Effects of Ability to Assess Fraud Risk, Fraud Risk Level and Personality Factors on the Ability to Detect the Likelihood of Fraud

The Malaysian Approved Standards on Auditing, A1 700 on "The Auditor's Report on Financial Statements" (MIA, 1997) states that the responsibility of the auditor is to provide assurance that the financial statements are free from material misstatements. Misstatement may be due to error or fraud. Error is unintentional misstatement while fraud is intentional misstatement. Fraud, which can be divided into two types i.e. fraudulent financial reporting and misappropriation of assets, may both cause materially misleading financial statements (Elliot & Willingham, 1980). In Malaysia, although standards and guidelines have been issued, yet fraudulent financial reporting still occurs in this country as reported by the KPMG Malaysia's (2003) survey. Although the issue of fraud may not be well documented in Malaysia, this issue cannot be taken for granted since what happens in other countries, for instance in the US, may also happen elsewhere. Even though guidance has already been provided by the Malaysian standards, KPMG Malaysia's (2003) survey reports that external auditors discover only 4% of fraud incidences in Malaysian companies. Due to this, the public may question why external auditors are not able to detect fraud during the conduct of the annual audit. Therefore, it is important to know the ability of the external auditor to detect fraud because fraudulent financial reporting is false representation to society. The A1 240 on "Fraud and Error" (MIA, 1997) requires the external auditor to appropriately assess fraud risk during the planning of the audit work so that helshe can provide reasonable assurance that any material misstatement in the financial statements has been detected. The ability of the external auditor to detect the likelihood of fraud may be influenced by hislher ability to appropriately assess the fraud risk. Meanwhile, the concept of fraud risk underlying the audit risk model would be fundamental in influencing the external auditors' ability to detect the likelihood of fraud. In addition, literature has shown that personality moderates the relationship between a construct and job performance. Therefore, the objective of the present study is to examine the effect of the external auditors' ability to assess fraud risk on their ability to detect the likelihood of fraud. In addition, the present study examines the moderating effects of fraud risk level and personality factors on the relationship between the external auditors' ability to assess fraud risk and their ability to detect the likelihood of fraud

USERS’ PERCEPTIONS ON THE USEFULNESS OF THE SMES’ ACCOUNTING INFORMATION: MALAYSIAN CASE

This study investigates the perceived usefulness of selected accounting information presented in the SMEs’ financial statements. Mailed questionnnaires were sent to SMEs’ owner and loan officers in Malaysia. The findings showed that the SMEs’ owners and loan officers have substantially similar views on the usefulness of the accounting information. In addition, this study found that type of business organisation, academic qualification, time spend in reading the financial statement, level of understanding of the financial statements and awareness about financial reporting regulation do not have significant relationship with the SMEs’ owners’ perceptions on the usefulness of the accounting information. On the other hand, for the loan officers, experience in assessing SMEs’ financial statements was found to have a significant relationship with the loan officers’ perceptions on the usefulness of the accounting information, while accouting expertise, year in position, awareness about financial reporting regulation are not. The results of this study may provide awareness to the SMEs’ managers on the informational needs of the users of their financial statementsSMEs, financial reporting, usefulness, accounting information

The effects of fraud risk assessment on the external auditor's ability to detect the likelihood of fraud: a conceptual discussion

The Malaysian Approved Standards on Auditing (MASA), AI 240 on "Fraud and Error" requires the auditor to assess the risk of fraud and error during the audit of financial statements by considering the various fraud risk indicators. Based on the risk assessment, the auditor will design audit procedures to obtain reasonable assurance that misstatements arising from fraud and error that are material to the financial statements taken as a whole are detected. Inability to detect fraud may lead to a litigation action being taken against the external auditor (Palmrose, 1987). The collapse of Enron has shed some news and somewhat unfavourable light on the role that external auditors play in the detection of fraud (Thomas & Clements, 2002). This paper aims to determine whether the ability of the external auditor to detect the likelihood of fraud is influenced by his/her fraud risk assessment. In this paper a discussion on the development of a conceptual framework for the fraud risk assessment and detection of fraud is presented

