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ISSN : 1598-7248 (Print)
ISSN : 2234-6473 (Online)
Industrial Engineering & Management Systems Vol.17 No.4 pp.709-718

The Impact of Creative Accounting on the Probability of Fraud in the Companies Accepted in the Tehran Stock Exchange

Masoud Taherinia*, Najmeh Tavakoli, Fatemeh Tavakoli
Department of Accounting, Lorestan University, Khoramabad, Iran
Department of Accounting, Lorestan University, Khoramabad, Iran
Department of Electrical and Computer Engineering, Shahrekord University, Shahrakord, Iran
* Corresponding Author, E-mail:
April 10, 2018 September 17, 2018


Accountants use the accounting knowledge to manipulate the accounting figures and convert those figures to what the management wants. Because directors have direct and indirect benefits in financial statements. This may be the motivation for fraud and manipulation of the financial statements by the executives, and as a result, managers want to mislead the users of the financial statements and this is a creative accounting. The purpose of this study is to investigate the effect of creative accounting and fraud probability that is measured by Bhasin model. At the level of companies accepted in Tehran stock exchange for the period of 2011-2015, for checking the validity of the hypotheses, the logistic regression test are Used. The results of this study indicate that there is a significant relationship between profit smoothing and the probability of fraud, which means that fraudulent companies tend to be more likely to smooth profits than non-fraudulent companies, which can be said today, profit smoothing is one of the new fraud methods. Another aspect of this research is the lack of a significant relationship between external financing and fraud probability.



    Based on the representation theory, managers as representatives of the company owners in relation to stewardship responsibility, they earn some direct and indirect benefits. The most of benefits are related to the figures presented in the financial statements. The association of these benefits with the financial statements may lead to incentives for managers to commit manipulation and fraud in the financial statements because they are responsible for the preparation of financial statements. In this regard, they have the authorities. They can act as a negative and misleading act that is creative Accounting (Azad et al., 2017). Creative Accounting in its bad form is unfair to profession of Production and representation of financial accounts. For this purpose, financial statements is unfairly designed to meet the demands of managers in related to the company reported performance and financial condition. Financial statements provide a misleading picture of corporate performance, rather than being a true reporting entity. Consequently, creative accounting is not the accepted principle of the accounting profession and its consequences will be economic crises (Ebrahimi, 2016;Popovici, 2017). In fact, the lack of accounting standards of the law means creating a kind of accounting in accordance with business methods, which prepare a good factor for creating fraudulent business. Today companies are under pressure that try to be profitable to attract investors and resources. With wrapping business operations of companies and in order to meet the needs of managers, accountants, despite the standards and rules, proceed to present false picture of their financial events that is considered a creative accounting

    One of the reasons for managing profit, manipulation or fraud in financial statements is to increase stock prices and empower the company to finance, increase the wealth of all shareholders, increase investor confidence. Also, it empower the company to achieve predictable financial outcomes and to ensure continuity of activities.

    Research History

    Worth was the first person considered creative accounting as a behavior. In his view, creative accounting is a sophisticated and rigorous practice within the limits of accepted accounting principles and standards for the purpose of deceiving auditors and lawmakers (Goodarzi, 2008) says that there is a fraudulent practice in the profit of all companies, and the wealth and rewards of any accounting is also subject to this flow when accounting by an unethical manager to mislead investors, creditors, banks, and other users of the financial statements. This accounting is appeared in forms such as fraud in accounting offices and in the reporting offices as formal and falsifications. So creative accounting can be called adjustment process of accounts of the company assuming the absence of specific standards or the purpose of providing favorable conditions of the company to shareholders, investors and other stakeholders.

    In the view of an accountant, states: The accounting process involves many issues in judging and resolving contradictions between rival approaches to present the outcome of transactions and financial events. This flexibility provides opportunities for manipulation, fraud, and misrepresentation. These activities, which have been strengthened by the weaker ethical elements of the accounting profession, are known as creative accounting. Therefore, creative accounting is an immoral act, although the use of It seems to be completely legal and consistent with accounting standards, but it is clear that managers with financial issues are looking for a solution, even if it’s immoral. Otherwise, the reality is taken halffalse and fraudulent.

