is one of the most complex in worldwide industry, and so within a functioning, internationally applied carbon accounting framework thousands of companies must be able to share information reliably and credibly. This also has policy implications. The established technical logic of automotive regulations (setting maximum emission values, banning and prescribing technologies, etc.) will fail in the face of this new and complex challenge. Therefore, the established and proven mechanisms of financial steering need to be utilized, and carbon accounting must be at its core. Double-entry bookkeeping revolutionized financial accountability centuries ago, and today, its principles are shaping a new frontier—carbon accounting. The articles in this issue on Perspectives on Carbon Accounting and Reporting were contributed by leading academic and practitioner experts on carbon accounting. The authors highlight key challenges, including responsibility for Scope 3 emissions, reliance on third-party estimates, the allocation of emissions to products, the importance of integrating carbon accounting with traditional financial and managerial accounting systems, and the need for commonly accepted carbon accounting standards. Double-entry bookkeeping revolutionized financial accountability centuries ago, and today, its principles are shaping a new frontier—carbon accounting. The articles in this issue on Perspectives on Carbon Accounting and Reporting were contributed by leading academic and practitioner experts on carbon accounting. The authors highlight key challenges, including responsibility for Scope 3 emissions, reliance on third-party estimates, the allocation of emissions to products, the importance of integrating carbon accounting with traditional financial and managerial accounting systems, and the need for commonly accepted carbon accounting standards.
