Paper Title
The Prospect Theory and Managements' Fraud Incentives in Financial Reporting: A Literature Review

Abstract
Prospect Theory is one of the best-known theories to explain how an individual makes decisions under risky conditions. Despite extensive studies of prospect theory (PT), researchers have often neglected prospect theory's ability to explain managers' incentives to commit fraud. In this paper we reviewed the current literature and attempted to question the ability and usefulness of this theory in explaining managers' decision to commit corporate fraud as a risky act. The full version of this paper summarizes the historical developments of these fields, clarifies the relationships and commonalities, and provides a concise classification of studies. We have concluded that PT may not be the only logic that can explain why and when managers commit fraud in organizations, and that the “reference point” concept in this theory may not be the only factor that strengthens or weakens managers' incentives to commit fraud. In other words, cultural and legal characteristics, as well as the index chosen as the reference point, may also influence the accuracy and usefulness of this theory in explaining fraud. Finally, we provided recommendations for issues to be considered for different groups of potential stakeholders in this matter. Keywords - Fraud, Fraud Incentives, Fraudulent Reporting, Prospect Theory, Risk Aversion, Risk Seeking.