A conceptual discussion on the external auditor's personality and detection of fraud

The collapse of Enron has again shed some unfavourable lights on the role that external auditors play in the detection of fraud (Thomas & Clements, 2002). Inability to detect fraud may lead to a litigation action being taken against the external auditor (Palmrose, 1987). Previous research found that personality factors may be associated with job performance (Robertson, Baron, Gibbons, MacIver, & Nyfield, 2000; Barrick & Mount, 1991). Ashton (1999) suggested that certain innate personality factors can be used to predict an individual's performance, specifically the performance of auditors. This paper attempts to determine factors that may have impact on the ability of external auditors to detect the likelihood of fraud. Robertson and Callinan (1998) stated that the emergence of "Big five" factors of personality has increased the interest for researchers to examine its role. The "Big five" factors of personality are: (1) neuroticism, (2) extraversion, (3) conscientiousness, (4) openness and (5) agreeableness. This paper will specifically investigate effects of these five factors of personality on the external auditors' ability to detect the likelihood of fraud. In this paper a discussion on the development of a conceptual framework for the external auditor's personality and detection of fraud is presented

Sustainable performance measurement (SPMs) model: effects of product technology and process technology

Malaysia as a developing country is in the transformation process of becoming an industrialised nation, as stated in Vision 2020. Manufacturing industry significantly contributes to the national economic growth in Malaysia; however, the manufacturing industry consumes the most natural resources which cause degradation of natural resources. This is against the global efforts that put pressure on world organisations to carry out their business in a more responsible and sustainable manner. As an approach to improve sustainability performance, manufacturing companies should develop technologies that consume less material, while trying to adopt new technologies effectively. However, empirical studies in Malaysian manufacturing industry on technology and Sustainable Performance Measurements (SPMs) are still very limited. Thus, the main purpose of this study is to determine the relationship between technology and Sustainable Performance Measurements (SPMs) model among different sizes of Malaysian manufacturing companies. The target population in this research is 2500 manufacturing companies registered under Federation of Malaysian Manufacturers (FMM). The random sampling method is engaged in the sample selection. A total of 217 observations were collected over 600 sample size, with a response rate of 36.17%. The results of the analysis indicate that product technology does not have any significant effect on SPMs. In contrast,process technology demonstrates a positive relationship with SPMs. In addition, business size does not affect SPMs. Overall, it can be concluded that Malaysian manufacturing companies consider more privilege for process technology implementation to achieve desirable SPMs performance in their business rather than product technology

Aurora: the pandemic within

Aurora Layar Group (Aurora) had been experiencing losses for three consecutive years since 2017. Among factors contributing to these losses were high depreciation due to high capital expenditure and recognition of impairment losses. However, Aurora managed to reduce its losses from RM252 billion in 2017 to RM79.5 billion in 2019. Unfortunately, the Covid-19 pandemic had hammered many industries worldwide including Aurora, in the travel, leisure and hospitality sector. The implication from the restrictions on business operations due to the Covid-19 pandemic on Aurora was evidenced by its reported losses of RM371.3 billion in the first six months to June 2020 during which most of its cruise operations suspended since the start of the Covid-19 pandemic. The reported losses were extremely higher compared to the first six months to June 2019 of RM28.3 billion. While many cruise companies globally fighting for survival, the Deputy CEO of Aurora, Miss Salina Hasan, tendered her resignation. In May 2020, the Chairman and CEO, Tan Sri Salmah Ali, had pledged 60 per cent of her shares in the company as collateral for loans. The decision was made a day after Aurora decided to suspend all payments to creditors

Information technology acceptance: From perspective of Malaysian bankers

This study examines the adoption and acceptance of information technology from the perspective of Malaysian bankers. The results of the study indicate that majority of Malaysian bankers heavily used computer for routine jobs such as paper work and data maintenance but rarely use the computer for advance functions such as business analysis, planning and decision making. Malaysian bankers also rarely used professional software for specific purposes such as statistical analysis or programming languages. The regression result of this study appeared to suggest that perceived usefulness, management support and external computing support were found to be the most influential factors in determining microcomputer usage among bankers in Malaysia. Overall, the results of this study are valuable to both researchers and bank management in providing new insights about the IT from bankers’ point of view