    According to Okoye and Alao (2008), managerial authority is also one of the most important potential causes of creative accounting. The manager can use his powers to achieve predictable financial position and stability. For example, managers can take steps to increase or decrease the amount of loans and liabilities. The results of many studies also confirm the managers; immoral behavior in such contracts. Issues such as the threats facing the accountant in the workplace and the lack of proper job security for accountants, and the proletarianization of accountants technically and ideologically, the role of auditors and prosecutors, and statutory audit fees, also play a role as potential other causes in the emergence of creative accounting.

    They stated creative accounting allows to the company to report financial results that may not accurately reflect the content of their trading activities. Creative accounting is considered as synonym of misleading accounting.

    Mashayekhi and Hosseinpour (2016) showed that companies with lower reported profitability variability are more likely to be worth their shares. Mehrani and Nurrozi, (2015) examine the potential effect of artificial smoothing and smoothing on the value of the company. Their research results show that the value of the company decreases with increasing artificial smoothing and increases with realistic smoothing. They stated that companies can increase the company profits with real smoothing and reduce agency costs

    Demory (2011) The research titled Investigating the relationship between company value with profit smoothing and reported profit quality in accepted companies in Tehran Stock Exchange was conducted. In this research, the sample companies used the Iqual method are separated in smoothing and non-smoothing groups. Then, using the Sloan method are divided in two groups with high quality profit and non-profit quality, and finally, to four groups of profit-quality smoothing companies, nonsmoothing of profit-quality, non-quality profit smoothing firms, and non-smoothing of profit without quality. The relationship stock price with profit smoothing and profit quality is tested on two levels of profit and profits changes. The results of the multivariable regression show that investors place the highest value for profit smoothing companies with the highest value, and for the least-quality non-smoothing companies is given the lowest value.

    Perols and Lougee (2011) investigated the relationship between earnings management and fraud in financial statements, and the result of their research was that there was a direct and significant relationship between history of earnings management and fraud probability in financial statements. Ebrahimi (2016) a study titled Criminal accountants in search of fraud and forecast of future Stock returns for the period of this research from 2008 to 2012. Using the Bhasin Model, the relationship between the probability of fraud and the return on stockholders’ equity was paid out. From the results of this research can be refer to have a direct and significant relationship between the probability of fraud and the return on stockholders’ equity.

    Nakashima and Ziebart (2015), research titled The Effect of Corporate Governance on the Relationship Between Company Value and earnings Management for the Period of 2007-2012. The results of this research show that earnings management has a negative effect on the value of the company, but in companies that corporate governance is stronger, this effect is diminished. In other words, corporate governance mechanisms have a positive impact on the relationship between earnings management and company value. Maffett (2012) investigate the relationship between agency costs and company value through earnings management. Their results indicate that there is a very strong reverse correlation between earnings management and company value, which means that earnings management in companies accepted in Tehran Stock Exchange is in the interest of the company and the managers of these companies use from earnings management to use their own personal interests


    There are many definitions of fraud. Fraud include strange, deceptive, and clever methods for deceiving others. There is no definitive rule for defining it. Fraud is a person attempt that contains the deception, the purpose, the intensity of desire, the risk of arrest, the violation of trust, rational justification, etc. The Association of Fraud Officials of Involves a broad definition of fraud and states that fraud Includes all the various tools that are made by man, and an individual earns that advantage over another through false advice or conceals the truth. It includes all the sudden events, tricks, tricks or secrets and other unfair ways to deceive others. In another definition, fraud involves deliberate acts of one or more of the directors or third parties that leads to incorrect presentation of financial statements. In recent studies, it has been pointed out that financial managers commit financial fraud through a variety of factors such as ethical failure, salaries and benefits of managers, the lack of training on business ethics in a firm stressful curriculum, and short strategies. The American Association of Chartered Accountants has referred to three elements as fraudulent terms, which are elements of justification, pressure and opportunity. In fact, individuals are deliberately justified for committing their fraud, or these movements are due to some pressures, or even his position allows him (Ebrahimi, 2016).

