Journal of
Accounting and Taxation

  • Abbreviation: J. Account. Taxation
  • Language: English
  • ISSN: 2141-6664
  • DOI: 10.5897/JAT
  • Start Year: 2009
  • Published Articles: 204

Full Length Research Paper

Financial ratios between fraudulent and non-fraudulent firms: Evidence from Tehran Stock Exchange

Somayyeh Hosseini Nia
  • Somayyeh Hosseini Nia
  • Department of Accounting, Shiraz University, Iran.
  • Google Scholar

  •  Received: 18 December 2014
  •  Accepted: 10 February 2015
  •  Published: 31 March 2015


Fraud is a broad concept with two basic types seen in practice. The first is the misappropriation of assets and the second is fraudulent financial reporting. Fraudulent financial reporting usually occurs in the form of falsification of financial statements in order to obtain some forms of benefit. The current research compares the financial ratios between fraudulent and non-fraudulent firms for the companies listed on Tehran Stock Exchange. The sample consists of 134 companies from 2009-2014 and for testing the hypothesis Independent sample t-test was exerted. The results show that there is a significant difference between the means of Current Assets to Total Assets, Inventory to Total Assets and Revenue to Total Assets ratios. This means that management of fraud firms may be less competitive than management of non-fraud firms in using assets to generate revenue. Management may manipulate inventories. The company may not match sales with corresponding cost of goods sold, thus increasing gross margin, net income and strengthening the balance sheet. In addition, manipulation of inventory is in form of reporting inventory lower than cost or market value, and companies choosing not to record the obsolete inventory. Higher or lower margins are related to the issuing of fraudulent financial reporting. In addition, the results show that there is not a significant difference between the means of Total Debt to Total Equity, Total Debt to Total Asset, Net Profit to Revenue, Receivables to Revenue and Working Capital to Total Assets ratios.


Key words: Fraud, fraudulent financial reporting, financial ratio.