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1. Introduction
Fraud is believed to be the most serious corporate problem in the present business environment (KPMG, 2009; Palshikar, 2002; Smith et al., 2005) and it continues to be a growing problem, particularly in a tight-budget situation (KPMG, 2011). Fraud causes huge losses to organizations, including investigation costs, staff sickness or suspension costs, internal disciplinary costs, external sanction costs, permanent staff replacement costs and intangible costs of a damaged reputation (Button et al., 2015). In Malaysia, the country’s business community is significantly affected by local fraud cases such as Transmile Group Berhad, Megan Media Holdings Berhad and Tat Sang Berhad (Normah and Katerina Maria, 2012). The value of reported fraud in Malaysia between January 2006 and December 2008 was RM 63.95m (KPMG, 2009). In addition, 20 out of 204 (ACFE, 2012) occupational fraud cases in the Asia region occurred in Malaysia during the period between January 2010 and December 2011, and 10 out of 129 (ACFE, 2014) between January 2012 and December 2013.
Occupational fraud is a type of fraud which encompasses corruption, asset misappropriation and financial statement fraud. Fraud in financial reporting is the intentional misstatement of financial information to mislead the financial statement’s users. The on-going phenomenon of fraud in financial reporting is not new. Numerous corporate scandals involving financial fraud have created concern, particularly for their negative impact on global capital markets and on investors’ confidence. The collapse of one of the five largest auditing firms in the world, Arthur Anderson, was because of fraud in financial reporting. In light of this collapse, the business community and the accounting profession are “keeping an eye” on fraud in financial reporting activities (Rezaee, 2005), because investors and other users of financial reports need to be assured of the ethics of management and of other participants in the final reporting process (Kalbers, 2009). The ACFE report indicated that the vast majority, that is, 77 per cent of occupational fraud was committed by employees in one of six departments: accounting, operations, sales, executive or upper management, customer service and purchasing (ACFE, 2012). These employees are frequently in a position to directly or indirectly manipulate accounting records, circumvent internal controls and present fraudulent financial information (Wm. Dennis Huber et al., 2015). Accounting departments,...