The game of fraudulent financial reporting: accounting for ethics
Keith L. Jones
What the paper says
Ethics play an important role in society; however, many economics models assume that individual players act “economically” rational and ignore situations where an individual may forgo economic benefit for the public good. This chapter models the strategic interaction between auditors and management and allows for management to choose the economically irrational outcome of behaving ethically even when doing so defies their own financial self-interest. One of the model's assumption is that a certain percentage of managers do not engage in a “strategy” to misreport their financial statements because doing so is “unethical”. If recent accounting scandals are indicative of an ethical crisis in this country, this model offers hope because an increase in the percentage of unethical mangers leads to a decrease in fraudulent reporting. The model also illustrates the effects of an increase in the rewards for committing fraud (e.g., greater numbers of stock options, restricted stock, and accounting-based performance incentives) and an increase in the penalty for detected fraud (e.g., stiffer penalties for fraud from Sarbanes–Oxley).
6 citations
Evidence weight
Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40
| F · citation impact | 0.00 × 0.4 = 0.00 |
| M · momentum | 0.80 × 0.15 = 0.12 |
| V · venue signal | 0.50 × 0.05 = 0.03 |
| R · text relevance † | 0.50 × 0.4 = 0.20 |
† Text relevance is estimated at 0.50 on the detail page — for your query’s actual relevance score, open this paper from a search result.