Auditor Relational Strategy and Risk of Fraudulent Financial Statements

Authors

  • Mohd Mohid Rahmat Faculty of Economics and Management Universiti Kebangsaan Malaysia 43600 UKM, Bangi, Selangor, MALAYSIA
  • Noor Idayu Ismail Faculty of Business and Management Open University Malaysia Menara OUM, Blok C, Kompleks Kelana Centre Point, Jalan SS7/19, Kelana Jaya, 47301 Petaling Jaya, Selangor, MALAYSIA
  • Amirul Hafiz Mohd Nasir Faculty of Economics and Management Universiti Kebangsaan Malaysia 43600 UKM, Bangi, Selangor, MALAYSIA
  • Norman Mohd Saleh Faculty of Economics and Management Universiti Kebangsaan Malaysia 43600 UKM, Bangi, Selangor, MALAYSIA
  • Siti Hajar Asmah Ali Faculty of Economics and Management Universiti Kebangsaan Malaysia 43600 UKM, Bangi, Selangor, MALAYSIA

Keywords:

Auditor-client relationship, Auditor relational strategies, Fraud, Risk, Social network

Abstract

AUDITOR RELATIONAL STRATEGY AND RISK OF FRAUDULENT FINANCIAL STATEMENTS ABSTRACTThis study examines how auditor relational strategy influences the risks of fraudulent financial statements. The study uses panel data regression on 2,890 year-observations of companies listed in Bursa Malaysia during the period 2013-2017 to evaluate possible relationships between auditor relational strategy and risks of fraudulent financial statements. The results show that the employed of auditor relational strategy adds value by helping auditors reduce risks of fraudulent financial statements, suggesting that auditors may able to maintain their scepticism although they employing auditor relational strategy. The findings propose that even when auditor-client relationship are close, as long as an auditor can uphold their independent in auditor relational strategy, the risk of fraudulent financial statements can be diminished. Therefore, to ensure that scepticism remains a relevant and consistent practice among auditors, policymakers may need to consider revising the auditor’s code of ethics to address current issues. This study makes a valuable contribution to the literature by examining the importance of auditor relational strategy in assisting auditors in minimizing risks of fraudulent financial statements from a network theory perspective.

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Published

2024-11-25

Issue

Vol. 22 (2024): ASIAN JOURNAL OF ACCOUNTING AND GOVERNANCE

Section

Articles

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