Effects of Internal Controls, Fraud Motives and Experience in Assessing Likelihood of Fraud Risk

Abstract

Abstract-The audit profession has attempted to improve auditors' ability in assessing likelihood of fraud risk so as to enhance audit quality and increase investor confidence. Malaysian Approved Standards on Auditing, AI 240 on "Fraud and Error" and National Audit Department guidelines on fraud requires the auditor to assess the likelihood of fraud based on the internal control and pressure and opportunity. The purpose of this study is to examine which factor most likely use by auditors in assessing the likelihood of fraud risk. An experimental approach is adopted by sending case scenarios to 63 auditors from the National Audit Department of Malaysia and 67 final year accounting students. Both groups have to complete two different case scenarios which level of internal controls and fraud motivation (i.e., pressures and opportunity) are being manipulated into high and low level. The results indicate that there are significant interaction between internal controls and fraud motivation factors. The findings may provide insights into the auditors' judgment in fraud risk assessment which could be beneficial to increase the auditors' awareness and understanding of fraud risk factors and thus, maintain their viability in the auditing profession.

Integrating ethical values into fraud triangle theory in assessing employee fraud: Evidence from the Malaysian banking industry

“…Inadequate supervision, poor separation of duties, lack of management approval, or weak system control are examples that may provide opportunities that may result in fraud among employees (Sanusi et al, 2015). Vona (2012) identified lack of internal control as a factor that can create an opportunity as a risk assessment tool on human resources.…”

“…Past studies on fraud have focused on financial statement fraud Hooper & Forneli, 2010) and public sector fraud (Sanusi et al, 2015;Bakri et al, 2015) in developed countries (Smith, 2005;KPMG, 2010). Therefore, this study aims to contribute to literature by integrating the ethical value aspect into the fraud triangle theory in the context of Malaysian banking industry.…”

Integrating Ethical Values into Fraud Triangle Theory in Assessing Employee Fraud: Evidence from the Malaysian Banking Industry

“…In addition, Rae and Subramaniam (2008) agreed that opportunity may generally be caused by weaknesses in the internal controls. Inadequate supervision, poor separation of duties, lack of management approval, or weak system control are examples that may provide opportunities that may result in fraud among employees (Sanusi et al, 2015). Vona (2012) identified lack of internal control as a factor that can create an opportunity as a risk assessment tool on human resources.…”

“…Currently, studies on employee fraud occurrence in the banking industry are not given adequate attention by researchers. Past studies on fraud have focused on financial statement fraud Hooper & Forneli, 2010) and public sector fraud (Sanusi et al, 2015;Bakri et al, 2015) in developed countries (Smith, 2005;KPMG, 2010). Therefore, this study aims to contribute to literature by integrating the ethical value aspect into the fraud triangle theory in the context of Malaysian banking industry.…”

Imperative of revisiting the operational risk control architecture in public sector banks (PSBs) in India: a qualitative analysis

“…A stronger internal control helps the organizations to identify the problems and situations, which could be potential cases of frauds (Nyakarimi & Karwirwa, 2015). The weaknesses in the internal control, improper supervision, lack of management approval and improper separation of duties of employees open the door for employees to engage in bank frauds (Sanusi et al, 2015). Thus, it is expected that there is a positive relationship between the inherent weaknesses in risk management architecture and lax corporate governance resulting in banking frauds in PSBs.…”