Research on Early Warning Signals of Corporate Frauds


Early warning signals of corporate frauds 

Indiaforensic Center of Studies commenced the research on Early Warning Signals of Corporate Frauds. The project was commenced in early 2008 to identify a set of exceptional transactions, under the leadership of CA Mayur Joshi to setup the benchmark for the industry.

This report aimed to help the business in reducing the losses caused to the organization by the financially fraudulent activities. Further this project was aimed to create awareness about the opportunities pertaining to forensic accounting and to prevent the frauds by understanding the early signs and thereby taking the appropriate action.

On 29th August’2008 we have made available the study on Early warning signals of the corporate frauds. More than 300 professional Chartered Accountants from India and abroad participated in this and results of this survey are available in public domain.

There are two primary types of corporate frauds in India.

  • Frauds committed against the business
  • Frauds committed for the business

Learn more about these schemes in the Certified Forensic Accounting Professional Syllabus.This research address symptoms of various fraud schemes which can be sub classified under the above mentioned two schemes.

This research has a national significance and the excerpts of the Economic Times article are provided here for the kind reference.

“According to the initial concept, if the early warning system detects evidences or any trends indicating frauds or cheating, the ministry will have the right to initiate an inspection under provisions of Companies Act, 1956. The data on frauds will also be passed over to various Central government agencies dealing with money laundering, auditing and other financial frauds.

According to Mayur Joshi, Founder of Indiaforensic Center of Studies, a Pune-based education organization engaged in fraud examination and forensic accounting, the early warning signals are divided in two parts globally – warning signals of the frauds done for the company and indicators of the frauds done against the company. “Frauds broadly covers financial statement frauds like recognizing the revenues too early in the balance sheet in order to meet the analyst expectations or in case of the SME’s the frauds which are committed to evade the taxes. Frauds against the company affects the bottom line of the company, for instance traveling claims, inflation, embezzlement of funds and payroll frauds,” he explained.”

Impact of Research

This research had a significant impact on Indian society. In the next few years this research there were significant activities. Indicative list of the activities associated with the research on Early Warning signals of corporate frauds is elaborated below

  • M R Mayya former Executive Director of Bombay Stock Exchange supported this research report in Public and wrote article in Business Standard about the genuineness of this research. He also contributed to the Economic Times under the heading of “Do Multiple Agencies Harm market regulation?
  • While writing about the Satyam accounting fraud, in Jan’2009, Geeta Nair of Financial Express stated that it was predicted by Indiaforensic in the year 2008.
  • Thomas Wheelen and J David Hunger in their book on Management written in 2011, quoted the research to prove their point
  • Examination papers set by the Institute of Company Secretaries had the examination question on the research conducted by Indiaforensic
  • Study on Corporate Governance in India by Amit Kashyap referred this research as one of the references. This research is published by the Gujrat National Law University.
  • Dr. Gaddam Naresh Reddy of Osmania University published a research report on fraudulent financial reporting for UGC to understand the importance of the fraudulent financial reporting where Indiaforensic Research was mentioned as the base.