A new study conducted by Milad Soltani, Alexios Kythreotis, and Arash Roshanpoor, published in the International Journal of Accounting, Auditing and Performance Evaluation, delves into the intersection of national culture, prosperity index, and the effectiveness of the fraud triangle in preventing financial statement fraud (FSF). This comprehensive cross-country meta-analysis provides a nuanced understanding of how these factors influence the detection and prevention of FSF, offering valuable insights for policymakers, auditors, and financial institutions worldwide.
The researchers set out to achieve three primary objectives: identify effective fraud triangle risk factors for detecting FSF, assess the role of country characteristics in detecting these risk factors, and evaluate variations in fraud scores between countries with similar cultural and prosperity levels. Utilizing a meta-analysis approach guided by PRISMA guidelines, the study uncovers critical proxies for fraud triangle risk factors and underscores the significant role of national characteristics in determining FSF risks.
The study’s findings contribute significantly to the behavioural forensics literature by providing a thorough assessment of reputable studies, shedding light on the moderate effect of countries‘ specific features on FSF occurrence, and clustering countries with analogous attributes to analyze differences in fraud scores. This research enhances our understanding of FSF detection and prevention, paving the way for developing tailored financial fraud prediction models and strategies on a global scale.
Key Findings and Implications
- Effective Fraud Triangle Risk Factors
By employing a meta-analysis approach, the researchers provide a comprehensive assessment of multiple studies to offer a more precise estimation of the fraud triangle’s effectiveness in detecting FSF. The fraud triangle, introduced by Donald Cressey in the 1950s, identifies three primary factors contributing to fraud: pressure, opportunity, and rationalization. This study further refines our understanding of these factors, enabling organizations to adopt better practices and policies to minimize FSF.
- The Role of National Characteristics
The study highlights the moderate effect of countries‘ specific features, including national culture and prosperity factors, on FSF occurrence. Using Hofstede’s cultural dimensions and prosperity indices from the Legatum Institute, the researchers provide insights into how these national characteristics impact the propensity to commit fraud. This aspect of the research contributes to behavioural forensics by examining the complex interplay between human behaviour and the environment in the context of financial fraud.
- Clustering Countries for Fraud Analysis
One of the study’s key objectives is to group countries with similar financial fraud risk profiles, considering factors such as national culture, prosperity index, and corruption perception scores. By examining these variables, the researchers aim to identify patterns and clusters among countries that share similar characteristics. This approach allows for a deeper analysis of the differences in fraud scores between these clusters. The insights gained from this clustering can inform the development of more accurate and tailored financial fraud prediction models, enhancing the effectiveness of fraud detection and prevention strategies on a global scale.
The study by Soltani, Kythreotis, and Roshanpoor provides a comprehensive and nuanced understanding of the factors influencing FSF detection and prevention. By integrating national culture and prosperity indices into the analysis, the researchers offer valuable insights that can inform the development of more effective anti-fraud mechanisms worldwide. For stakeholders in the field of accounting, auditing, and financial regulation, this study serves as a critical resource for enhancing the accuracy and efficacy of FSF prevention strategies.
To explore more about this intriguing research and its broader implications, the full study is available here.