FINANCIAL STATEMENT FRAUD RISK: A MECHANISM-BASED SYSTEMATIC LITERATURE REVIEW
DOI:
https://doi.org/10.35631/AIJBES.829070Keywords:
Audit Quality, Executive Behavioural Traits, Financial Statement Fraud Risk, Fraud Theory, Governance Monitoring, Ownership Monitoring, Ownership Structure, Systematic Literature ReviewAbstract
Financial statement fraud remains a critical issue as it has a significant impact on the credibility of corporate financial reporting. Its existence has undermined users’ confidence and reduced their reliance on reported financial information. Although prior studies have examined financial statement fraud risk from governance, audit, ownership, fraud-theory, and behavioural perspectives, existing evidence remains conceptually fragmented because most studies analyse isolated determinants rather than the mechanisms through which these determinants shape fraud risk. Thus, this systematic literature review aggregates 22 recent empirical studies to examine how these determinants influence financial statement fraud risk among firms. Through the analysis, five refined themes were developed: Governance-Based Monitoring, Audit Quality Mechanisms, Ownership and Institutional Monitoring, Fraud-Theory Predictors, and Executive Behavioural Traits. The evidence regarding fraud risk cannot be explained by referring to a single dominant factor. Instead, the evidence suggests that financial statement fraud risk should be understood as a multifaceted and context-sensitive issue, with overall findings depending on how different monitoring, assurance, ownership, financial reporting, and behavioural mechanisms interact across firm settings. This review contributes to the financial statement fraud discussion by reorganising fragmented empirical evidence into a mechanism-based structure that explains how monitoring, assurance, ownership, pressure, reporting discretion, and executive behaviour jointly shape fraud risk. The streamlined structure further highlights on the importance of focusing on measurement choices, contextual differences, and mechanism-based explanations in future research.
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