The impact of business climate indicators on the likelihood of fraud in the financial statements of companies

The accuracy of financial information disclosed by companies is the main source of investor information for making investment decisions. Therefore, any fraud in the submission of financial statements leads to unfavorable management of financial resources and non-optimal investment decisions. Empirical studies of financial reporting fraud predictions have focused on firm-level variables and neglected business climate variables. Therefore, in this study, the role of business environment on the probability of fraud in the financial statements of 120 companies listed on the stock exchange and securities during the period 2012-2019 has been investigated using a logistic regression approach. The results showed that the estimated logit pattern explains about 25.59% of the changes in the ratio of the probability of fraud in financial statements to its non-occurrence. Also, among the 9 variables of business environment, two variables of per capita income and free market exchange rate have a significant effect on the probability of fraud in companies' financial reports, and with a one percent increase in per capita income, the probability of cheating in financial reports is 0.5232% With the decrease and increase of the exchange rate in the open market, the probability of fraud in the financial reports of the surveyed companies increases by 0.4338%. These results indicate the importance of business environment variables along with company level variables in predicting the likelihood of fraud in corporate financial statements.