Feels Like Fraud: A Looming Storm?

Fraudulent financial reporting cases tend to be cyclical, with a quiet period, several notable frauds, proposed regulations, and passage of some of the proposed regulations. This cycle is followed by another quiet period, and ultimately by more fraudulent financial reporting cases. This cycle has repeated many times over the past century (Clikeman, 2019).
Since the Enron/WorldCom era and the financial crisis in 2008–2009, we have experienced a relatively quiet period in fraudulent financial reporting, other than some notable isolated frauds such as Theranos, Wirecard, and Evergrande. However, based on a variety of indicators, the risk of fraudulent financial reporting appears to be on the rise. Specifically, economic/global, client, and audit firm conditions have created an environment of increased pressure and opportunity to commit fraudulent financial reporting, in part due to concerns about decreased audit quality. Highly capable managers (Wolfe and Hermanson, 2004) are well positioned to exploit such a situation, and managers under heavy pressure can more easily rationalize unethical behavior.
In this article, we discuss several factors pointing to increased risk of fraudulent financial reporting. In addition, we develop practical implications for accountants and auditors in light of the apparently increased fraudulent financial reporting risk.

Feels Like Fraud: A Looming Storm? Academic Article