Fraudulent financial reporting motivations in emerging markets
| DOI | https://doi.org/10.1108/JFC-09-2020-0188 |
| Published date | 23 April 2021 |
| Date | 23 April 2021 |
| Pages | 892-905 |
| Subject Matter | Accounting & finance,Financial risk/company failure,Financial crime |
| Author | Farqad Sallal,Mohammad Ali Bagherpour Velashani,Mohammad Javad Saei |
Fraudulent financial reporting
motivations in emerging markets
Farqad Sallal
Faculty of Economics and Administrative Sciences,
Ferdowsi University of Mashhad, Mashhad, Iran, and
Mohammad Ali Bagherpour Velashani and Mohammad Javad Saei
Ferdowsi University of Mashhad, Mashhad, Iran
Abstract
Purpose –The purpose of this paper is to study comparatively motivations for committing fraud in
financialstatements in two emerging markets includingIran and Iraq.
Design/methodology/approach –The research is a descriptive survey and statistical population
consistsof independentauditors. The field survey and questionnairewere used for data collection.
Findings –Findings can raiseauditors’awareness of management fraud motivations.It can help regulators
and authorities in both countries as well as other emerging markets for establishing suitable rules and
regulation.
Originality/value –This paper’s contribution was in identifying and comparing management’s
motivationsto commit financial reporting fraud in two emergingmarkets including Iraq and Iran.
Keywords Fraud motives, Fraudulent reporting, Independent auditors, Emerging markets, Iraq,
Iran
Paper type Research paper
1. Introduction
Fraudulent financial reporting has become as one of the most important and challenging
issues in the financial markets. This not only has brought a great risk to the markets, i.e.
users of the financial statements but also to audit profession as a whole and especially
auditors. It can demolish the trust of the users in the market and public confidence in the
audit function resulting in increasedcost of capital for companies. In this situation, auditors
face a higher level of risk (e.g. lawsuit) and have to spend more time for discovering
probable frauds leading to increasedcost of audit as well. There are many questions about
motivations, process, scope and costs of fraud for the community and the measures that
have to be taken to identify and prevent such actions (Lister,2007). Therefore, studying the
incentives (motivations) for fraudulentfinancial reporting is one of the top priorities in this
regard (Zainudinand Hashim, 2016).
Prior research show that contextual factors such as culture, legal systems, inflation
levels, levels of economic development affect the financial reporting in each country (Gray,
1988;Perera, 1989;Meek and Saudagaran, 1990;Jaggi and Low, 2000;Askary, 2006). This
implies that the interests and incentives (i.e. engaging in fraudulent financial reporting) of
the financial statements providerscan be different in different markets resulting in different
level of financial reportingquality.
There are also some differences between developed and emerging markets. For
examples, developed markets are more efficient (Walczak, 1999) and provide more
protection for shareholders and creditors than emerging markets (LaPorta et al.,1998).
JFC
28,3
892
Journalof Financial Crime
Vol.28 No. 3, 2021
pp. 892-905
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-09-2020-0188
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