Financial Statements Fraud Control: Exploring Internal Control Strategies in Two Malaysian Public Interest Entities'

  • Norazida Mohamed

Student thesis: Doctoral Thesis


Financial statement fraud control has attracted considerable attention and associated response in recent years due to the incalculable collateral damage that could drain the long term success of companies. This research aims to present recommendations to improve financial statement fraud control in commercial companies. The research also evaluates the current strategies for the prevention and detection of financial statement fraud and the reaction thereto. Accordingly, the research attempts to highlight the best practices and weaknesses from the present practices. Based on the experience of two Malaysian commercial companies, the research provides ameliorations to improve the current weaknesses, in particular, to financial statement fraud control. The research takes a normative point of view in making recommendations for financial statement fraud control. A qualitative research methodology is adopted in conducting the investigation to understand the actual conduct of practices. Hence, the primary data are acquired from the case study companies and interviews with the relevant group of respondents, and secondary data from the law, regulations, legislation and professional guidelines. The research investigates the financial statement fraud regulations to understand the legal framework as well as the legal practice. Furthermore, the professional guidelines are examined to understand what the professional bodies have suggested to manage the risk of fraud, thereby enabling the researcher to understand the consequences of the actual practices and provide improvements for financial statement fraud control. In addition, interviews with regulators, forensic accountants, external auditors and independent bodies are conducted to develop an understanding of the protocols of financial statement fraud in Malaysia. Therefore, the findings of the research are a mix of the present practices, respective roles, and perceptions concerning the issues of financial statement fraud control.The case study findings demonstrate that neither case study company is highly concerned about the issue of financial statement fraud control. This provides an indication that no evidence was gained concerning specific controls embedded in the present internal control system and typifies the actual practice, in particular, the prevention, detection and response strategies to mitigate financial statement fraud. The lack of evidence presents a research limitation to identify any best practices for the mitigation of financial statement fraud in the context of commercial companies in Malaysia. The research results indicate that the case study companies are highly reliant on their respective internal controls for the prevention of financial statement fraud and detection strategies. In addition, they demonstrate that the present internal audit functions focus on operational audit and concern pertaining to corporate risk. This provides an indication that the scope of the internal auditing work is not primarily concerned with the accuracy of the financial statement information, but rather with the risk of losses to the respective companies. This certainly leaves scope for an expectation gap to arise in the present internal audit functions and the association of internal audit and risk towards financial statement fraud. The particular aspects concerning the detection of fraud in financial statements and financial statement fraud control have been perceived differently between the company’s internal and external auditors. The combined results of the perceived control by company management, the present audit functions, and the detection and control responsibilities of the internal and external auditors provide and support the existence of an internal audit expectation gap. The overall case study findings indicate evidence of an internal audit expectation gap, which constitutes a serious flaw in the internal control systems adopted by the companies. Therefore, the contribut
Date of Award22 Sept 2014
Original languageEnglish
Awarding Institution
  • Teesside University International Business School
SupervisorRob McCusker (Supervisor)

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