People Innovation Excellence

Development of fraud theory in accounting and auditing literature

The origin of developing fraud theory, the fraud triangle, was inspired by the works carried out by Sutherland, a criminologist who cited the concept of white-collar crime. In general, the theory of fraud triangle, which is coined by Cressey (1953), an American criminologist, describes why people commit embezzlement? He simplifies the casual factors of unlawful financial acts perpetrated by someone who was entrusted to manage organisational assets – in the formal position, the perpetrator is as an agent or guardian for organisation assets.

Cressey (1953) theorises three components as the underlying factors to explain the motivation behind an individual’s decision to commit embezzlement. Those components, such as “pressure”, “opportunity” and “rationalisation”, work in an interconnected basis and are considered as the precondition for embezzlement to happen. If any one of those components is absent in a given time, individual is highly unlikely to commit embezzlement.

If we look further into accounting professions, the “American Institute of Certified Public Accountants” (AICPA) issues Statement on Auditing Standards No. 99. It is dated in 2002 as responses to the biggest accounting scandals happening in big firms, for example, Enron. This standard provides some critical components for practitioners regarding how to identify the warning signs of fraud. In explaining the warning signs of fraud, the standard refers to the concept of the fraud triangle. Then in 2006, the “International Federation of Accountants” (IFAC) followed the footsteps of AICPA in adapting the fraud triangle’s concept. It is because the theoretical frameworks proposed in the fraud triangle are seen as appropriate guidance for auditors and accountants in fulfilling their duties. The standard describes the signs of circumstance, allowing an individual to commit management fraud, which is referred to the concept of the fraud triangle. It is clearly stated to help auditors to understand how and why fraud is committed. It is also believed that it helps the organisation to take proactive measures in dealing with the causes of fraud before it happens.

While the concept of fraud triangle receives considerable attention from professional communities, many scholars criticise of the application of Cressey’s (1953) work, for example, Murphy and Dacin (2011). They argue, the motives such as “financial (e.g. money), pressure (e.g. the pressure to retain their job) or social (e.g. the desire to retain or gain respect or enhance their self-esteem and status)” which are in the concept of fraud triangle categorised as incentive/pressure are not necessary conditions to influence people to commit fraud. This is because types of fraud vary and require different pathways to explain the factors that provoke someone to commit fraud. They suggest that there are other distinct psychological influences affecting fraudulent behaviour, such as “lack of awareness”, “intuition coupled with rationalisation” and “reasoning”. Moreover, the attractiveness of opportunity is needed but not mandatory for a potential fraudster to defraud the organisation (Schuchter and Levi, 2016).

Prior to these criticism, other research shows that the fraud triangle is not a primary causal factor of fraud. Ashforth and Anand (2003) argue that dishonest behaviours in organisation were profoundly influenced by a set of critical relationships that underlie the complexity of opportunistic phenomena in day-to-day organisational activities. The impetus for perpetrating fraud, especially corruption, is a unique set of ethical choices. As explained by Ashforth and Anand (2003), in a collaborative environment mutually reinforcing processes bring a significant impact on normalising dishonest or fraudulent conduct. Ashforth and Anand (2003) also propose that when corruption becomes normalised, social norms systematically may support the widespread use of corrupt business practices. It seems promising to include self-reinforcing dynamics in the theorising of fraud causation.

As fraud grows and intensifies within an organisation, it is a positive sign that the development of the fraud triangle paradigm requires an integration of both the political behaviours within and outside organisation, see Brown and Mitchell (2010). Brown and Mitchell (2010) study not only at the macro level but also in organisations as well as in interorganisational arrangements such as social network settings in discussing the emergence and maintenance of unethical practices.