    Definition of creative Accounting

    Creative accounting can be called the process of adjusting corporate accounts with the assumption of the absence of specific standards and with the aim of providing the company desired status of the company to shareholders, investors and other stakeholders, as an accountant, believes; The accounting process involves dealing with a variety of issues, such as judging issues, and resolving conflicts between competitive approaches for providing rules of conduct and financial transactions. This flexibility has created many opportunities for manipulation, deception and misrepresentation. These activities are carried out by the less cautious elements of the accounting profession, known as creative accounting, as an academic theorist, believes that creative accounting is changing with the weakness privilege of existing laws or the absence of a specific standard.

    Amat, a professor at the University of Barcelona, Spain and colleagues, as the accounting and economics researcher, in an article Entitled Ethics and Accounts published in 1999; defines this phenomenon as creative accounting is a process in which accountants use their own knowledge and accounting practices to manipulate the figures contained in the financial statements and accounts of Commercial unit.

    2.1. The Factors Causing Creative Accounting

    The likelihood of occurrence of creative accounting may arise in the following domains: (Okoye and Alao, 2008;Lotfi and Vidyasagar 2019).

    Legal flexibility: accounting standards often allow the selection of a procedure among multi-procedures (for example in the case of asset valuation. For example, international accounting standards relating to the disclosure of non-current assets, to revalue or to depreciate historic cost, allow to the providers of financial statements to choose. Commercial entities may change your accounting procedures correctly.

    Lack of law: Some areas are not lawful. For example, in relation to stock options accounting, there are very few legal requirements. In some countries, including Spain, the accounting standard applies limited, for example, to the recognition and measurement of retirement debt and specific aspects of accounting for financial instruments

    Management judgment: Management has significant discretion to estimate in arbitrary domains and items.

    Scheduling some deals: Real and ordinary transactions can be scheduled to have the desired effect on accounts. For example, suppose a company has a historical cost investment that can easily be sold at a higher price than its current value. Company managers can decide freely about when they will sell the investment and thereby increase their profits. Dummy trades can be used to manipulate balance sheets and to transfer profits between accounting periods. This can be done by entering two or more transactions related to a binding t4hird party, such as a bank. For example, it is assumed that some agreements are done to sell an asset to the bank and then the lease of that asset from the bank for the remainder of its useful life. The sale price of such a sale and lease agreement can reach more or less than the current value of the asset, because the difference can be compensated for by increasing or decreasing the leasing.

    Reclassification: The Fox study (1997) suggests that companies may refinance debt classifications and balance sheet adjustments for smoothing leverage and liquidity ratios. A specific type of creative accounting that relates to financial figures based on reference time points. But according to Merchant and Rockness (1994) such a classification is based on revenues, costs, assets and liabilities. The explanation is that the methods used to make creative accounts that are used to provide cash-flow statements of profits and losses are added to these items. In particular, this classification includes: (a) premature or false earnings recognition; (b) excessive capitalization and long depreciation periods procedures; (c) inaccurate reporting of assets and liabilities; (c) creativity on the account Profit and loss; (e) cash flow issues

    In his speech, Jim Cani, a member of the Australian Chartered Certified Accountants Association of Victoria, he emphasized that: The financial statements of newly recognized companies reflect the good performance, which generally seems that the financial statements of these companies have been manipulated. These manipulations manifest themselves in four forms: 1. Some companies try to show profit and loss and good performance to attract investors attention by presenting their manipulated financial statements, which is difficult to diagnose. 2. Some companies sometimes have no interest in showing their company financial position to other companies. 3. Some financial statements are being manipulated in such a way that their goal is to persuade investors in the short term that this hope cannot be sustained. 4. Some firms try to reduce their financial situation, unlike the truth, by making creative accounting and preparing manipulated financial statements, and lowering the confidence of the investment in the market relative to the company.

