Forensic Auditing Tools in Detecting Financial Statements' Irregularities

Abstract

This chapter illustrates a three-stage analytical procedure to examine and detect the likelihood of financial statements manipulation and identify the accounts that were manipulated by Toshiba. It applies the Beneish model and Benford's law to Toshiba's balance sheet and income statement from 2002 to 2016. The results show significant deviation from Benford's law in the pre-fraud period in equity, long-term receivables and property, plant and equipment, long-term liabilities, and in the post-fraud period in the long-term liabilities, equity, long-term receivables, and total current assets. The results provide evidence of the usefulness of Beneish and Benford law as forensic auditing tools for detecting financial statements' irregularities and fraud that would be useful for the audit planning and sampling procedures.