The Determinants of Fraudulent Financial Reporting: (A Systematic Literature Review)

This systematic literature review provides a comprehensive examination of the determinants of fraudulent financial reporting by integrating insights from multiple fraud theories, including the Fraud Triangle, Fraud Diamond, Fraud Pentagon, and Fraud Hexagon. Drawing on studies published between 2013 and 2024, the review synthesizes empirical findings and theoretical developments across diverse contexts and industries. The analysis identifies key themes such as governance mechanisms, managerial motives, financial pressures, and the roles of audit quality and corporate governance in moderating fraud risks. The study highlights how foundational theories like the Fraud Triangle, which emphasizes pressure, opportunity, and rationalization, have been expanded to include additional dimensions such as capability, arrogance, and collusion. These advancements are particularly relevant in addressing the complexities of modern fraud scenarios. Emerging economies, especially in Southeast Asia, exhibit unique patterns of fraud influenced by cultural, economic, and regulatory factors, with frameworks like the Fraud Hexagon providing critical insights. Corporate governance emerges as a pivotal factor, with weak structures often enabling fraud while strong mechanisms, such as effective audit committees and board diversity, mitigate risks. Managerial motives driven by financial pressures and the desire to meet performance benchmarks are also identified as significant predictors. Financial distress further exacerbates the risk of fraudulent activities, cutting across industries such as manufacturing and banking. Technological advancements, including artificial intelligence and data analytics, are increasingly critical in fraud detection, marking a shift from reactive to proactive approaches. Despite these advancements, gaps remain in addressing the dynamic nature of fraud and its evolution in response to technological and global changes. This review underscores the need for longitudinal and cross-cultural studies to deepen understanding and enhance preventative strategies.