Economic Analysis: Theory and Practice
 

Building an integrated index to assess the likelihood of overstated financial results in financial statements

Vol. 17, Iss. 6, JUNE 2018

Received: 16 March 2018

Received in revised form: 28 March 2018

Accepted: 12 April 2018

Available online: 30 June 2018

Subject Heading: FINANCIAL STABILITY AND SOLVENCY

JEL Classification: C83, G30, G32, M42

Pages: 1161–1177

https://doi.org/10.24891/ea.17.6.1161

Dudin S.A. Novosibirsk State University of Economics and Management, Novosibirsk, Russian Federation
s.a.dudin@nsuem.ru

https://orcid.org/0000-0002-2448-7971

Savel'eva M.Yu. Novosibirsk State University of Economics and Management, Novosibirsk, Russian Federation
avsa_2010@mail.ru

https://orcid.org/0000-0002-9366-6201

Maksimenko I.N. Novosibirsk State University of Economics and Management, Novosibirsk, Russian Federation
maksimenko.i@list.ru

https://orcid.org/0000-0002-6792-0376

Importance Reliability and quality of financial statements guarantee the confidence of State structures, creditors, potential investors and other stakeholders of a company.
Objectives Our purpose is to discuss theoretical and methodological aspects of reliability of financial statements, build an indicator to reveal misstatements of financial results disclosed in accounting reports, define industry specifics in determining the indicators that characterize distortions in financial performance of companies.
Methods We offer a technique to estimate the probability of distortions in financial statements of companies involved in mining operations.
Results We built an integrated index to estimate the likelihood of misstated financial result in financial statements, i.e. its overstatement, for resource development companies. The paper proves that indicators characterizing distortions in financial statements of resource development companies do not coincide with indicators of construction companies.
Conclusions The test of the proposed approach enabled not only to unveil misstatements in the financial results of companies of two economic sectors, but also to define the amount of overstatements. Furthermore, the paper proves the presence of industry specifics in choosing the indicators that characterize the misstatements of companies.

Keywords: accounting abuse, integrated index, probability, misstatement, financial statements

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