Perspectives of Indonesian Accountants and Auditors on the Effectiveness of Corporate Governance and It in Preventing Fraud

Joshua John Patrick; Rindang Widuri

doi:10.31538/iijse.v9i2.10133

Joshua John Patrick Universitas Bina Nusantara, Jakarta, Indonesia
Rindang Widuri Universitas Bina Nusantara, Jakarta, Indonesia

DOI: https://doi.org/10.31538/iijse.v9i2.10133

Keywords: Indonesia, Fraud, Corporate Governance, Information Technology, Accountants, Internal Auditors, External Auditors

Abstract

Purpose This study explores the perspectives of accountants and auditors in Indonesia regarding Corporate Governance (CG) and Information Technology (IT). It aims to provide valuable insights for researchers, senior management, and boards of directors on effective fraud prevention strategies. Furthermore, the study seeks to enhance awareness of the importance of effective oversight, ethical behavior, and strong corporate governance practices in mitigating corporate failure. Design/methodology/approach. This study employs a survey method involving financial accountants as well as internal and external auditors. A one-sample test is used to evaluate the significance of Corporate Governance in fraud prevention. Paired sample tests are applied to compare traditional audit techniques with IT-based methods, while one-way ANOVA is conducted to assess differences in perspectives among respondents. Findings The results indicate that Corporate Governance has a significant impact on fraud prevention, with internal audit departments identified as the most utilized CG mechanism. Additionally, Information Technology demonstrates a comparable impact to traditional fraud prevention methods. Internal control reviews and improvements are the most frequently employed traditional techniques, whereas continuous auditing emerges as the most widely used IT-based approach for fraud prevention. Research implications/limitations The findings emphasize that strong corporate governance is essential for effective fraud prevention, requiring organizations to continuously enhance their governance practices. The integration of IT tools with traditional fraud prevention methods is recommended to develop a more comprehensive and effective strategy.Originality/value This study contributes to the existing literature by examining the role of Corporate Governance and Information Technology in fraud prevention and detection, particularly within Southeast Asia and other emerging economies. It offers important insights for both academics and practitioners in Indonesia, as well as for the international community.

Downloads

Download data is not yet available.

References

ACFE. (2008), 2008 Report to the Nation on Occupational Fraud and Abuse.ACFE. (2019), Survey Fraud Indonesia 2019, Indonesia.

ACFE. (2024), Occupational Fraud 2024: Report to The Nations, USA.

Alshurafat, H., Al Shbail, M.O. & Mansour, E. (2021), “Strengths and weaknesses of forensic accounting: an implication on the socio-economic development”, Journal of Business and Socio-Economic Development, Vol. 1 No. 2, pp. 135–148, doi: 10.1108/JBSED-03-2021-0026.

Ananda Ismail, I., Lian Pernadi, N. & Febriyanti, A. (2022), “How to Grab And Determine the Size of The Sample For Research”, International Journal of Academic and Applied Research, Vol. 6 No. 9, pp. 88–92.

Beasley, M.S., Carcello, J.V., Hermanson, D.R. & Committee of Sponsoring Organizations of the Treadway Commission. (1999), Fraudulent Financial Reporting 1987-1997: An Analysis of Public Companies.

Beydoun, A.R. & Saleh, R.F. (2023), “Literature Review on Training and Development in Work Setting”, BAU Journal - Society, Culture and Human Behavior, Vol. 4 No. 2, doi: 10.54729/2789-8296.1136.

Bhargavi, C. & Sravanthi. (2023), “Significant Role of Digital Technology in Detecting Banking Frauds in India”, International Journal of Advanced Mechatronic Systems, Vol. 3, pp. 1124–1127, doi: 1124-1127.

Bierstaker, J.L., Brody, R.G. & Pacini, C. (2006), “Accountants’ perceptions regarding fraud detection and prevention methods”, Managerial Auditing Journal, Vol. 21 No. 5, pp. 520–535, doi: 10.1108/02686900610667283.

Campbell, A. & Lindsay, D. (1994), Internal Auditors and the Detection of Fraud, Internal Audit, Vol. 9.

