Financial statement fraud detection in the digital age

By Karina Kasztelnik, PhD and Eva K. Jermakowicz, PhD, CPA

The proliferation of technology throughout modern business has created novel opportunities for financial statement fraud. But technology tools can also be leveraged to help detect and prevent fraud. Contemporary artificial intelligence (AI) approaches have the potential to be more efficient and accurate in detecting fraud, especially novel frauds. But although AI models can analyze volumes of data too vast for humans to handle, they still rely upon human intuition, experience, and analysis to train them and look out for bias and error. Successful implementation requires careful planning, investment, and expertise.

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The digitalization of the global economy has created unprecedented opportunities for various kinds of frauds, some of which may involve, or create a corollary need for, financial statement deceptions. The proliferation of technology—and its accelerated adoption during the COVID-19 pandemic—has changed how companies conduct business and perform services. This has increased the need for innovative controls and other processes to protect against such risks. Fortuitously, technology—which may be one of the greatest enablers of frauds—also provides tools to prevent and detect their occurrence.

Reprinted with permission from the New York CPA Society. Read the complete publication here