Exploring a New Element of Fraud: A Study on Chosen Financial Accounting Fraud Cases in the World
Florenz C. Tugas

Abstract
It has always been the case that auditors serve as the protector of many stakeholders that depend on financial statements being issued by businesses annually at the very least. What auditors usually do is to enhance the degree of confidence that stakeholders can place on the financial reports. But recent incidents of financial accounting fraud involving auditors have placed the accounting profession in bad light. Investors who are on top of the list of those whose confidence was understandably stunned started to question the competence and integrity of auditors in today’s dynamic business environment. Members of the top management of many businesses began to become paranoid with regard to the level of objectivity and prudence their auditors are exerting on their financial reports. Worst of all, the general public itself turned its head on business regulators for legal aid and political intervention. Not to anyone’s surprise, the government indeed intervened. The passage of the Sarbanes-Oxley Act of 2002 (a United States law) became the landmark of action coming from the government that it is serious in its stance to eradicate questionable practices in the auditing profession. This initiative was then replicated across many countries around the world including the Philippines. Alongside these developments are the many researches exploring on the elements that contribute to the taking place of fraud in business organizations. First is the fraud triangle which espouses that the following three elements should exist for fraud to also exist: pressure, opportunity, and rationalization (Wells, 1997). The second is just an extension of the original fraud triangle which added capability to be the fourth element, thereby being referred to as fraud diamond (Wolfe & Hermanson, 2004). And in this light, the researcher was motivated to explore more on the elements of fraud. By studying eight selected financial accounting fraud cases in the world vis-à-vis the review of the Report to the Nation on Occupational Fraud and Abuse for 2002, 2004, and 2008, the researcher was able to come up with a new element of fraud which is external regulatory influence thereby extending fraud diamond to fraud pentagon. Several implications and recommendations were made at the end of this paper which would be very useful to financial auditors, top management, investors, and legal and regulatory bodies.

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