N/A

Management fraud has been an improper and unlawful way to deceive investors and stakeholders. Two decades after the big financial scandals, the markets are still working on building back trust. Even though a wide range of literature on risk management is available, there is limited evidence on fraud risk management. The main purpose of this paper is to examine the factors that impact fraud management effectiveness. The basic argument presented is that there is a significant relation between fraud risk management effectiveness and firm value. Based on a sample of 30 firms listed in the S&P 500 index, empirical evidence supports the main assumption studied in the paper. The study implements the comparable companies’ valuation model to measure the firm value, along with relevant regulations and best practices to develop a fraud risk management index.

Abbott, L.J., Park, Y., & Parker, S. (2000). The Effects of Audit Committee Activity and
Independence on Corporate Fraud. Managerial Finance, 26(11), 55-68. https://doi.org/10.1108/03074350010766990
AICPA. (2020). Retrieved October 20, 2020, from the American Institute of CPAs:
https://www.aicpa.org/content/aicpa
Aldamen, H., Duncan, K., Kelly, S., McNamara, R., & Nagel, S. (2011). Audit Committee
Characteristics and Firm Performance during the Global Financial Crisis. Accounting &
Finance, 53(4), 971-1000. https://doi.org/10.1111/j.1467-629X.2011.00447.x
Angell, J. K., & Ames, S. (1846). Law of Private Corporations Aggregate. 309-311.
Archambeault, D. S., Dezoort, F. T., & Hermanson, D. R. (2008). Audit Committee Incentive
Compensation and Accounting Restatements. Contemporary Accounting Research, 25(4),
965-992. https://doi.org/10.1506/car.25.4.1
Association of Certified Fraud Examiners. (2020). Report to The Nations: 2020 Global Study on
Occupational Fraud and Abuse. ACFE. https://www.acfe.com/report-to-the-nations/2020/
Baharud-din, Z., Shokiyah, A., & Ibrahim, M. S. (2014). Factors that Contribute to the
Effectiveness of Internal Audit in Public Sector. IPEDR, 70(24), 126-132.
https://doi.org/10.7763/IPEDR.2014.V70.24
Baliga, B. R., Moyer, R. C., & Rao, R. S. (1996). CEO Duality and Firm Performance: What's
the Fuss? Strategic Management Journal, 17, 41-53.
Baums, T., & Scott, K. E. (2005). Taking Shareholder Protection Seriously? Corporate
Governance in the United States and Germany. The American Journal of Comparative Law, 53(1), 31-75.
Baysinger, B. D. & Butler, H. N. (1985). Corporate Governance and the Board of Directors:
Performance Effects of Changes in Board Composition. Journal of Law, Economics, &
Organization, 1(1), 101-124.
Beasley, M. (1996). An Empirical Analysis of the Relation between the Board of Director
Composition and Financial Statement Fraud. The Accounting Review, 71(4), 443-465.
http://www.jstor.org/stable/248566
Beasley, M. S., Clune, R., & Hermanson, D. R. (2005). Enterprise Risk Management: An
Empirical Analysis of Factors Associated with the Extent of Implementation. Journal of
Accounting and Public Policy, 24(6), 521-531.
Bhagat, S., & Bolton, B. (2008). Corporate Governance and Firm Performance. Journal of
Corporate Finance, 14(3), 257-273. https://doi.org/10.1016/j.jcorpfin.2008.03.006
Bhagat, S., Carey, D. C., & Elson, C. M. (1999). Director Ownership, Corporate Performance,
and Management Turnover. The Business Lawyer, 54(3), 885-919.
https://www.jstor.org/stable/40687870
Bilal, Chen, S., & Komal, B. (2018). Audit committee financial expertise and earnings quality: A
meta-analysis. Journal of Business Research, 84(1), 253-270. https://doi.org/10.1016/j.jbusres.2017.11.048
Black, B. (1992). Agents Watching Agents: The Promise of Institutional Investor Voice. UCLA
L. REV., 39(1), 811-816.
Bologna, G. J., Lindquist, R. J., & Wells, J. T. (1993). Accountant's Handbook of Fraud and
Commercial Crime. John Wiley and Sons.

