Can forensic accounting impact sustainable corporate governance?

Author:Ali Rehman, Fathyah Hashim
Publication Date:11 Dec 2020
Can forensic accounting impact
sustainable corporate governance?
Ali Rehman and Fathyah Hashim
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
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,
Received 30 June 2020
Revised 22 September 2020
Accepted 15 November 2020
Conflict of interest: There is no
conflict of interest among
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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