ORIGINAL ARTICLE
Non-GAAP Reporting Decisions and the Enhanced Fraud Triangle: The Role of Capability
Valerie C. Simmons,
Dana R. Hermanson,
Velina K. Popova,
Valerie C. Simmons
Department of Accounting and Finance, Lewis Bear Jr. College of Business, University of West Florida, Pensacola, Florida, USA
Search for more papers by this authorCorresponding Author
Dana R. Hermanson
School of Accountancy, Coles College of Business, Kennesaw State University, Kennesaw, Georgia, USA
Correspondence:
Dana R. Hermanson ([email protected])
Search for more papers by this authorVelina K. Popova
School of Accountancy, Coles College of Business, Kennesaw State University, Kennesaw, Georgia, USA
Search for more papers by this authorValerie C. Simmons,
Dana R. Hermanson,
Velina K. Popova,
Valerie C. Simmons
Department of Accounting and Finance, Lewis Bear Jr. College of Business, University of West Florida, Pensacola, Florida, USA
Search for more papers by this authorCorresponding Author
Dana R. Hermanson
School of Accountancy, Coles College of Business, Kennesaw State University, Kennesaw, Georgia, USA
Correspondence:
Dana R. Hermanson ([email protected])
Search for more papers by this authorVelina K. Popova
School of Accountancy, Coles College of Business, Kennesaw State University, Kennesaw, Georgia, USA
Search for more papers by this authorFirst published: 27 March 2025
Funding: This work was supported by Kennesaw State University and the University of Southern Mississippi.
ABSTRACT
Based on an experiment with 92 US public company financial executives, we use the enhanced fraud triangle framework (pressure, opportunity and capability) to understand controllers' response to CFO pressure to opportunistically manipulate non-GAAP earnings. Overall, we find that capability factors are associated with controllers' behaviour in our experimental setting, with some evidence of pressure effects as well. Specifically, we find that controller bonus type, perceptions of the CEO's role in pressure from the CFO, the perceived ethicality of the action, the fairness of the decision process and whether participants have seen a similar situation in practice are significantly related to controllers' decisions. Overall, our results and other recent research findings point to the important role of capability in understanding and assessing fraud risk. We hope that the findings will be useful to auditors, and we encourage auditing standard setters to consider emphasizing capability in their fraud-related standards.
Conflicts of Interest
The authors declare no conflicts of interest.
Open Research
Data Availability Statement
Research data are not shared.
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