The fraud triangle provides professionals with some guidance. One of its major contribution is the increased auditors’ sensitivity to issue of fraud (LaSalle, 2007; Albrecht et al., 2008). Yet the fraud triangle’s development is underdeveloped and its implication is restricted to explain partial fraud perpetrated by a single offender. This concern is also highlighted by Rabeea et al. (2018) that the theoretical framework in the fraud triangle is only focused on a single psychological dimension of fraud perpetrator who is acting alone. As a consequence, the implication of the fraud triangle is limited especially in organisational settings. Boyle et al. (2015) evaluate the applications of the fraud triangle and fraud diamond models. Specifically, they want to know the sensitiveness of auditors in assessing the critical fraud risks and the use of the fraud-related audit judgments in identifying vulnerabilities, by using two fraud models. The study shows, auditors in assessing fraud risks and formulating fraud risk judgments are affected by the types of fraud model used by auditors. Explicitly, auditors in assessing the fraud risk are more effective and productive by using a diamond fraud model rather than the fraud triangle model.

We are doubtful if the concept of the fraud triangle can be applied to explain unethical pro-organisational behaviour as described by Umphress and Bingham (2011) and Umphress et al. (2010). The two components of fraud triangle such as “financial pressure” and “opportunity” are not critical aspects on understanding why people offend. In the unethical pro-organisational behaviour, the linkages between macro-and micro-levels of influence to offend are complex. For example, Alempaki et al. (2019) find that friendship can be a critical driver of employees’ decision to behave unethically. Friendship has strong power to trigger feelings of indebtedness and as such gaining an individual’s compliance with a request to engage in unethical behaviour (Umphress et al., 2010). Therefore, we need to deepen and broaden the concept of fraud. So there is a need to develop better fraud theories identifying new causal factors of organisational fraud.

This note is extracted from article by Maulidi, A. and Ansell, J. (2021), “The conception of organisational fraud: the need for rejuvenation of fraud theory”, Journal of Financial Crime, Vol. 28 No. 3, pp. 784-796.


Albrecht, W.S., Albrecht, C. and Albrecht, C.C. (2008), “Current trends in fraud and its detection”, Information Security Journal: A Global Perspective, Vol. 17 No. 1, pp. 2-12.

Alempaki, D., Dogan, G. and Saccardo, S. (2019), “Deception and reciprocity”, Experimental Economics, Vol. 22 No. 4, pp. 980-1001

Ashforth, B.E. and Anand, V. (2003), “The normalization of corruption in organizations”, Research in Organizational Behavior, Vol. 25, pp. 1-52.

Boyle, D.M., DeZoort, F.T. and Hermanson, D.R. (2015), “The effect of alternative fraud model use on auditors’ fraud risk judgments”, Journal of Accounting and Public Policy, Vol. 34 No. 6, pp. 578-596.

Brown, M.E. and Mitchell, M.S. (2010), “Ethical and unethical leadership: exploring new avenues for future research”, Business Ethics Quarterly, Vol. 20 No. 4, pp. 583-616.

Cressey, D.R. (1953), A Study in the Social Psychology of Embezzlement: other People’s Money, The Free Press, Glencoe, IL.

LaSalle, R.E. (2007), “Effects of the fraud triangle on students’ risk assessments”, Journal of Accounting Education, Vol. 25 Nos 1/2, pp. 74-87.

Murphy, P. and Dacin, M. (2011), “Psychological pathways to fraud: understanding and preventing fraud in organizations”, Journal of Business Ethics, Vol. 101 No. 4, pp. 601-618.

Rabeea, S., Judit, O., Jozsef, P. and Domician, M. (2018), “An investigation of the influence of the worldwide governance and competitiveness on accounting fraud cases: a cross-country perspective”, Sustainability, Vol. 10 No. 3, pp. 1-11.

Schuchter, A. and Levi, M. (2016), “The fraud triangle revisited”, Security Journal, Vol. 29 No. 2, pp. 107-121

Umphress, E.E. and Bingham, J.B. (2011), “When employees do bad things for good reasons: examining unethical pro-organizational behaviors”, Organization Science, Vol. 22 No. 3, pp. 621-640.

Umphress, E.E., Bingham, J.B. and Mitchell, M.S. (2010), “Unethical behavior in the name of the company: the moderating effect of organizational identification and positive reciprocity beliefs influencing unethical pro-organizational behavior”, Journal of Applied Psychology, Vol. 95 No. 4, pp. 769-780.

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