FRAUD RISK MANAGEMENT OVER FINANCIAL REPORTING: A CONTINGENCY THEORY PERSPECTIVE

Over the two decades, fraud risk management has become an integral part of managing organizations. The Association of Certified Fraud Examiners (ACFE) stated that typical organizations lose about 5% of their revenue to fraud each year. We have examined the role that contingency variables play in fraud risk management. We considered environmental uncertainties, organization strategy, and organization size and note negative effects on fraud risk management. We propose that organization strategy may have a positive or negative effect on fraud risk management. Using a prospector vs. defender strategy as a framework for our discussion, we argue that the prospector strategy is more likely to reduce the incidence of fraud reported in the financial statements. Following our conceptual propositions development, we discuss academic and practical implications and offer limitations and future research directions. Keywords: Fraud risk management, contingency variables, internal control