Financial Statement Fraud: Insights from the Academic Literature Chris E. Hogan, Zabihollah Rezaee, Richard A. Riley, Jr., and Uma K. Velury SUMMARY: We summarize relevant academic research findings to contribute to the Public Company Accounting Oversight Board PCAOB project on financial statement fraud and to offer insights and conclusions relevant to academics, standard setters, and practitioners. We discuss the characteristics of firms committing financial statement fraud, as identified in the literature, and research related to the fraud triangle. We then discuss research related to the procedures and abilities of auditors to detect fraud, and how fraud risk assessments impact audit planning and testing. In addition, we discuss several “high risk” areas and other issues as identified by the PCAOB. Finally, we summarize prior findings and offer conclusions and suggestions for areas where future research is needed. Keywords: financial statement fraud; fraud detection; fraud triangle; audit procedures; audit planning; high-risk audit areas. INTRODUCTION To facilitate the development of auditing standards and to inform regulators of insights from the academic auditing literature, the Auditing Section of the American Accounting Association AAA has decided to develop a series of literature syntheses for the Public Company Accounting Oversight Board PCAOB. This paper synthesizes and discusses implications of academic re- search on fraudulent financial reporting that should be relevant to regulators, practitioners, and academics. 1 Chris E. Hogan is an Associate Professor at Michigan State University, Zabihollah Rezaee is a Professor at the University of Memphis, Richard A. Riley, Jr., is an Associate Professor at West Virginia University, and Uma K. Velury is an Associate Professor at the University of Delaware. We appreciate the helpful comments and suggestions of Scott Bronson, Joe Carcello, Karl Hackenbrack, Dana Hermanson, Roger Martin, Jerry Strawser, Michael van Breda, Michael Wilkins, conference participants of the 2007 PCAOB Symposium, Dan Simunic editor, and two anonymous reviewers. 1 The views expressed in this paper are those of the authors and do not reflect an official position of the AAA or the Auditing Standards Committee. In addition, while discussions with PCAOB staff helped us identify the issues that are most relevant to setting auditing standards, the author team was not selected or managed by the PCAOB, and the resulting paper expresses our views, which may or may not correspond with the views held by the PCAOB and its staff. Auditing: A Journal of Practice & Theory American Accounting Association Vol. 27, No. 2 DOI: 10.2308/aud.2008.27.2.231 November 2008 pp. 231–252 Submitted: December 2006 Accepted: February 2008 Published Online: March 2009 231