Brickley, J. A., Coles, J. L., & Jarrell, G. (1997). Leadership Structure: Separating the CEO and
Chairman of the Board. Journal of Corporate Finance, 3, 189-220.
https://doi.org/10.1016/S0929-1199(96)00013-2
Buxbaum, R. M. (1991). Institutional Owners and Corporate Managers: A Comparative
Perspective, BROOK L. REV., 57(1).
Carcello, J. V., Hermanson, D. R., & Raghunandan, K. (2005). Factors associated with U.S.
public companies’ investment in internal auditing. Accounting Horizons, 19, 69-84.
Coram, P., Ferguson, C., & Moroney, R. (2008). Internal audit, alternative internal audit
structures and the level of misappropriation of assets fraud. Accounting and Finance, 48,
543-559.
Core, J. E., Holthausen, R. W., & Larcker, D, F. (1999). Corporate governance, chief executive
officer compensation, and firm performance. Journal of Financial Economics, 51(3),
371-406. https://doi.org/10.1016/S0304-405X(98)00058-0
Cressey, D. R. (1973). Other people's money: A study in the social psychology of embezzlement
(Free Press, Ed.). Patterson Smith. (Original work published 1953).
Dechow, P. M., Sloan, R. G., & Sweeney, A. P. (1996). Causes and Consequences of Earnings
Manipulation: An Analysis of Firms Subject to Enforcement Actions by the SEC.
Contemporary Accounting Research, 13(1), 1-36.
https://doi.org/10.1111/j.1911-3846.1996.tb00489.x
Defond, M. L., Hann, R. N., & Hu, X. (2005). Does the Market Value Financial Expertise on
Audit Committees of Boards of Directors? Journal of Accounting Research, 43(2),
153-193. https://doi.org/10.1111/j.1475-679x.2005.00166.x

Deloitte. (2018). The Role of the Audit Committee. Retrieved September 28, 2020 from Deloitte
Touche Tohmatsu:https://www2.deloitte.com/content/dam/Deloitte/us/Documents/center-for-board-effectiveness/us-audit-committee-resource-guide-section-2.pdf
Dhaliwal, D. S., Naiker, V., & Navissi, F. (2006). Audit Committee Financial Expertise,
Corporate Governance and Accruals Quality: An Empirical Analysis. Available at SSRN
Electronic Journal: https://doi.org/10.2139/ssrn.906690
Drogalas, G., & Siopi, S. (2017). Risk management and internal audit: Evidence from Greece.
Risk governance & control: financial markets & institutions, 7(3), 104-110.
https://doi.org/10.22495/rgcv7i3p10
El-Faitoruri, R. (2014). Board of Directors and Tobin’s Q: Evidence from U.K. Firms. Journal of
Finance and Accounting, 2(4), 82-99. https://doi.org/10.12691/jfa-2-4-2
Elson, C. (1997). Director Compensation and the Management-Captured Board - The History of
a Symptom and a Cure, SMU Law Review, 50(1), 127-174.
https://scholar.smu.edu/smulr/vol50/iss1/9
Elson, C. M. (1995). The Duty of Care, Compensation, and Stock Ownership, U. CIN. L. REV.,
63, 649.
Farber, D. B. (2005). Restoring Trust after Fraud: Does Corporate Governance Matter? The
Accounting Review, 80(2), 539-561. https://doi.org/10.2308/accr.2005.80.2.539
Feuer, M. (1965). Handbook for Corporate Directors. 169-70.
Francis, J., Lafond, R. Olsson, P. M., & Schipper, K. (2004). Cost of Equity and Earning
Attributes. Accounting Review, 79(4), 967-1010.
Ge, W., & McVay, S. (2005). The Disclosure of Material Weaknesses in Internal Control After
the Sarbanes-Oxley Act. The Accounting Review, 19(3), 137-158.
Gilson, R. J., & Kraakman, R. (1991). Reinventing the Outside Director: An Agenda for
Institutional Investors, STAN. L. REV., 43(1), 883-892.
Gordon, L., Loeb, M. P., & Tseng, C. (2009). Enterprise Risk Management and Firm
Performance: A Contingency Perspective. Journal of Accounting and Public Policy,
28(4), 301-327. https://doi.org/10.1016/j.jaccpubpol.2009.06.006
Hermalin, B., Weisbach, M. (2003). Boards of directors as an endogenously determined
institution: a survey of the economic evidence. Economic Policy Review, 9, 7-26.
Hermalin, B.E., Weisbach, M.S. (1998). Endogenously chosen boards of directors and their
monitoring of the CEO. American Economic Review, 88, 96-118.
Huang, H., & Thiruvadi, S. (2010). Audit Committee Characteristics and Corporate Fraud.
International Journal of Public Information Systems, 6, 71-82.
http://193.10.250.109/index.php/IJPIS/article/viewFile/75/70
IIA. (2020). Retrieved September 4, 2020, from The Institute of Internal Auditors:
https://na.theiia.org/about-ia/publicdocuments/pr-value_prop_bro-fnl-lo.pdf
Jackson, P. E. (1955). Corporate Management. 158-59.
Jensen, M., & Murphy, K. (1990). Performance Pay and Top-Management Incentives. Journal of
Political Economy, 98(2), 225-264. https://www.jstor.org/stable/2937665
Kaplan, S., & Reishus, D. (1990). Outside Directorships and Corporate Performance. Journal of
Financial Economics, 27(2), 389-410. https://doi.org/10.1016/0304-405X(90)90061-4
Kontogeorgis, G. (2018). The Role of Internal Audit Function on Corporate Governance and
Management. Internal Journal of Accounting and Financial Reporting, 8(4), 100-114.
https://doi.org/10.5296/ijafr.v8i4.13626

