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Sustainability 2018, 10(2), 513; https://doi.org/10.3390/su10020513

An Effective Financial Statements Fraud Detection Model for the Sustainable Development of Financial Markets: Evidence from Taiwan

Department of Accounting, Soochow University, No. 56, Section 1, Kueiyang Street, Chungcheng District, Taipei 10048, Taiwan
Received: 26 November 2017 / Revised: 11 February 2018 / Accepted: 12 February 2018 / Published: 14 February 2018
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Abstract

This study aims to establish a rigorous and effective model to detect enterprises’ financial statements fraud for the sustainable development of enterprises and financial markets. The research period is 2004–2014 and the sample is companies listed on either the Taiwan Stock Exchange or the Taipei Exchange, with a total of 160 companies (including 40 companies reporting financial statements fraud). This study adopts multiple data mining techniques. In the first stage, an artificial neural network (ANN) and a support vector machine (SVM) are deployed to screen out important variables. In the second stage, four types of decision trees (classification and regression tree (CART), chi-square automatic interaction detector (CHAID), C5.0, and quick unbiased efficient statistical tree (QUEST)) are constructed for classification. Both financial and non-financial variables are selected, in order to build a highly accurate model to detect fraudulent financial reporting. The empirical findings show that the variables screened with ANN and processed by CART (the ANN + CART model) yields the best classification results, with an accuracy of 90.83% in the detection of financial statements fraud. View Full-Text
Keywords: financial statements fraud; data mining; artificial neural network (ANN); support vector machine (SVM); decision tree; classification and regression tree (CART); chi-square automatic interaction detector (CHAID); C5.0; quick unbiased efficient statistical tree (QUEST) financial statements fraud; data mining; artificial neural network (ANN); support vector machine (SVM); decision tree; classification and regression tree (CART); chi-square automatic interaction detector (CHAID); C5.0; quick unbiased efficient statistical tree (QUEST)
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This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).
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Jan, C.-L. An Effective Financial Statements Fraud Detection Model for the Sustainable Development of Financial Markets: Evidence from Taiwan. Sustainability 2018, 10, 513.

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