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# Literature Review: Role of Independent Auditors in Preventing and Detecting Fraud in the Case of
Private Audit Firm

The role of independent auditors in preventing and detecting fraud in private audit firms is a crucial aspect
of organizational governance and financial integrity. This literature review aims to synthesize existing
research findings on the topic and highlight knowledge gaps for potential future research directions.

## Forensic Accounting vs. Traditional External Auditors

One study found that the use of Forensic Accounting significantly reduces the occurrence of fraud cases
in the public sector. Additionally, it highlighted a significant difference between Professional Forensic
Accountants and Traditional External Auditors, indicating that the use of Forensic Accountants can be
more effective in detecting and preventing fraud cases in public sector organizations (Semanticscholar).

## Responsibility for Detecting Fraud within Organizations

Another study emphasized the importance of auditors' sense of responsibility for detecting fraud within
organizations. It noted that internal auditors are primarily responsible for identifying incidents of fraud.
Moreover, the procedures followed by external auditors were found to be slightly more rigorous than
those followed by internal auditors (DeZoort & Harrison, 2018).

## Role of Anonymous Reporting Channel

Johansson and Carey (2016) discussed the role of the anonymous reporting channel in detecting fraud.
However, the specific findings related to this topic were not provided in the available information.

## Factors Affecting Fraudulent Financial Reports

Several studies highlighted factors that affect fraudulent financial reports. One study found a negative
correlation between borrowing level, asset profitability, independent audit firm, auditor exchanges, and in-
stitutionalization level, and fraudulent financial reports (Hassink, Meuwissen, & Bollen, 2010). Similarly,
Halbouni (2015) emphasized the role of auditors in preventing, detecting, and reporting fraud, particularly
in the case of the United Arab Emirates (UAE). However, specific details regarding the findings were not
included in the available information.

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## Knowledge Gaps and Future Research Directions

While the existing research provides valuable insights into the role of independent auditors in preventing
and detecting fraud, there are several knowledge gaps that warrant further exploration. Firstly, there is a
need for more comparative studies between Forensic Accountants and Traditional External Auditors in
the context of private audit firms. Additionally, the effectiveness of anonymous reporting channels and
the specific impact of borrowing levels, asset profitability, and auditor exchanges on fraudulent financial
reports require further investigation.

Future research in this area should also consider the cultural and regulatory differences across various
regions, as highlighted by the study on the UAE. Moreover, the evolving nature of financial fraud and the
increasing complexity of fraudulent schemes necessitate ongoing research to enhance the effectiveness
of auditors in addressing these challenges.

In conclusion, the literature review sheds light on the multifaceted role of independent auditors in
preventing and detecting fraud within private audit firms. While existing research provides valuable
insights, there are several avenues for further exploration to enhance the effectiveness of auditors in
mitigating financial fraud risks.

## References:
1. https://www.semanticscholar.org/paper/75afde606fb640d50ff7ba5f8073b00dac7dae75
2. Johansson, Elka., & Carey, P.. (2016). Detecting Fraud: The Role of the Anonymous Reporting Channel.
<i>Journal of Business Ethics</i> , 139 , 391-409 . http://doi.org/10.1007/S10551-015-2673-6
3. Hassink, Harold., Meuwissen, R.., & Bollen, L.H.H.. (2010). Fraud detection, re-
dress and reporting by auditors. <i>Managerial Auditing Journal</i> , 25 , 861-881 .
http://doi.org/10.1108/02686901011080044
4. DeZoort, F.., & Harrison, P.. (2018). Understanding Auditors’ Sense of Responsibility for
Detecting Fraud Within Organizations. <i>Journal of Business Ethics</i> , 149 , 857-874 .
http://doi.org/10.1007/S10551-016-3064-3
5. Halbouni, Dr. Sawsan. (2015). The Role of Auditors in Preventing, Detecting, and Reporting Fraud:
The Case of the United Arab Emirates (UAE). <i>Auditing</i> . http://doi.org/10.1111/ijau.12040
6. https://www.semanticscholar.org/paper/9f95dc0b69ed2b4aad8b26b9ba3ebd7b60e64078

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