    2.2. The Types of Creative Accounting

    The types of creative accounting are: a) profit smoothing; b) off-balance sheet financing; a). Generally smoothing of profits is the application of corporate governance rules in the priority and of recording cost and earnings accounting, or taking into account costs and transfer them to subsequent years, so that the company will have no major changes over the subsequent fiscal years. The most important motive for profit smoothing is the belief that companies that have a good profit trend and their profits do not undergo major changes are much more worthwhile than similar companies. Smoothing profit increases, the company stock value in stock exchange and attracts potential investors

    Other incentives that make managers in seeking to smooth out profits include: (1) Get more managerial rewards by raising stock value: When company stock in stock exchange is worth more than similar companies Managers expect more rewards. 2) Paying less interest on borrowing from credit institutions and banks: The company smoothing is growing, which represents a lower risk for the company and allows it to borrowing money with lower interest rates of credit institutions and banks and less liquidity from low interest can be one of the company financial resources for its development. 3) Capital absorption: The growth procedure of the company is effective in making decisions by investors and creditors because they believe that these companies have lower risk and are better off for investment.

    External Financing

    It may cause creative accounting to maintain or upgrade a firm stock price by reducing the appearing borrowing level. As a result, the company reputation is shown to be less prone to risk, as well as a good outlook for profits. It can help the company to increase its capital from the issuance of new shares, sell its shares at its controlled auctions, and resist against controlling other companies. Outbound financing from the balance sheet means the absence of an item of property or debt or a financial activity on the balance sheet of a company. The item in question can be a lease (operating lease), which, in use of liens assets, is merely the payment of a leasing fee that in offices are displayed, and long-term commitments and subsequent lease payments do not usually cost a lot of money.

    This method of presentation is proposed by the accounting standards of most countries in the form of dividing the leases into operations and capital. Also, obligations such as future and forwards and long-term contractual obligations and derivative contracts (with the exception of stock-linked derivative contracts), including examples of the off-balance sheet financing. Some companies, based on the nature and type of activity, may not display a large amount of debt on their balance sheet. For example, financial institutions that are engaged in asset management or in the provision of brokerage services by a client. These institutions manage their asset items in forms of Financial reports are often reported as offbalance sheet assets. Many off-balance sheet items are affected by management perspective on future prospects and outcomes. Out-of-fund financial instruments, in general, can include five types of financial instruments:


    According to the Barnea et al. (1976), the lease is an agreement or contract between two or more parties that, under this contract, the lessor agrees to acquire and take ownership of the asset and derive from the tax benefits arising from depreciation and lease payments The leaseholder agrees to use the leased asset and pay the lease determined by the lessor (leaseholder). The right to lease is for the compensation of the investment made by the lessor, the obsolete technology, the risk of a decline in the value of the sale at the time of resale of the asset and the possibility of its disappearance by the lessor. An attribute that strengthens incentives for companies to lease is the possibility of operating external financing of the balance sheet, which is achieved by not showing assets and liabilities in the financial statements for the lessee and, as a result, the leverage ratio and the profitability ratios of returns Assets, returns on investments and return on salary of stockholders are better shown than when assets are purchased; however, this practice is considered as accounting and is not an ethical procedure.

    Selling Accounts Receivable

    There are three types of accounting practices available to the seller of accounts receivable: non-recognition of assets and liabilities, simultaneous identification of assets and liabilities, separate identification of assets and liabilities arising from the sale of accounts receivable. In the absence of identification of assets and liabilities, the sale of accounts receivable is considered as an off-balance sheet instrument. In this way, the demands arising from accounts receivable will be hedged out by the sale proceeds.

    Financing of specific projects

    Financing of specific projects Based on the findings of Bhasin (2016), the key stages of financing of specific projects are that after the start of the project, revenues and costs are recognized regardless of the initial costs of the project. The reason for this is the separation of ownership of the project from its owner. This means that there are companies that are responsible for carrying out the projects, and these types of companies are considered as a kind of external financing. Usually, a company uses a type of financing that has limited financial capability or has not found another cost-effective way.

    Financing of the specific projects can also be called financing of limited resources. The financing of particular projects has the following key features: a. Limited financial capability of the project manager (completer of the project); b) Separation of the profit unit (project owner) from Project manager C) probability of financing with less costs.


