International Research Journal of Finance and Economics ISSN 1450-2887 Issue 161 May, 2017 http://www.internationalresearchjournaloffinanceandeconomics.com The Effect of Discretionary Accruals on Financial Statement Fraud: The Case of the French Companies AMARA Ines Accounting Department Faculty of Economic and Management Sciences of Sfax, Tunisia E-mail: amaraines@outlook.com Abstract The aim of this paper is to examine the effect of discretionary accruals and governance mechanisms in the occurrence of financial statement fraud. The sample consists of 250 annual reports spanning from 2006 to 2010 for listed French companies, which 45 detected fraudulent company by the Financial Market Authority (AMF). Our findings such that discretionary accruals have a positive effect in corporate fraud, when distinguish between positive discretionary accruals (aggressive accounting policy) and negative discretionary accruals (conservative accounting policy); we provide evidence that aggressive accounting manipulation increases the likelihood of financial statement fraud. By contrast, conservative accounting policy is negatively associate with corporate fraud. Additionally, the outside director and ownership concentration are the most significant variables of governance to explain the corporate fraud. Keywords: Fraud, Discretionary Accruals, Corporate governance JEL Classification: G34 1. Introduction Financial statement fraud is defined as “a deliberate attempt by corporations to deceive or mislead users of published financial statements, especially investors and creditors, by preparing and disseminating materially misstated financial statements” (Rezaee, 2005, p. 279). Financial statement fraud has attracted the attention of the public, press, investors, the financial community, and the regulators owing to many frauds detected such as Lucent, Xerox, Cendant, Enron, WorldCom, Adelphia, and Tyco. These multiple financial scandals show a significant difference between the accounting information disclosed by the managers and the economic reality of companies. According to the Association of Certified Fraud Examiners (ACFE)1,a corporate fraud worldwide has reached an amount of $ 3.5 billion in2011. Given this importance, the topic dealing with the determinants of corporate fraud has attracted a great deal of attention among researchers (e.g. Perols and Lougee, 2011; Jones et al., 2008). Empirical research dealing with this topic has generally focuses the importance of governance mechanisms to detect fraudulent companies(Beasley, 1996; Jia et al., 2009; Lisic et al., 2015). The corporate governance characteristic such as the board characteristic and the ownership concentration, have been shown to be effective in reducing the likelihood of accounting fraud and to ensure the effectiveness and relevance of financial information submit by companies(Dechow et al., 1 The ACFE is the world's largest anti-fraud organization and premier provider of anti-fraud training and education with more than 75,000 members. The mission of ACFE is to reduce the business fraud and to assist the membership in fraud detection. (http://www.acfe.com).