Abstract
The purpose of this study is to determine artificial intelligence (AI)-supported Omani publicly listed organisations' attitudes towards fraud elimination and mitigation (FEM) concerns from the lens of agency theory with internal audit (IAF) serving as the mediator. A descriptive cross-sectional survey was conducted by involving Omani publicly listed companies as the unit of analysis. Data were gathered using an internet-based tool and analysed via PLS-SEM and SPSS. For results, AI displayed an insignificant but direct impact on FEM, whereas IAF exhibited a significant and direct effect on FEM. Apparently, AI exerted a significant and direct impact on IAF, while IAF mediated the correlation between AI and FEM. This study serves as a guidance to regulators, professional bodies, and organisations in amending their codes of corporate governance and organisational policies by initiating AI as a governance agent working for the principal, as well as operating towards eradicating fraud and fraudulent practices.
TopIntroduction
Regulators and authorities have issued several guidelines to ascertain transparency, eliminate fraud, and provide better quality of financial statements. Despite the deployment of laws and regulations, fraudulent cases in organisations have continued to escalate (ACFE, 2020; Rehman & Hashim, 2019; Roszkowska, 2020). Approximately 47% of organisations had reported fraud cases in the past two years - the second-highest for fraud occurrences since the past two decades (PWC, 2020). Fraud not only shatters the confidence among shareholders, but also raises doubt on organizational commitment to continue its business operations. Obviously, the manually-driven laws and regulations are ineffective, while innovation is required for fraud elimination and mitigation (FEM). An instance of this innovation refers to artificial intelligence (AI) (Goertzel, 2014; Zeljko, et al., 2019), which can assist organisations in FEM.
In this present business setting, AI has been well integrated into the fabric of all corporate sectors and organisational operations. The AI can be applied in separate but related areas, including regulatory compliances, fraud prevention, and internal audit (Ammanath, et al., 2020; Lamboglia, et al., 2021). A number of ways have been proposed in which AI can reinforce fraud mitigation controls and concurrently assist in enhancing internal controls. When applied to organisational data, AI increases transparency, enhances trust, reduces fraud, and diminishes non-compliance with regulations. The link between AI and fraud prevention practices places the audit profession at the centre of an exciting new era (Govil, 2020; Valkanov, 2019; Aziz & Dowling, 2019).
Despite the mandatory requirement that organisations should update themselves more frequently, as well as maintain the pace of rapid and continuous change; many organisations have disregarded AI due to several implementation obstructions (Ammanath et al., 2020). More than 80% of the organisational board of directors failed to recognise the technological advancements and changing dynamics related to their business (Sarrazin & Willmott, 2016). The nature of businesses turns complex with technological advancements, and it is becoming challenging for CEOs to make accurate and intelligent decision in the absence of AI (Libert et al., 2017). Although AI can enhance business decisions functionality and be part of governance management, the adaptation of AI is occurring at a very slow pace (Sage, 2019) while some business leaders fail to see AI can benefit their organisations (Sage, 2019; Beck & Libert, 2018).
Key Terms in this Chapter
Fraud Risk Assessment: Fraud risk assessment (FRA) is control tool adopted by organization to access the risk of fraud. With the assistance of (FRA) organizations can identify potential area which is more susceptible to fraud risk and can devise mitigation actions accordingly.
Internal Audit Function: Internal audit function (IAF) is an activity available within organization. They should be independent and objective at the same time. IAF work for the improvement of governance, risk, and controls of the organization.
Artificial Intelligence: Artificial intelligence (AI) can be defined as broad range of computer sciences dedicated to build the smart machines capable of performing task which can be performed by human intelligence. AI enables the task to be performed accurately and in much efficient manner.
Fraud Mitigation: Fraud mitigation are the controls and action performed by organizations in order to minimize the risk of fraud.
Agency Theory: Agency theory defines the relationship between agents and principal. Principal are hired by agents to perform the job and to achieve organizational mission and vision approved by agents.
Regulators: Regulators are the authorities developed by country in order to monitor the progress of companies. Regulators issues orders and notices to organizations (either specific or in general) which is mandatory for all companies to follow.
Capital Market Authority: Capital market authority (CMA) is the regulator working in Oman. They are responsible for the issuance and updates of codes of corporate governance. They are also responsible for verifying organizations and external auditors’ performance with the aim of safeguarding the investors’ interest.
Fraud: Fraud can be defined as any act which is conducted for the benefit of one person or organization which is obtained by concealment of facts, theft or by providing misleading/falsifying information.