    According to Dechow and Skinner (2000), outsourcing is the sale of a unit with its personnel and production equipment that the business unit has previously been trained in from a foreign company and Then concludes a contract for the construction of equipment or performs services with the characteristics which it determines with another company. Outsourcing has many advantages and disadvantages. Outsourcing is a kind of financing, because in the absence of using this method, the equipment or services should be provided internally. The main feature of financing through outsourcing is the responsibility of providing equipment and services to other companies.

    Transformation of Assets into Securities

    It knows the transformation of asset-to-securities are the categorization of a set of assets, such as loans and accounts receivable, and the transfer of this set of assets to one (such as a bank) as a collateral. Then the bank is backed by collateral, it can distribute securities in different forms and distribute it to the public. The proceeds from the issuance of these securities are paid to the company as a loan. Therefore, the transformation of assets into securities can be defined as: the process through which non-cash assets are converted into cash assets by a better management approach. In this case, often the conversion of assets into securities causes the securities to be distributed with interest because the risk is low. This will reduce the financing cost of the company. In this method of financing, since no debt is identified (because, like in the case of sale, assets are removed from the balance sheet and cash is received instead), the said operation is a kind of financing outside the balance sheet, and key ratios are improved. At the same time, it is possible for the company to not need to cash and expand the volume of its business activities without increasing capital.

    The conversion of assets to securities has the following characteristics: a) a bonding of similar assets; b) reducing credit risk by increasing credit; c) investors invest in the assets of the company, not on the company. Considering that economic structures, as well as customary laws and regulations, do not make it impossible to use all of the above tools in Iran, in this research, operating lease are considered as the only means of financing outside the balance sheet.



    The model of this research is designed based on the Bhasin (2016) model. Bhasin uses a financial statement to base a model for recognizing fraudulent companies from non-fraudulent companies. The model presented by Bhasin is well-known as PROBM model, and since the accuracy of this model has been tested over several different periods, it has become a standard model. Bhasin in his original article, using 1988.-1988.s data, he attempted to identify fraudulent companies, and his second research period was from 1992 to 1989, and since this model was only using financial statements detects fraud, if the company, in addition to fraud and manipulation, is attempting to fraud in other factors affecting the decision making of Investors and financial analysts, usefulness of financial statements information is reduced. By using three attitudes, Bhasin has selected the research variables based on financial statements.

    In the first attitude, the selection of variables in the model is among the companies whose future outlook is not in line, so the likelihood of fraud is high, which this choice is based on academic researches and accounting specialists. In the second attitude, the selection of variables in the model is based on the cash flow statement and accruals items. In the third attitude, selection of variables in the model is based on the motivation of earnings management in representation theory. In this research, the independent variable is the probability of fraud (PROBM), which is calculated using the Banish model as Equation (1).


    where PROBM is the probability of manipulating profits, that is, the probability of fraud, and includes the eight variables that are calculated using the financial statement information as follows:

    • 1. The DCR index: according to relationship 2, this index is calculated through the ratio of accounts receivable to sales in the year = t, divided into same ratio in t-1.

    DSR :   ( ( a c c o u n t   r e c i v e d ) s a l e s ) t ( a c c o u n t   r e c i v e d s a l e s )   t 1

    This index indicates that, demands and incomes in consecutive periods are mismatched. Huge increase in companies’ sale shows changes in companies’ credibility, so receiving accounts should rise as much. If sales rise a lot but the receiving accounts do not increase as much as them it shows distortion in income and sales.

    • 2. The GMI index: this is calculated with equation 3 by dividing gross profit in the power of t-1 year to gross profit t year.

    GMI = ( g r o s s p r o f i t p e r c e n t a g e ) t 1 ( g r o s s p r o f i t p e r c e n t a g e ) t

    If this index was bigger than one, shows gross profit growth. It indicated in his investigation that reduction of gross profit is a negative sign for future of the company. So in these companies the fraud contingency in incomes is too high. So it is expected that there is a positive relationship between GMI and fraud.

    • 3. AQI index: in this index equation 4 is calculated with sum of current assets and fixed assets divided to total assets and the result will subtract one and the result of the text in year t divided on the same amount in year t-1.

