The role of the internal auditor, stakeholders, and external auditor in discovering and reducing creative accounting practices in UAE companies

Abstract

This study investigates the role of internal auditors, external auditors, and key corporate stakeholders in detecting and mitigating creative accounting practices in UAE firms. While prior research has acknowledged the importance of corporate governance mechanisms in financial oversight, limited attention has been given to the specific strategies employed by these governance actors in identifying and reducing manipulative accounting practices. This study addresses this gap by examining the distinct approaches used by internal auditors, external auditors, and stakeholders such as firm owners, board members, and accountants to curb creative accounting. A survey methodology was employed, targeting 222 professionals from internal and external audit offices and corporate entities through purposive sampling. Data were collected through structured questionnaires and subsequently analyzed utilizing Partial Least Squares Structural Equation Modeling (PLS-SEM). The findings indicate that internal auditors (IA) exhibit proactivity through the implementation of forensic auditing techniques, the execution of risk-based audits, and the fortification of internal control mechanisms to identify and prevent financial misstatements. As independent overseers, external auditors (EA) bolster these initiatives by rigorously examining financial statements and detecting discrepancies through sophisticated audit methodologies. Corporate stakeholders, including owners, board members, and accountants, play a crucial role in influencing the integrity of financial reporting by enforcing compliance policies and ensuring accountability. This study contributes to the existing literature by comprehensively analyzing how these governance actors collaborate to enhance financial transparency. The findings present practical recommendations for policymakers, regulators, and corporate entities to strengthen financial oversight frameworks and mitigate the incidence of creative accounting practices in the United Arab Emirates (UAE).

Keywords: Creative accounting, External auditors, Financial oversight, Internal auditors, Stakeholders