Can forensic accounting impact sustainable corporate governance?

• DOI: https://doi.org/10.1108/CG-06-2020-0269
• Pages: 212-227
• Published date: 09 December 2020
• Date: 09 December 2020
• Subject Matter: Corporate governance,Strategy
• Author: Ali Rehman,Fathyah Hashim

Can forensic accounting impact

sustainable corporate governance?

Ali Rehman and Fathyah Hashim

Abstract

Purpose –The purpose of this paper is the measurement of forensic accounting’s (FA) impact on

sustainable corporate governance (SCG) within Omani public listed companies. Beyond merely

cataloging the latest criminal innovations and SCG problems, this paper offers a path forward to

overcome the myriad threats that can harm the organization and society. FA and SCG can achieve,

anticipateand prevent tomorrow’s fraud today beforeorganizations reach the point of no return.

Design/methodology/approach –For this study, FA is an independent variable and SCG is the

dependent variable.This study used a descriptive cross-sectional survey design.Data are collected by

internet-based tool and analyzed via partial least squares structural equation modeling and Statistical

Packagefor Social Sciences.

Findings –Result suggeststhat FA has a significant direct impact over SCG;moreover, FA can become

the part of governancemanagement toward the eliminationof fraud and achievement of SCG.

Practical implications –This study can assist regulators, professional bodies and organizations in

amending their codes of corporate governance and organizational policies by introducing the SCG

clausesand making FA as a compulsory part of governancesystem.

Originality/value –Up to the best of the knowledgeof researchers, there is no study conducted before

which verifies the FA impact on SCG;moreover, previous relevant studies verify only one constituentfor

SCG, whereasthis study is identifying three constituents necessaryfor SCG.

Keywords Corporate governance, Forensic accounting, Public listed companies in Oman,

Sustainable corporate governance

Paper type Research paper

Introduction

Sustainable corporate governance (SCG) and fraud control activities are the two main

pillars necessary for organizational successful business growth and business sustainability.

Because of the organizational frauds, the recent past witnessed an intensifying concern for

the sustainability in corporate governance (Lombardi et al.,2019;Crifo et al., 2019)and

forensic accounting (FA) is the best-suited activity which can assist in eliminating and

mitigating frauds (Rehman andHashim, 2019).

The term SCG can be defined as a system which is directed toward achieving a well-

functioning board of directors (BOD), effective audit and risk committee (ARC) and

beneficial nomination and compensation committee (NCC) (CMA, 2016;Lombardi et al.,

2019;Crifo et al., 2019). BOD, ARC and NCC are also describedas the main constituents of

corporate governance (IFAC, 2016). These main constituents aid in facilitating the policy

approvals and decision-makingprocess which eventually leads toward SCG.

FA can be considered as an activity (Bhasin, 2016) available within an organization and

working toward controlling, elimination and mitigating frauds (Rehman and Hashim, 2018).

FA as an activity ensures that the decision-making process is free of fraud and is made by

considering all the risk factors and within approved risk appetite (Effiok and Eton, 2013).

Ali Rehman is based at the

Department of Internal

Audit, A’Sharqiyah

University, Ibra, Oman.

Fathyah Hashim is based at

the Universiti Sains

Malaysia, Penang,

Malaysia.

Received 30 June 2020

Revised 22 September 2020

Accepted 15 November 2020

Conflict of interest: There is no

conflict of interest among

authors.

PAGE 212 jCORPORATE GOVERNANCE jVOL. 21 NO. 1 2021, pp. 212-227, ©Emerald Publishing Limited, ISSN 1472-0701 DOI 10.1108/CG-06-2020-0269

Organizations cannot sustain in an environment that is not fraud free; moreover,

stakeholders’ satisfaction can impede if organizations are not able to control fraud and

fraud-related activities (Enofe et al.,2015). In the current business environment, FA is the

best choice available which can eliminatefraud and at the same time assist BOD, ARC and

NCC toward the achievement of SCG.

SCG is the precondition to business survival (Jarmaiet al.,2020); however, to date, there is

no specific definition available for SCG (Montiel and Delgado-Ceballos, 2014). Many

regulating authorities including Capital Market Authority (CMA) in Oman developed the

codes of corporate governance, but these codes are not able to define whether following

these codes will achieve SCG or not. There are several non-compliances identified which

are related to the Omani codes of corporate governance (Services, 2018); however, it

cannot be identified that whether these non-compliances hindered the achievement of SCG

or it has minimal or no impact at all.

Codes of corporate governance which are established by CMA in Oman are dire cted toward

the basic requirements of corporate governance but do not explain o r define the necessary

elements required for the achievement of SCG. In the curren t codes, there is nothing

mentioned toward business sustainability, business continuity and elim ination or controlling of

fraud (Rehman and Hashim, 2019). It is worth mentioning that the exter nal auditors are obliged

to provide their opinion on the compliance with codes of corporate governance, but provi ded

opinions are more toward safeguarding external auditors repute rather t han providing

satisfaction to shareholders. In Oman, the following is the genera l opinion provided by many

external auditors including the Big 4 related to corporate governan ce (KPMG, 2020):

[...] had we performed additional procedures or had we performed an audit or review of the

corporate governance report in accordance with International Standards of Auditing or

International Standards on Review Engagement, other matters might have come to our attention

that would have been reported to you [...].

In light of the above mentioned opinion, it can be easily asserted that auditors did not

perform their review which could have provided much needed satisfaction for stakeholders

(Garrow et al.,2019) or define that whether SCG is achieved or not. Additionally and in

accordance with Generally Accepted Auditing Standards (GAAS) mentioned in AU-C

section 240 (AICPA, 2017):

[...] the auditor is primarily concerned with fraud that causes a material misstatement in the

financial statements [...]” and [...]”. The primary responsibility for the prevention and detection

of fraud rests with both those charged with governance of the entity and management [...].

Above-mentioned GAAS statements completely place the responsibility of fraud

identification on the governanceand organizational management. BOD, ARC and NCC can

be considered as governance management because they are directly responsible toward

the implementation of corporate governance (IFAC, 2016). Governance management can

also be considered as those who are placed as in charge of the achievement of SCG

(Lombardi et al.,2019).

For the fact mentioned above, if the governance management is responsible for the

elimination and control of fraud then they require expertise that can only be provided by FA

(Rehman and Hashim, 2018). FA with its capability and knowledge can impact corporate

governance (Bhasin, 2016) which can eventually lead toward SCG. However, FA is not

visible in any of the codes developed by many countries including Oman and FA is

considered as a third-party consultant (Leonard, 2010) who is called upon as and when

required (Singleton and Singleton, 2010). Till date, there are no professional standards or

guidelines available for FA, and in the absence of these standards, FA is believed to be

working only as an expert fraud finder, litigation expert and divorce claim settlement officer

(Odelabu, 2016;Gee, 2014;Nigrini,2012;Adrian et al.,2009).

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