    AQI = ( 1 ( { current asse + fixed assets } / a s s e t s ) t 1 ( { current asse + fixed assets } a s s e t s ) t 1

    If this ratio is greater than one, it indicates reduction in company’s properties, in another word some parts of company’s properties transcended in to expenses.

    • 4. The SGI index: this index which is based on equation number 5, sell in year t is divided to sell in year t-1.

    SGI = ( s e l l ) t ( s e l l ) t 1

    Generally increase of this index, does not show committing fraud and distortion, but managers of big companies are always under the pressure of financing and increasing stocks price. In this companies if the sale increase were negative, worth of stocks will decrease and impose more costs on managers. So managers usually try to hide negative sales rate. Therefore it is expected that there is a positive relationship between SGL and fraud contingency.

    • 5. DPEI index: in this index according to equation number6 depreciation has been divided to sum of depreciation and fixed assets and result of this statement for t year is divided to result of this statement for t-1 year.

    DEPI = ( depreciation ( depreciation + six assets ) ) t 1 ( depreciation ( depreciation + six assets ) ) t

    If the result was more than one it shows that depreciation costs has decreased compared to the last year. This may happen by increasing the shelf life of properties, or has been done in depreciation methods, so a positive relationship between DEPI and fraud contingency is expected.

    • 6. The SGAI index: in this index selling and administrative costs and sell are divided into sell, the result of that in t year is divided to the result in t-1 year

    SGAI =   ( selling and administrative costs / sell ) t ( selling and administrative cost s / s e l l ) t 1

    The increase in this index indicates a decrease in productivity of selling and administrative departments. In other words, there is a kind of disproportion between administrative costs and selling price that we can predict there is a positive relationship between SGAI and fraud contingency.

    • 7. LEVI index: according to LEVI index all of the debts is divided into all of the assets and the result of this statement is divided into t year and such amount in t-1 year

    LEVI = ( a l l o f t h e a s s e t s + a l l o f t h e d e b t s ) t ( a l l o f t h e a s s e t s + a l l o f t h e d e b t s ) t 1

    If this number is larger than one, it can be deducted that the amount of leverage and debt use has increased this year compared to the previous year. Increasing of the debts creates an appropriate background for committing fraud.

    • 8. TATA index: based on this index in equation 9 profit before unexpected events should subtracted from cashes and divide into all the properties for each year.

    TATA = profit before unexpected events cashes all assets

    The deductible face represents accruals, and according to many studies that have been done, the increase in accruals indicates an increase in fraud expectations. This research has two independent variables of off-balance-sheet financing and profit smoothing that external financing is measured using the lease expense disclosed in the explaining notes to the financial statements of the companies admitted to Tehran Stock Exchange. In the first section, for the breakdown and identification of creative smoothing companies from nonsmoothing companies, the model of the variation coefficient ratio model for changing the time series of the profit is used to change coefficients for the change in the sales timeline. In this model, if the ratio of the coefficient of variation is smaller than one is a creative smoothing company.

    C V T o t a l = C V Δ I C V Δ S = ( Δ I i Δ ¯ I ) 2 / ( n 1 ) Δ ¯ I ( Δ S i Δ ¯ S ) 2 / ( n 1 ) Δ ¯ S < 1

    • DI1 = Profit Change in a Period

    • DI = Average Profit Change

    • DS1 = Sales Change in a Period

    • DS = Average Sales Change

    • CV = Coefficient of Change

    So that the recognition of smoothing and non-smoothing companies at three levels of profit including gross profit, operating profit and net profit in It is considered that if a company has done any smoothing at each level, it will be introduced as a smoothing company.


    4.1. Statistical Population of the Society and the Statistical Sample of the Research

    Statistical population and sample consists of all elements and individuals who have one or more common attributes in a geographical scale (global or regional). The statistical population of this research includes all companies accepted in Tehran Stock Exchange. The statistical sample is a limited number of statistical population units that express the main characteristics of society. In this research, a systematic elimination method was used to determine the statistical sample of an appropriate representative of the statistical population. For this purpose, 4 criteria are considered below and if the company has met all the criteria, they will be selected as the sample of the study and the remaining ones will be deleted.

