Predicting Possible Fraudulence in Financial Statements of selected Indian Companies

In a Corporate Entity, there is separation of ownership from the management. Therefore, whatever decision taken by the executors will not be taken by the shareholders if they are managing the company. Sometime, financial statements contain falsifications such that their elements no longer represent the true picture of the company. In spite of several measures, frauds still occur in an Indian Economy. Therefore, this is a relevant area for the academicians and researchers. The main objective of this study is to identify the factors which affect the Possible Fraudulence in the financial statements of the selected Indian companies. Twenty-Five companies covering the ten-year data (2008-09 to 2017-18) have been selected for the study. Factor analysis and Logistic Regression Model has been used to predict the possible fraudulence. It is found that there is a significant positive effect of Asset Management and Working Capital Management and significant negative impact of Management Efficiency and Profitability on the prediction of probable fraudulence for the selected companies. Management Efficiency is the highest contributing factor affecting the probability of fraudulence for the selected companies. Assets Management and Management Efficiency are main determinants of probable Fraudulence for the selected companies.