Professional Skepticism and Financial Statement Fraud Detection among Malaysian and Indonesian Auditors: A Cross-Cultural Analysis

Recent financial scandals highlight flaws in auditor quality, signalling a decline in professional skepticism, particularly in regions like Malaysia and Indonesia with diverse regulatory frameworks, cultures, and environments. This study examines the relationship between six professional skepticism traits and fraud detection by comparing Malaysian and Indonesian auditor utilising a questionnaire based on Hurtt’s 30-item scale to assess auditors’ professional skepticism. A purposive samples of 187 Malaysian auditors (MIA members) and 173 Indonesian auditors (IAPI members) was surveyed. Partial Least Squares Multi-Group Analysis (PLS-MGA) revealed significant differences between the two countries in two key traits: interpersonal understanding and suspension of judgment which weakened (improve) Malaysian (Indonesian) auditors’ ability to detect fraud respectively. Indonesian auditors, on the other hand, may benefit from developing these traits to enhance fraud detection. The variance in skepticism traits is attributed to differences in professional environments, with Malaysian auditors primarily from Big 4 firms, while Indonesian auditors are predominantly from non-Big 4 firms. Targeted training for Indonesian auditors, focusing on interpersonal understanding and suspension of judgment, could enhance their fraud detection capabilities. This study contributes to the literature by identifying cultural and professional differences as key factors affecting skepticism, providing a basis for strategies to improve auditing practices in Indonesia.