    • 1. The company will be active on the stock exchange by the end of 1394.

    • 2. The company is a production company and is not a company of any of these companies due to the specific nature of the activities of holding companies, insurance, leasing, banks, financial institutions and investments, and their significant difference with manufacturing and trading companies.

    • 3. The financial year of the company will be March 29th and there will be no change in the fiscal year during the research period.

    • 4. The company is not covered by Article 141 of the Commercial Code.

    • 5. Corporate financial information is available.

    4.2. Research Method

    This research is a correlation study, namely, the investigation of relationship and correlation between variables through regression and post-event type research methodology. The historical information of companies is extracted from the financial statements of the companies accepted in the stock exchange. To test the hypothesis, logistic regression analysis was used and all tests were performed using Eviews software

    4.3. Testing Hypotheses

    Main hypothesis: There is a significant relationship between creative accounting and fraud probability. First sub hypothesis: There is a significant relationship between profit smoothing and fraud probability. Second sub hypothesis: There is a meaningful relationship between off-balance sheet financing and the fraud probability. In this research, the independent variables for each company - the year of the statistical sample - are calculated and the values are obtained by inserting. In the Bhasin model, the PROBM value of the company was calculated in the year of the statistical sample and the fraudulent companies were distinguished from non-fraudulent companies. In addition to describing how to separate the fraudulent companies from non- non-fraudulent companies are also looking for the determination and identification of smoothing companies from non-smoothing companies. To this end, the coefficient of variation ratio model used in the sales timeline has been used. In this model, if the ratio of the coefficient of change is smaller than one, then the company is a false smoothing of profit. Then, using statistical methods, we examine the relationship between profit smoothing and the probability of fraud. Also, in the case of external financing, we deal with the relationship between external financing (Leasing cost) with the possibility of fraud.


    In this research, 790 years of company in three major variables have been studied. The variable of the probability of fraud, which is specified by two numbers 1 and 0, if the company is fraudulent, the number 1 is assigned to it, and if it is not fraudulent, the number 0 (Table 1). Another variable is the smoothing of the profit, if a company has a smoothing, the number 1 is allocated to it, and in non This is 0. And the third variable is the lease expense disclosed, which is either zero (no leasing fee) or another number. 790 data have no problem and 589 years of company have not been smoothing of the profit, but 201 companies have smoothing. In 443 years, the company did not have a probability of fraud, but in 347 years the company had a high risk of fraud. 318 non-fraudulent companies did not have a profit smoothing, but 125 nonfraudulent companies have a profit smoothing. 271 years of fraudulent companies have not make a profit. 76 fraudulent companies have also made a profit smoothing

    The lowest leasing rate is 0, with a large number of companies having this feature. The maximum leasing cost is 1.508.023 Rials. The average cost of leasing is 10.566 with a standard deviation of 93.942, which indicates that companies are more dispersed in this variable. The excessive kurtosis and skewness of this variable is also due to the large number of 0 in this variable (Table 2).

    As stated above, the average leasing cost is 10.566, the average leasing cost is 11.420 for fraudulent companies and 9.896 for non-fraudulent companies. Which means the average leasing cost for fraudulent companies is higher.

    As stated above, the average leasing cost is 10,566, the average leasing cost in companies that have not been profit smoothing is 10,449 and in companies that have been smoothing 11,320. That is, the average leasing cost is higher for companies that have been profit smoothing. The results of this table show that companies that have been smoothing out profit use more external financing, that is, companies using a creative accounting method they tend to be more inclined to use another method of creative accounting (Table 3).

    For analysing the research hypotheses, we first discuss them:

    Main hypothesis: There is a significant relationship between creative accounting and probability of fraud.