Christopher, J., Sarens, G. & Leung, P. (2009), “A critical analysis of the independence of the internal audit function: evidence from Australia”, Accounting, Auditing & Accountability Journal, Vol. 22 No. 2, pp. 200–220, doi: 10.1108/09513570910933942.

Diamantidis, A.D. & Chatzoglou, P. (2019), “Factors affecting employee performance: an empirical approach”, International Journal of Productivity and Performance Management, Vol. 68 No. 1, pp. 171–193, doi: 10.1108/IJPPM-01-2018-0012.

Evans, J., Evans, R. & Loh, S. (2002), “Corporate Governance and Declining Firm Performance”, International Journal of Business Studies, Vol. 10 No. 2, pp. 1–18.

Fakhroni, Z. & Setiawan, F. (2023), “Ethical Values and Auditors Fraud Tendency Perception: Testing of Gone Theory”, International Conference on Accounting and Finance, Vol. 2, pp. 865–874.

Goh, B.W. (2009), “Audit Committees, Boards of Directors, and Remediation of Material Weaknesses in Internal Control*”, Contemporary Accounting Research, Vol. 26 No. 2, pp. 549–579, doi: 10.1506/car.26.2.9.

Goldberg, J. (2014), “Trends in Employee Turnover and Retention”, Graziadio Business Review, Vol. 17 No. 3.

Grambling, A. & Myers, P. (2003), “Internal Auditors’ Assessment of Fraud Warning Signs”, The CPA Journal, Vol. 73 No. 6.

Gravetter, F. & Wallnau, L. (2017), Statistics for the Behavioral Sciences, 10th ed., Cengage Learning, Boston, MA.

Halbouni, S.S., Obeid, N. & Garbou, A. (2016), “Corporate governance and information technology in fraud prevention and detection”, Managerial Auditing Journal, Vol. 31 No. 6/7, pp. 589–628, doi: 10.1108/MAJ-02-2015-1163.

Harrast, S. & Olsen, L. (2007), “Can Audit Committees Prevent Management Fraud?”, The CPA Journal, Vol. 77 No. 1.

Hassan, S.W.U., Kiran, S., Gul, S., Khatatbeh, I.N. & Zainab, B. (2023a), “The perception of accountants/auditors on the role of corporate governance and information technology in fraud detection and prevention”, Journal of Financial Reporting and Accounting, doi: 10.1108/JFRA-05-2023-0235.

Hassan, S.W.U., Kiran, S., Gul, S., Khatatbeh, I.N. & Zainab, B. (2023b), “The perception of accountants/auditors on the role of corporate governance and information technology in fraud detection and prevention”, Journal of Financial Reporting and Accounting, Vol. 31 No. 6–7, doi: 10.1108/JFRA-05-2023-0235.

Isbahi, M. B., Zuana, M. M. M. ., & Mariana, E. R. . (2022). The Technology Strategy in Website Communication Media in Improving Business Activities. Majapahit Journal of Islamic Finance and Management, 1(2), 126–138. https://doi.org/10.31538/mjifm.v1i2.17

Johnson, G.G. & Rudesill, C.L. (2001), “An investigation into fraud prevention and detection of small businesses in the United States: responsibilities of auditors, managers, and business owners”, Accounting Forum, Vol. 25 No. 1, pp. 56–78, doi: 10.1111/1467-6303.00055.

Kaplan, S.E., Pany, K., Samuels, J.A. & Zhang, J. (2009), “An Examination of the Effects of Procedural Safeguards on Intentions to Anonymously Report Fraud”, AUDITING: A Journal of Practice & Theory, Vol. 28 No. 2, pp. 273–288, doi: 10.2308/aud.2009.28.2.273.

Khan, A.A., Abbasi, S.O.B.H., Waseem, R.M., Ayaz, M. & Ijaz, M. (2016), “Impact of Training and Development of Employees on Employee Performance through Job Satisfaction: A Study of Telecom Sector of Pakistan”, Business Management and Strategy, Vol. 7 No. 1, p. 29, doi: 10.5296/bms.v7i1.9024.

KPMG. (2014), Fraud Risk Management Developing a Strategy for Prevention, Detection, and Response, KPMG Advisory (China) Limited.

KPMG International. (2006), Fraud Risk Management Developing a Strategy for Prevention, Detection, and Response.

