The Effect of Accounting Fraud on the Reliability of the Published Profit After the Completion of Correction: The Period After the Submission of the Correction Report

Syed Raziuddin  Ahmad; Ebrahim Mohammed  Al-Matari; Ijaz  Ali; Asif  Baig; Rohit  Garg; Imran Ahmad  Khan

doi:10.36941/ajis-2022-0082

Authors

Syed Raziuddin Ahmad Department of Accounting, Faculty of Business Studies, Arab Open University, Saudi Arabia
Ebrahim Mohammed Al-Matari Department of Accounting, College of Business, Jouf University, Kingdom of Saudi Arabia; Department of Accounting, Faculty of Commerce and Economics, Amran University, Yemen
Ijaz Ali Assistant Professor, College of Business and Management, Fahad Bin Sultan University, Tabuk, Saudi Arabia
Asif Baig Assistant Professor, Jubail University College, Jubail Industrial City, Jubail, Saudi Arabia
Rohit Garg Professor, iNurture Education Solutions Private Limited, Jain University, Jayanagar, Bengaluru, India
Imran Ahmad Khan Researcher and Consultant, Creative Heads Consultants, India

DOI:

https://doi.org/10.36941/ajis-2022-0082

Keywords:

Fraud, Profit, Correction, Stock, Information, Investor

Abstract

The purpose of this paper is to examine the impact of accounting fraud on the reliability of profits after the completion of corrections by focusing on the period after the submission of correction reports of companies that corrected their securities reports after accounting fraud was discovered. We tested the effect of accounting fraud on the reliability of profits after the completion of corrections by examining whether the profits of corrected companies and similar companies without fraud are reflected in stock prices in the same way. The results show that if a company is profitable in both years immediately before and after the completion of the correction, the profit is used for stock price evaluation, but the loss is not evaluated positively, as in the case of similar companies without accounting fraud in the past. The results indicate that the correction report restores the credibility of profits, but if the management's subsequent profit management is questionable, even losses that can be expected to improve the ability to earn cash flow in the future, such as restructuring, will not be evaluated.

Received: 6 December 2021 / Accepted: 23 March 2022 / Published: 5 May 2022