    First sub hypothesis: There is a significant relationship between profit smoothing and probability of frau

    Second sub hypothesis: There is a significant relationship between external financing (leasing cost) and the probability of fraud (Table 4). According to the assumptions, the probability of fraud is a dependent variable and the smoothing of the profit and the cost of leasing are independent variables. Since the dependent variable is two-state (1, fraudulent and 0, non-fraudulent), the nonlinear logistic regression method should be used to obtain the relationship. The general logistic regression equation is as follows:

    p = exp ( B 0 + B 1 x 1 + + B k x k ) 1 + exp ( B 0 + B 1 x 1 + + B k x k ) ln ( p 1 p ) = B 0 + B 1 x 1 + + B k x k

    P = probability of occurrence of fraud, log [p / (1-p)]: dependent variable (the ratio of the probability of occurrence of fraud to non-occurrence of fraud or oods ratios) β0 = y_intercept

    • β1, …,βk = Regression coefficients of independent variables

    • x1,…, xk = independent variables

    Logistic regression can be seen as a special case of general linear modeling and linear regression. The logistic regression model is based on completely different assumptions (on the relationship between dependent and independent variables) from linear regression. The important difference between these two models can be seen in two features of logistic regression. First, the conditional distribution (Y|X) is Bernoulli distribution, instead of a normal distribution, because the dependent variable is binary. The second is the probability prediction values, and is limited to the interval between zero and one and is obtained by the aid of the logistic distribution function. In logistic regression after fitting the model and significant evaluating the coefficients for the coefficients interpretation, the oods ratio is used. To calculate the odds ratio, the value of e (nip number) to the coefficient power is given in the software in the final column of this calculation model. In the logistic regression model (Table 5), instead of computing t statistics, the Wald statistic is calculated using the same method (it is obtained by dividing the regression coefficient by standard deviation).

    Logistic Regression model

    The variable coefficient of leasing cost has a very high significant level (above 0.05) and it is meaningless; this coefficient is very small and close to zero; in fact, it can be said no significant relationship between leasing cost and the probability of fraud. The coefficient of positive profit smoothing and its value is 0/373 and this means that there is a direct relation between the probability of fraud and the smoothing of profits. The significance level of this coefficient is 0.028, which is below 0.05, and therefore is significant. Its coefficient can now be interpreted. The interpretation of the profit smoothing coefficient: the amount used in the final column for interpretation is 1.45, which means that the fraudulent oods of companies that have been profit smoothing is approximately 1.45 times that of non-smoothing companies. And this confirms the first hypothesis. That is, there is a significant relationship between the profit smoothing and the probability of fraud. One of the features of the logistic regression model is its audit or classification. That is, before the analysis, data belong to two categories 0 or 1 (probability of fraud), and after analysis using the logistic regression model, the data are again classified and the percentage accuracy of the classification shows the predictive power of the model. According to the results, the accuracy of this model is about 56%, which is acceptable.


    Corporate executives are using creative accounting try to present a desirable image of their financial statements to achieve their specific goals within the framework of accounting standards, which this image ultimately causes investors to be confused with recognizing fair and unfair financial statements and its long-term effect will be lead to the distrust of investors towards the company (Ebrahimi, 2016). The purpose of this study is to investigate the relationship between creative accounting and fraudulent probability. In this research, to determine the fraudulent companies from the non-fraudulent, Bhasin research model has been used. The results of the first hypothesis show that there is a significant relationship between the probability of fraud and the profit smoothing. in the present era, the fraud from the traditional mode, which includes theft of accounting finance and the distortion of financial statements has been changed, and managers usually manage accruals and smoothing out and manage their profits (Ebrahimi, 2016), which shows that one of the ways of financial fraud in companies is to manipulate or earnings management, which results of This research is consistent with the results of Perols and Lougee (2011).

    The results of the second hypothesis show that there is no significant relationship between the probability of fraud and external financing. The results show that the average cost of leasing in fraudulent companies is higher than non-fraudulent companies, but the overall results show that there isn’t a significant relationship between the probability of fraud and external financing that the lack of relation can be due to the limitations of data collection. In the financial statements of the companies accepted in the Tehran Stock Exchange, the classification of costs and disclosure of the cost of the lease has not been properly executed, and this has caused It causes the number of companies that disclosed lease expense are limited and researcher are limited in data collection.



    The condition of the year of companies in two fraud probability variables and profit smoothing

    Descriptive indices of disclosed leasing cost

    Average leasing cost of fraudulent and non- fraudulent companies

    Leasing cost by profit smoothing

    Logistic regression model


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