Auditors’ Incentives Under Scrutiny as Fraud Cases Go Undetected

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A recent report by the Association of Certified Fraud Examiners (ACFE) has raised concerns about the ability of external auditors in Egypt to detect fraud. According to the report, no cases of fraud were detected by external auditors in the Middle East and North Africa region, including Egypt, while internal auditors detected 33.3% of fraud cases.

Gaps in Fraud Research

A review of prior literature revealed a significant gap in fraud research in Egypt. Only two studies were found, which explored external auditors’ perceptions of red flags in detecting financial statement fraud and the quality of reported earnings in Egypt. However, these studies did not provide insights into the actual use of red flags by external auditors or their response to identified risks.

External Auditors’ Perceptions

A study by Kassem (2014) explored Egyptian auditors’ perceptions of the most effective red flags in detecting asset misappropriation and how they would respond to each risk. The findings revealed that external auditors perceived analytical procedures as the most effective tool for assessing risks of asset misappropriation. However, the study also highlighted the need for guidance on responding to identified risks.

The Need for Fraud Research

The lack of fraud research in Egypt has raised concerns about the effectiveness of audit quality and the ability of external auditors to detect fraud. The findings have implications for regulators, governance bodies, and audit professionals, who must work together to combat fraud and improve audit quality.

Conclusion

Fraud is a significant concern for stakeholders worldwide, and combating it requires a collective effort from regulators, governance bodies, audit professionals, and researchers. This article has highlighted the need for empirical research on audit quality in Egypt and the incentives that drive external auditors’ actions. The findings have implications for the development of effective fraud detection and prevention techniques and highlight the importance of transparency and accountability in audit practices.

Recommendations

To improve audit quality and detect fraud effectively, we recommend:

• Regulators strengthen guidance on responding to identified risks
• Audit firms comply fully with international standards on auditing
• Professional bodies provide training on anti-fraud education
• The government establishes a dedicated institution for fraud prevention and detection

By addressing these gaps in research and practice, we can improve audit quality and reduce the risk of fraud in Egypt.