Fraud Detection Unveiled: How Audit Quality Shapes Auditors’ Detection Capabilities?

Abstract

Auditors today must possess skills that enable them to detect fraud, especially given increasingly complex business processes, more intricate data, and future business developments. This capability is crucial for auditors to ensure that professional practices are maintained at high standards. This study investigates the impact of ethical principles, professionalism, and auditor competence on fraud detection, emphasizing the role of audit quality improvement. The study’s respondents include 152 government auditors from the Audit Board of Indonesia, the Financial and Development Supervisory Agency, the Financial Services Authority, and the Inspectorate General of the Riau Islands Regency. Data collection was conducted using questionnaires, and the research hypotheses were tested using Partial Least Squares Structural Equation Modeling (PLS-SEM) through Smart-PLS 3 software. The findings reveal that ethical principles, professionalism, and auditor competence significantly influence audit quality. While ethical principles show a negative but insignificant effect on fraud detection, professionalism and auditor competence have positive yet insignificant effects. Audit quality, however, demonstrates a positive and significant impact on fraud detection. Additionally, ethical principles, professionalism, and auditor competence indirectly influence fraud detection through improved audit quality.