A computational model for financial reporting fraud detection

A computational fraud detection model (CFDM) was proposed for detecting fraud in financial reporting. CFDM uses a quantitative approach on textual data. It incorporates techniques that use essentially all of information contained in the textual data for fraud detection. Extant work provides a foundation for detecting deception in high and low synchronicity computer‐mediated communication (CMC). CFDM provides an analytical method that has the potential for automation. It was tested on the Management's Discussion and Analysis from 10‐K filings and was able to distinguish fraudulent filings from non‐fraudulent ones. CFDM can serve as a screening tool where deception is suspected.