Auditors' perception of fraud risk indicators

Purpose - Aims to identify the most important red flags as individually perceived by auditors, and explores whether auditors' demographic factors might impact on their perception of the relative importance of red flags in Malaysia, particularly in the Klang Valley area. Design/methodology/approach - This study employed a mailed survey as a method of data collection. The respondents to this survey are practicing auditors from audit firms in Kuala Lumpur. The sample of auditors is taken from the population of domestic listed audit firms with the Malaysian Institute of Accountants as of 27 March 2003. A simple random technique is applied to construct the sample. Findings - In general, subjects indicated that the operating and financial stability category was judged as most important, followed by management characteristics and influence over the control environment, and then finally by industry characteristics. Originality/value - It would be interesting to examine whether these fraud risk indicators are indeed helpful in the investigation of reported misconduct and fraudulent cases in Malaysia. The findings may help researchers to develop a new fraud risk indicator that takes into consideration actual instances of fraud in Malaysia.