The Impact of Artificial Intelligence in Detecting Manipulations in Financial Statements

This paper contributes to the existing gap in understanding the application of artificial intelligence (AI) for detecting financial statement manipulation in the Iraqi-specific institutional setting, including the technological constraints and sociopolitical barriers. Using a sequential mixed-methods design with 407 professionals and 25 follow-up interviews, the results demonstrate AI's strong predictive power in detecting financial manipulations, explaining 95.7% of the variance for content manipulations and 94.8% for timing manipulations. Despite this effectiveness, uptake remains limited due to interference by tribal governance (68%), inadequate infrastructure (72%), and ineffective regulatory enforcement. New perspectives include the presentation of Iraq’s first empirical AI-audit framework. They also propose a fragile economy-specific cultural-technical alignment model. Additionally, AI is positioned as a “digital principal” that can address agency issues in weak institutional environments. It advocates step-by-step integration of cloud-based AI efforts, the use of tribal liaison roles as “a culturally sensitive way to reduce pushback,” and the creation of Sharia-compliant AI standards. At the policy level, it demands that AI be audited by 2027, for the creation of a national subsidy fund for SMEs and for regulatory sandboxes to enable experimentation. Fundamentally, this research redefines AI as not just a technological tool but a socio-political force that can reinforce economic integrity in developing nations.