TY - JOUR
T1 - Accrual management as an indication of money laundering through legally registered Mafia firms in Italy
AU - Ravenda, Diego
AU - Valencia-Silva, Maika M.
AU - Argiles-Bosch, Josep Maria
AU - Garcia-Blandon, Josep
N1 - Publisher Copyright:
© 2018, Emerald Publishing Limited.
PY - 2018
Y1 - 2018
N2 - Purpose: The purpose of this paper is to investigate how accounting is used to disguise and carry out money laundering activities in specific socio-economic and political contexts and whether discretionary accruals can provide evidence of such illicit practices performed through legally registered Mafia firms (LMFs). Design/methodology/approach: The study is based on a sample of 224 Italian firms identified as LMFs, due to having been confiscated by judicial authorities because of their owners being accused of Mafia-type association. Using a multivariate regression model, specifically developed discretionary accrual proxies for LMFs are compared with those of a population of lawful firms (LWFs). Findings: The results reveal that in the pre-confiscation years, LMFs manage aggregate, revenue and expense accruals more than LWFs do, in order to smooth earnings and disguise/carry out money laundering. In contrast, in the post-confiscation years, there is no significant difference in the level of accrual management between LMFs and LWFs, as a consequence of the effective intervention of legal administrators. Originality/value: This study adopts discretionary revenue and expense accrual proxies that provide additional insight into the simultaneous manipulation of revenues and expenses, linked to money laundering, which may not be fully detected by traditional aggregate accrual models. Furthermore, it suggests that the incentive for LMFs to manage accruals may be fostered by the irrelevance of their financial statements to trades with stakeholders. Finally, this paper may provide regulators with financial accounting signals which could be included in risk assessment models aiming to detect money laundering activities within firms.
AB - Purpose: The purpose of this paper is to investigate how accounting is used to disguise and carry out money laundering activities in specific socio-economic and political contexts and whether discretionary accruals can provide evidence of such illicit practices performed through legally registered Mafia firms (LMFs). Design/methodology/approach: The study is based on a sample of 224 Italian firms identified as LMFs, due to having been confiscated by judicial authorities because of their owners being accused of Mafia-type association. Using a multivariate regression model, specifically developed discretionary accrual proxies for LMFs are compared with those of a population of lawful firms (LWFs). Findings: The results reveal that in the pre-confiscation years, LMFs manage aggregate, revenue and expense accruals more than LWFs do, in order to smooth earnings and disguise/carry out money laundering. In contrast, in the post-confiscation years, there is no significant difference in the level of accrual management between LMFs and LWFs, as a consequence of the effective intervention of legal administrators. Originality/value: This study adopts discretionary revenue and expense accrual proxies that provide additional insight into the simultaneous manipulation of revenues and expenses, linked to money laundering, which may not be fully detected by traditional aggregate accrual models. Furthermore, it suggests that the incentive for LMFs to manage accruals may be fostered by the irrelevance of their financial statements to trades with stakeholders. Finally, this paper may provide regulators with financial accounting signals which could be included in risk assessment models aiming to detect money laundering activities within firms.
KW - Discretionary accruals
KW - Fraud
KW - Legally registered Mafia firms
KW - Money laundering
UR - http://www.scopus.com/inward/record.url?scp=85041705431&partnerID=8YFLogxK
U2 - 10.1108/AAAJ-12-2015-2329
DO - 10.1108/AAAJ-12-2015-2329
M3 - Article
AN - SCOPUS:85041705431
SN - 0951-3574
VL - 31
SP - 286
EP - 317
JO - Accounting, Auditing and Accountability Journal
JF - Accounting, Auditing and Accountability Journal
IS - 1
ER -