The Impact of Financial Statement - Research Proposal Example

Introduction

The business environment is faced with one of the most serious threats ever experienced in the world; that is, financial statement fraud. Indeed, it is the most current global problem that every government and non-governmental organization are concerned about. Governments and independent organizations around the world are finding ways to reduce the problem as its effects continue to hit the world. Financial statement fraud is characterized by the omission or misstatement of financial data for the aim of creating a false impression of the organization's financial strength. In the last century, the increase of financial statement fraud is estimated to between 5% and 10%. As such tough measures against money laundering and financial fraud have been established to place the organization together with the Banking sectors among the advanced financial institutions worldwide (Small Business, 2016). These measures will also minimize the impact of financial Statement fraud on social status, management hubris and gender diversity.

Research Objectives

The primary objectives of this comprehensive study are to examine the issue of the financial statement fraud and the impact it has on social status, managerial hubris and gender diversity. Research studies on financial statement fraud have unanimously agreed that it has emerged to be a prevalent phenomenon in the business world. However, many of these researchers have failed to highlight the main cause of this fraud and the impact it has on social status and management hubris. The objectives that are set for this study can be noted down as:

1. To determine the main cause of financial statement fraud in organizations, this will include both the non-governmental and government organizations.

2. To assess the impact of financial statement fraud on social status and management hubris in the Saudi Arabia firms by reviewing the social status of the personnel’s in these firms.

3. To determine how gender diversity is affected by financial fraud though o review of the information retrieved from those in management in these organizations.

Research questions

The research is focused on the banking sectors as well as other advanced financial institution with regard to financial statement fraud. The firms claim that the main reasons that result to financial statement fraud include incompetence auditing which is caused by rampant corruption in most of the business firms (Zack, 2013). The other reason for financial statement fraud is mismanagement of capital through funding of unnecessary projects in firms by the management. Therefore, these two aspects are crucial in explaining the impact of financial statement on social status, managerial hubris, and gender diversity. Hence, the questions that stand in our context, is:

1. What measures are required to help curb the impact of financial fraud in firms?

2. How poor auditing has fostered the act of financial fraud?

3. The type of organization fraud which is taking place in the firms?

4. How corruption contributes to financial statement fraud in the market?

5. The impact of financial statement fraud on social status and management hubris.

Hypothesis

H0: Financial statement fraud has an impact on social status, managerial hubris and gender diversity.

H1: The financial statement fraud does not have an impact on the social status, managerial hubris, and gender diversity.

Structure of the Study

The study has been segmented into a few parts where the first part will introduce as well as describe the topic in brief. This will include the notion of financial statement fraud and its cause in Saudi Arabia. Moreover, a brief discussion is also highlighted about the measures established by the advanced financial institutions to curb the effect of this fraud. The second phase of this determines the objectives and the research the research questions that will be answered after the completion of the study.

Literature Review

The recent business environment and economic recession have made organizations to ensure their management financial statements to look better by avoiding fraud. The two factors have allowed firms to minimize the financial statement fraud and its impact on social status and managerial hubris, and also to attract the investors (Asokkumar, 2010). These two factors are well known in Saudi Arabia where the reduction of financial statement fraud has been a priority for most of the firms and the Nation at large.

The pressure from the analyst forecasts, stock market expectations and earning targets has also piled much pressure on the “management shoulders”, particularly in the firms which are referred “blue chip” during their busy days. To add on this, the managers are serviced with favourable bonuses which act as incentives of higher earnings. As a result, many firms have applied aggressive accounting as an earning management tool to achieve this target. According to Ian Griffiths (2009, p.1) in his book of business world “Creative Accounting” “It is the biggest con trick since the Trojan horse.” In other cases, we can conclude that this creative writing is legitimate when accounting is viewed as making choices and decisions among the accepted alternatives.

The accounting regulation and rules pave room to establish choices among the different accounting procedures where the critical area is too large. Therefore, firms choose the most appropriate rules and regulations which can be of benefit to the investors. However, the gap between management hubris and fraud is negligible. The recent financial fraud cases have put into light the various techniques of earning management which has crossed that line. These may include inappropriate deferral of expenses, legitimate revenue recognition, reversal, premature sales, use of unjustified results or factious sales.

