The Impact of Forensic Auditing on Audit Quality: An Empirical Study of Fraud Detection in Fraudulent Financial Reporting in Egypt

• In Event: Fraud Prevention and Audit

Abstract

During subsequent decades as the accounting profession attempted to distance itself from fraud discovery responsibilities, fraud investigation was abandoned to a specialized subset of the profession. Independent auditors denied primary responsibility for fraud detection; they relegated fraud discovery to the status of incidental by-product of an audit whose purpose was to render an opinion on the fairness of presentation in accordance with generally accepted accounting principles (GAAP) (Gray and Moussalli, 2006). However, the accounting scandals involving Enron, WorldCom, Global Crossing, and other companies have put auditors in the public spotlight as never before in their history. After these accounting scandals, public confidence in the accounting profession has been seriously undermined. On the other hand, the scandals have created business for forensic auditors and developed opportunities for forensic and investigative auditing. Forensic auditors have been conducting these activities for quite some time in a quiet professional manner. New laws and regulations resulting from these scandals will make the role of forensic auditors more important than ever before in the business world (Ozkul and Pamukcu, 2012). The question of whether audit quality is affected by fraud detection as one of the principal responsibilities of the auditor and the tools of the forensic auditing are now being rediscovered, and has received extensive attention from researchers and profession. Though, ongoing interest in the issue suggests that this question has not been completely answered by extant research. This study aims to contribute to the literature by providing an empirical evidence of the impact of forensic auditing on audit quality in Egyptian context where it lacks enough studies. The purpose of this study is to investigate the effect of fraud detection in fraudulent financial reporting on audit quality. In unique regulatory environment, Egyptian audit market, where auditors of Central Auditing Organization (CAO) provide forensic auditing, in contrast private audit firms which provide conventional audits.

Author

• Mohamed Gamal Abdelhalim, Mansoura University