Rigorous statistical research continues to demonstrate that corporate accounting fraud remains common and costly. Aside from tangibly harming the shareholders of fraudulent and even non-fraudulent firms, misleading accounting and disclosure practices weaken the integrity of capital markets; they further obscure issuer risks and undermine investors’ trust in the reliability of mandated corporate filings. In this report, James A. Kaplan shares his thoughts on how investors can use validated methods of fraud detection to improve portfolio performance.
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