The purpose of this review is to examine the responsibility of the auditors in detecting financial statement fraud, and to understand the meaning of the financial statement fraud. Then we would examine the concept of management hubris and social status and the effect of financial statement fraud on the two concepts. The financial management fraud is referred to as the deliberate misstatement, misrepresentation or omission of financial statement information with the aim of misleading the reader, by creating a false impression of the firm financial strength (Libby, Libby and Short, 2011). In this research, we will base our discussion on the auditors’ accountability for detecting financial statement fraud. The auditors’ responsibility is to detect the fraudulent financial statement which relates to the detection of material misstatement caused by fraud. To examine the concept of social status and managerial hubris on the basis of the financial statement, it necessitate us to discuss the impact of this fraud in relation to social status and gender diversity. False information in relation to managerial hubris may lead to the investors of a company to invest in unprofitable areas. A financial statement is also indicated by unexplained sales on revenue growth without a corresponding increase in cash flow. Also, it can also be explained as a result of the sudden increase in the revenue collected without the corresponding increase in the expected expenses.

The research would have useful contribution on these areas. For example, it would encourage the investors of a firm to invest in profitable areas by assuring the security of their companies. This would help to reduce the financial statement fraud. For a company to escape the impact of financial statement fraud, the responsible auditors should be confronted. This would play a key role in improving the integrity of the documents presented to the Management (Small Business, 2016). Therefore, pulling together skilled and qualified personnel would ensure that work integrity and standards are maintained.

Research methodology

Research methodology comprise of collection, organization and coding of data. This is followed with other processes such as preparing and analysing data as well as the presentation of the results (Zack, 2012). The steps of this research methodology consists of the research approach followed, the case of methodology chosen, the method of data collected selected and finally the method of determining the validity of the results. The main objectives of this study are to measure the impact of the financial statement fraud on social status, managerial hubris and gender diversity.

Collection of appropriate data is required to test and verify the stated hypothesis, the data will then be analysed in order to make valid decisions regarding the hypothesis and the research questions formulated. The hypothesis and research questions stated above will be proved through various analysis techniques and literature. These techniques will be revisited and the focus would be upon the impact on social status and managerial hubris. As the behaviour of a firm is determined by its financial statement, employee’s integrity and competence, the financial statement fraud depends on poor auditing, misappropriation of capital and poor work ethics. Therefore, it is important to focus on the theories and concepts introduced by other researchers along with real life case studies to follow further to prove the hypothesis stated. To find the relevant answers to this questions, the following research model is used.

The model comprises of various steps such as research strategy, research approach, research philosophy, and data collection methods. The research philosophy comprises of the constructionism, realism, and positivism. Positivism is the techniques where the research is based on the fundamental evidence. Realism is a concept which differs from the researchers’ perspective (Kothari, 2004). For this study, we will use positivism as the research technique is based on the information which provide evidence.

The research approach consists of two types which include the inductive and deductive approach. The deductive approach would be adopted, revisited and also be deducted in this research. Moreover, case studies are also key strategies which can be adopted to answer our research questions and hypothesis. This is where the various factors of a study can be extracted from a similar relevant case. Case studies are useful to this research because they are related to financial matters and can help to evaluate its effect on the social status and managerial hubris. To achieve our objectives, data on financial statement fraud can be collected from different capital firms in a city. Considering that the study is based on personal judgment or experiences, questionnaires with both open-ended and closed questions scan be distributed randomly to about fifty firms in different cities (Daugherty, 2010). The questionnaire will contain 25 questions which are related to the company’s financial statement and their behavioural finance. The research questions would include business finance financial information from the management, profit, and the loss trends of an organization.

Consequently, data can be retrieved through conducting interviews. The interviews can be in the form of emails, telephone or personal interviews. For maximum data collection, we can decide to choose the mail interviews considering the facts that our study relies on the personal concession and experiences so as to avoid non-response. A maximum of two emails would be sent to different companies based on different cities in Saudi Arabia. The emails would contain both open-ended and closed questions on the basis of the social status of all the workers in the firms.

The information collected and provided by the respondent would be of great importance in testing of the stated hypothesis and answering our research questions and objectives. The data collected will be keyed in the SPSS software or the excel program. Analysis of the data collected and testing of the hypothesis would be done through the predictive test and regression models. This model would be used to predict the future trends in the evaluation of financial fraud and to propose measures to reduce this problem. Where the analysis is done for percentages, trends, and association in financial statement fraud. The outcome of the analysis would be presented in the form of charts and graphs for the researcher to make valid and objective decisions and conclusions.

Conclusion

This research is conducted so as to recommend on the possible measure which can be put in place to reduce financial statement fraud. This can be done through conducting regular auditing of the firms’ financial accounts, employing skilled and qualified people in the field of accounting and maintaining high integrity standards at work. Therefore, more research in the future should be conducted to provide more recommendations on the topic of this research to reduce menace.

Research Timeline

Semester 2, 2016

Semester 1, 2017

Semester 2, 2017

Semester 1, 2018

Semester 2. 2018

Semester 1, 2019

Semester 2. 2019

Semester 1, 2020

Result

Literature Review

Sampling and Data collection

Data Analysis

Mid Candidature

Draft Writing

Final Draft

Completion Seminar and submission