Abstract:

The intense competition in all markets of the world due to globalization has driven companies in capital markets to panic. As they are in a race to be the best, often times they may resort to fraud and manipulation. Upon examination of fraud and manipulation in the past, it is seen that many of them emerged after similar symptoms. Although not considered as a definite proof of fraud, these symptoms that indicate fraud in financial statements are reported as “red flag”. In line with importance of red flags in detection of frauds, initially some descriptions have made about detecting fraud and manipulations, evaluating fraud risk and red flags as indicators of fraudulent financial reporting in this study. And the main purpose of this study is to investigate the level of effectiveness of the 42 red flags determined from SAS No.99 in detecting the fraudulent financial reporting from the perspective of auditors in Turkey. For this purpose, a questionnaire was designed and sent to the Firms Engaged in Independent Auditing Activities of Capital Markets Board of Turkey. Their responds were analyzed in SPSS 17 pack program. According the results of this study, the level of fraud-detecting effectiveness of these red flags determined as ‘somewhat effective’ by the auditors. However, the red flags related to opportunities are judged to be the “mostly effective” category of red flags. So according to the responds of the auditors it can be say that the opportunities are more dangerous for the companies in our country and both companies and auditors should be careful about the indicators related to opportunities for preventing fraud and manipulations.

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