Kranacher, M. J., JR, R. A. R., & Wells, J. T. (2011). Forensic Accounting and Fraud
Examination. John Wiley and Sons.
Lublin. (1995). Shareholder Proposals Checklist, supra note 17, 21-22.
Ma, V. C., & Liu, J. S. (2015). Taiwan as a Regional Laboratory for Corporate Governance:
Revisiting the Independent Director System and Other Instruments, 2008–2012. Asian
Survey, 55(4), 793-821. https://www.jstor.org/stable/10.1525/as.2015.55.4.793
MacAvoy, P., and I. M. Millstein. (1999). The Active Board of Directors and Its Effect on the
Performance of the Large Publicly Traded Corporation. Journal of Applied Corporate
Finance, 11(4), 8-20.
McKendall, M. A., & Wagner, J. A., III. (1997). Motive, opportunity, choice, and corporate
illegality. Organization Science, 8, 614-645.
Merriam-Webster. (n.d.). Fraud. In Merriam-Webster.com dictionary. Retrieved May 13, 2020,
from https://www.merriam-webster.com/dictionary/fraud
Moeller, R. R. (2007). Enterprise Risk Management: Understanding the New Integrated ERM
Framework. John Wiley & Sons, Inc.
NACD Best Practice Council. (1998). Report of the NACD Best Practice Council: Coping with
Fraud and Other Illegal Activities: A Guide for Directors, CEOs, and Senior Managers.
National Association of Corporate Directors.
O'keefe, T. B., King, R. D., & Gaver, K. M. (1994). Audit Fees, Industry Specialization, and
Compliance with GAAS Reporting Standards. Auditing,13(2), 41-55.
Omar, N., Johari, Z. A., & Hasnan, S. (2015). Corporate culture and the occurrence of financial
statement fraud: A review of literature. Procedia Economics and Finance, 31(2015),
367-372.
Persons, O. S. (2005). The Relationship Between the New Corporate Governance Rules and the
Likelihood of Financial Statement Fraud. Review of Accounting and Finance, 4(2),
125-148. https://doi.org/10.1108/eb043426
Pi, L., & Timme, S. G. (1993). Corporate control and bank efficiency. Journal of Banking and
Finance, 17, 515-530.
Qin, B. (2007). The Influence of Audit Committee Financial Expertise on Earnings Quality: US
Evidence. ICFAI Journal of Audit Practice, 4(3), 7-28. https://ssrn.com/abstract=1030726
Rechner, P. L., & Dalton, D. R., 1991. CEO duality and organizational performance: A
longitudinal analysis. Strategic Management Journal, 12, 155-160.
Rosenbaum, J., & Pearl, J. (2013). Investment Banking (2nd. ed.). John Wiley & Sons, Inc.
Sarbanes-Oxley Act of 2002, Pub. L. No. 107-204, 116 Stat. 745 (2002).
https://www.govinfo.gov/content/pkg/PLAW-107publ204/pdf/PLAW-107publ204.pdf
SEC. (2019). Statement on Role of Audit Committees in Financial Reporting and Key
Reminders Regarding Oversight Responsibilities. Retrieved September 7, 2020, from the
U.S. Securities and Exchange Commission: https://www.sec.gov/news/public-statement/statement-role-audit-committees-financial-reporting
Spira, L. F. (2003). Risk Management: The Reinvention of Internal Control and Changing Role
of Internal Audit. Accounting, Auditing & Accountability Journal, 16(4), 640-661.
Suryanto, & Meisa Dai, R. (2016). Good Corporate Governance, Capital Structure, and Firm's
Values: Empirical Studies Food and Beverage Companies in Indonesia. European
Journal of Accounting, Auditing and Finance Research, 11(4), 35-49.

The Institute of Chartered Accountants in England and Wales. (2007). Reporting with Integrity:
Market Foundations Initiative. ICAEW. https://www.icaew.com/-/media/corporate/files/technical/ethics/reporting-with-integrity-report.ashx?la=en
Tosuni, G. (2013). The impact of corporate governance on the performance of financial
institutions. Staffordshire University, October 2013.
Zahra, S. A., Priem, R. L., & Rasheed. A. A. (2005). The antecedents and consequences of top
management fraud. Journal of Management, 31(6), 803-828.
Zahra, S. A., Priem, R. L., & Rasheed. A. A. (2007). Understanding the causes and effects of top
management fraud. Organizational Dynamics, 36(2), 122-139.
Zakarsyi, M. W. (2008). Good Corporate Governance Pada Badan Usaha Manufaktur, Perbankan
Dan Jasa Keuangan Lainnya. Bandung: Alfabeta
Zhou, H., Owusu-Ansah, S., & Maggina, A. (2018). Board of directors, audit committee, and
firm performance: Evidence from Greece. Journal of International Accounting, Auditing
and Taxation, 31(2018), 20-36. https://doi.org/10.1016/j.intaccaudtax.2018.03.002
Zimbelman, M. F., & Albrecht, C. C. (2012). Forensic Accounting. Canada: South-Western
Cengage Learning.