Employee perceptions of workplace theft behavior: A study among supermarket retail employees in Malaysia

Employee theft is costly to any business, especially to big retail chain organizations. This research is to study the perception of retail employees on the impact of the individual and organizational factors contributing to workplace theft behavior in supermarkets in Malaysia and to study the mediating effect of intention to steal and the moderating effect of internal control systems. The results proved that individual and organizational factors do influence workplace theft behavior. It is also established that internal control systems moderate the relationship between the intention to steal and workplace theft behavior

Governance structure, corporate restructuring and performance

The common form of corporate restructuring is the divestitures of firm’s tangible and operating assets such as plant and equipment for several motives. Furthermore, company characteristics and use of divestiture proceeds have also influence corporate performance. This study examines the effects governance structure namely board of directors structure and ownership structure specifically subsequent to completed asset restructuring scheme on firm performance for the period 2004 to 2013 of Malaysian firms

Gender Board Heterogeneity of PN17 Companies on Bursa Malaysia

Background - Bursa Malaysia classifies companies in financial distress that do not warrant continued listing on the Main Market as Practice Note 17 (PN17) companies. PN17 companies that do not comply with paragraph 8.04 and PN17 of the Main Market Listing Requirements can be suspended, de-listed or both. Prior studies found corporate governance weakness to be one of the main factors of financial distress. Different sectors are also found to have different corporate governance disclosure levels. Malaysian Code of Corporate Governance 2021 (MCCG 2021) prescribes board diversity which includes gender diversity. This study employs Blau index to measure the board gender heterogeneity of the PN17 companies across different sectors and suspension status. Purpose - The purpose of the study is to determine the board gender heterogeneity of PN17 companies. The study also aims to investigate whether there is a difference in board gender heterogeneity across the sectors. Finally, the study investigates the impact of sector and suspension status on board gender heterogeneity. Design/methodology/approach - The population consists of 21 companies classified under PN17 of the Main Market Listing Requirements as on 31 December 2021. One company is excluded as it has been liquidated and has not released its annual report for the year 2021. The remaining 20 companies are classified across seven sectors in Bursa Malaysia. The board gender heterogeneity is calculated using the Blau index based on the number of male and female directors disclosed in the annual reports for year 2021. Blau index sets the board gender heterogeneity to be most diverse at 50%. Findings/Expected Contributions - Most of the companies are from the energy sector (25%) and the industrial products and services sector (25%). This is followed by the consumer products and services (20%), property (10%), transportation and logistics (10%), technology (5%), and telecommunications and media (5%) sectors. Only 20% of the companies are suspended and the remaining 80% of the companies are still trading on the Main market under the monitoring of Bursa Malaysia. This study found that the mean score of board gender heterogeneity is 19.4% out of the maximum Blau Index gender heterogeneity of 50%. Majority (35%) of the 20 listed companies classified under PN17 have zero Blau index board gender heterogeneity in 2021. Only one company (5%) has maximum gender heterogeneity of 50%. A one-way between-groups analysis of variance revealed that the mean of board gender heterogeneity is different for the seven different sectors (p=0.1). A two-way between group analysis of variance also shows a significant difference in the effect of sector on board gender heterogeneity for suspended companies and non-suspended companies (p= 0.03). There is a statistically significant main effect for sectors (F(1,10)=4.98, p=0.03), with a medium effect size (partial eta squared = 0.69). Research limitations - The population of the study is limited to listed companies classified under PN17 as on 31 December 2021 only. Data of PN17 companies across a few years could provide different findings. The population of this study comprises of PN17 companies that are still trading and suspended. Future studies could focus on suspended companies only. Originality/value - This study addresses the board gender heterogeneity of PN17 companies. The board gender heterogeneity is calculated using Blau index which measures gender heterogeneity for the board as a group compared to using dummy variable to indicate the presence of a female director or by calculating percentage of female directors on the board