Kratcoski, P.C. (2018), Fraud and Corruption Major Types, Prevention, and Control, edited by Edelbacher Maximilian, Springer.

Law, P. (2011), “Corporate Governance and No Fraud Occurrence in Organizations: Hong Kong Evidence”, Managerial Auditing Journal, Vol. 26 No. 6.

Lerner, R.M. (2018), Concepts and Theories of Human Development, Routledge, doi: 10.4324/9780203581629.

Leung, P. & Cooper, B. (2009), “Internal Audit an Asia Pacific Profile and the Level of Compliance with Internal Auditing Standards”, Managerial Auditing Journal, Vol. 24 No. 9, pp. 861–882.

Mangala, D. & Kumari, P. (2017), “Auditors’ Perceptions of the Effectiveness of Fraud Prevention and Detection Methods”, Indian Journal of Corporate Governance, Vol. 10 No. 2, pp. 118–142, doi: 10.1177/0974686217738683.

McNeel, A. (2011), “The Role of the Board in Fraud Risk Management”, available at: https://www.conference-board.org/retrievefile.cfm?filename=TCB.

OECD. (2023), G20/OECD Principles of Corporate Governance 2023, OECD Publishing, doi: 10.1787/9789264236882-en.

Payne, E.A. & Ramsay, R.J. (2005), “Fraud risk assessments and auditors’ professional skepticism”, Managerial Auditing Journal, Vol. 20 No. 3, pp. 321–330, doi: 10.1108/02686900510585636.

Persons, O.S. (2009), “Audit committee characteristics and earlier voluntary ethics disclosure among fraud and no-fraud firms”, International Journal of Disclosure and Governance, Vol. 6 No. 4, pp. 284–297, doi: 10.1057/jdg.2008.29.

Petraşcu, D. & Tieanu, A. (2014), “The Role of Internal Audit in Fraud Prevention and Detection”, Procedia Economics and Finance, Vol. 16, pp. 489–497, doi: 10.1016/S2212-5671(14)00829-6.

Pickett, K.S. (2010), The Internal Auditing Handbook, John Wiley & Sons, Inc.

PWC. (2020), “Tingkat kejahatan ekonomi global tetap tinggi seiring meningkatnya penipuan oleh pelanggan”, available at: https://www.pwc.com/id/en/media-centre/press-release/2020/indonesian/tingkat-kejahatan-ekonomi-global-tetap-tinggi-seiring-meningkatn.html (accessed 29 July 2024).

Rehman, A. & Hashim, F. (2020), “Impact of Fraud Preventive Measures on Good Corporate Governance”, Journal of Corporate Governance Research, Vol. 4 No. 1, p. 35, doi: 10.5296/jcgr.v4i1.17490.

Salas, E., Tannenbaum, S.I., Kraiger, K. & Smith-Jentsch, K.A. (2012), The Science of Training and Development in Organizations, Vol. 13, Psychological Science in the Public Interest, doi: 10.1177/1529100612436661.

Siregar, S.V. & Tenoyo, B. (2015), “Fraud awareness survey of private sector in Indonesia”, Journal of Financial Crime, Vol. 22 No. 3, pp. 329–346, doi: 10.1108/JFC-03-2014-0016.

Smith, R.J. (2021), “The Application of Corporate Governance in Large and Medium-Sized South African Auditing Firms”, University of Johannesburg (South Africa).

Stamler, R.T., Marschdorf, H.J. & Possamai, M. (2014), Fraud Prevention and Detection, Routledge, doi: 10.1201/b16665.

Tarek, M., Mohamed, E.K.A., Hussain, M.M. & Basuony, M.A.K. (2017), “The implication of information technology on the audit profession in developing country”, International Journal of Accounting & Information Management, Vol. 25 No. 2, pp. 237–255, doi: 10.1108/IJAIM-03-2016-0022.

The Institute of Internal Auditors. (2020), Elevating Impact!.

Transparency. (2024), Corruption Perceptions Index 2023.

Weisbach, M.S. (1993), “Corporate governance and hostile takeovers”, Journal of Accounting and Economics, Vol. 16 No. 1–3, pp. 199–208, doi: 10.1016/0165-4101(93)90010-D.