Auditors' perspectives on financial fraud in Pakistan – audacity and the need for legitimacy

Abstract

PurposeFinancial shenanigans are the omissions or actions undertaken with the purpose of misrepresenting an organisation's financial statements. Many examples now exist of such behaviour emerging in the context of a desire to deceive the users of financial reports. In this context, research has illustrated how investors can find themselves impacted by such behaviour, with incorrect decision-making around investment decisions being a major issue. However, auditors' perspectives, of obvious importance in such scenarios, given these individuals' role in attesting to the veracity of financial disclosures, have not been investigated. The aim of this study is to address this gap by seeking the experiences of auditors in the developing nation of Pakistan, an environment in which the significant impact of financial improprieties is well-documented.Design/methodology/approachInterviews with 50 Pakistani-based auditors were conducted to gather perceptions about the nature and prevalence of financial shenanigans. The questions posed were structured to address issues relating to both the drivers of and methods used to operationalise financial malfeasance.FindingsThe views expressed by the participants suggest that this type of malpractice is common, with a variety of forms employed and a level of audacity and shamelessness is striking. The results indicate the absence of the three institutional pillars conventionally associated with motivating organisational attempts to legitimise behaviour and maintain social contracts. When considered alongside recent findings that the audit profession in Pakistan may not always play an effective monitoring role, we argue that the evidence suggests the existence of motivations for legitimising strategies are not yet fully understood.Research limitations/implicationsThis contention helps address recent calls for investigation of issues around legitimising tendencies where theoretical understanding is incomplete. A full understanding of the embedded practices will provide capital providers with the opportunity to make more informed decisions regarding their investments in Pakistani firms by highlighting the financial shenanigans involved, including the sheer audacity apparently associated with the observed behaviour.Originality/valueEarnings management and auditing have not been studied widely in Pakistan despite the abundant and persistent nature of corporate scandals across the nation for many decades. Whilst implementation (and enforcement) of some accounting and auditing standards have taken place recently, the financial collapses continue, and understanding regarding the on-going fraud is urgently needed. The extent and shameless nature of the perceived behaviour are striking, suggesting that those closest to financial reporting in Pakistan see fraudulent financial reporting as being close to, if not yet fully representative of, normal practice.

Discourse and the creation of French green bond legitimacy

“…With a discursive referential strategy, the scope of underlying signification is extended beyond the imminent meaning of the sentence; in this case, the reference to external providers might strengthen the credibility and reliability of the organisations’ statements. This reasoning is consistent with the notion of legitimacy being constructed through authorisation by a subject with a “relevant authority” status (Lavrusheva, 2013; Rashid et al , 2022). Relevant authority status in French security markets reflects independence, trustworthiness and competence [6], suggesting that − from an external perspective − Green Bond issuers in France generate a discourse whereby the instruments concerned accord with prevalent and commonly accepted standards and attract similar degrees of legitimacy.…”

“…In this context, critics argue that public regulation has failed in recent years to adjust to the rapid growth in the market, with private governance acting as the trailblazer in market regulations. While non-public frameworks are often recognised as quicker in implementation, their manifestation can lead directly to accountability and legitimacy failures (Park, 2018; Rashid et al , 2022).…”

Financial Pattern of Small and Medium Enterprises (SMEe) of Pakistan

“…Individual selected as the unit of analysis are owners and/or managers or key employees of SMEs. All participants are assured about the confidentiality of their information (Ullah & Khan, 2018;Rashid & Khan, 2019). Questionnaire is designed in English but Urdu translation is also provided to those participants who are having difficulty in understanding English.…”

“…We did not follow one ready-made questionnaire. Instead, different questions are extracted from different studies to support our two themes (Khan, 2011;Rashid & Khan, 2019). The questions are designed keeping in mind the two research objectives.…”

Mitigation of the potential fraud in the era of business digitalization in the covid 19 pandemic: exploration of accountant’s role and challenges

“…Detection of corruption is carried out to assist the organization in creating a healthy and beneficial environment within the organization by preventing the occurrence of more significant impacts and material losses due to corruption. In detection, the Forensic Accountant does examine matters that are more related to the assets and financial statements of the organization/agencies (Rashid et al, 2022). Detection of corruption is carried out by conducting an investigation, which must look at financial statements with a list of transactions that have been carried out and carry out criminal investigations by looking at the mode, motive, or intention of the perpetrators of corruption.…”