Accounting, Organizations and Society 38 (2013) 440457

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Accounting, Organizations and Society

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Editorial

Fraud in accounting, organizations and society: Extending the boundaries

of research

Introduction
Concerns about fraud have been of practical
signicance for as long as written records have been kept,
and indeed may be a signicant reason for the development of writing and record keeping (Basu & Waymire,
2006; Ezzamel, 2012). Much of the fraud literature starts
with a recitation of infamous accounting (Clikeman,
2009) and corporate scandals and frauds (Punch, 1996),
and these often excite public interest and concern. Concern
with fraud and white collar crime affects public condence
in institutions as diverse as stock markets, auditors, bankers, corporate executives and government (Sanders &
Hamilton, 1997). Various corporate, social and political
scandals, fraud and corruption in government, and the
fraudulent practices in politics, nancial institutions, corporations, NGOs and religious institutions impact the legitimacy of such institutions. It also impacts how economic,
political and social life is organized, and our attitudes
and policies toward innovation, entrepreneurship and
compliance to rules and law (Snider, 2000). Yet we also
know that there is much moral ambiguity in life and managers (and accountants) spend much of their life in moral
mazes (Jackal, 1988), negotiating and making sense of
everyday fraud and wrongdoing.
Fraud, variously dened, is an area that has been discussed and examined from many different perspectives
and in relation to many different practices, in varying contexts. It is surprising, however, that many of the terms,
concepts, understandings and behaviors surrounding fraud
have not been discussed or examined in the accounting
and auditing literature. That literature has used a somewhat limited range of perspectives, most commonly based
on studies either of causes of fraud based on individual
behavior or on capital market effects of illegal acts. The
accounting literature typically focuses on the individual
and it assumes that fraud is an objective phenomenon;
that we all agree what is fraud, that there is limited moral
or ethical ambiguity about the nature and effects of fraud,
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and that such agreements are somewhat invariant across

time and space. The goal of this essay and this special issue
is to address some of these limited perspectives, and to
suggest lines for future research. Specically, this essay is
intended to expand the range of perspectives used to
understand fraud and to examine behaviors and practices
that are typically under researched in accounting.
We identify two major areas that have been the focus of
accounting and audit research on fraud. First, it has focused on individual wrongdoing, its causes, characteristics
and detection (e.g., Albrecht, Albrecht, Albrecht, & Zimbelman, 2011; Brody, Melendy, & Perri, 2012; Hoffman &
Zimbelman, 2009). Typically this area has drawn on psychology, examining the fraudster or criminal and focusing
on detection and prevention, typically through audit procedures (e.g., Brazel, Jones, & Zimbelman, 2009). The second dominant approach in accounting research is to
study capital market reactions to corporate frauds or other
illegal behavior, typically framed through economic theories of efcient markets or agency conicts (e.g., Dechow,
Sloan, & Sweeney, 1996; Feroz, Park, & Pastena, 1991).
These two areas have yielded signicant insight into individual causes for fraud, audit responses and capital market
impacts, but we suggest that different questions and perspectives, raised in other social sciences, are likely to provide important new understandings, and identify other
horizons and dimensions of fraud.
The accounting research on fraud seems to accept legal
denitions of fraud and assumes that such laws are universal and uncontested. Earnings management is now taken
to be a signal of dishonest management (Beasley, Carcello,
& Hermanson, 1999; Beasley, Carcello, Hermanson, & Neal,
2010; Jones, 2011) or is presented as signaling misleading
information about corporate performance (Macintosh,
2009). The ethics and legality of earnings management is
treated as if they are universal. Yet, in earlier times and
in some countries, earnings management (and income
smoothing) was regarded as representing prudent
management and often supported by the courts. Further,

Editorial / Accounting, Organizations and Society 38 (2013) 440457

while clearly different in orientation, more critical perspectives, for example examining how audit authorities
fail to meet their obligations (Arnold & Sikka, 2001;
Chwastiak, 2013; Cooper & Catchpowle, 2009), still take
for granted what it is to be fraudulent or corrupt and assume that a purpose of audit authorities is to ght fraud.
Such perspectives can be insightful, but they are based
on a limited conception and understanding of fraud and
take for granted the nature of fraud and assume a desire
to reduce it.1
Our approach to expanding the horizons is to draw on
diverse disciplines that have addressed issues of fraud in
organizations and society. This motivated our interest in
organizing an interdisciplinary conference in 2011 and
producing this special issue. Our aim, to bring together
scholars from multiple disciplines and with multiple theoretical orientations, was reasonably successful, as the diverse set of papers in this special issue attests.
This interdisciplinary review highlights the signicant
body of work on corporate crime, on governmental and
societal corruption and illegality, and approaches that go
beyond the two dominant areas of accounting and audit
research on fraud. Notably, there is an emerging body of
research that recognizes the importance of context,
whether at the organizational, eld or societal level,
understands that fraud and corruption can take shape
through individual, collective or systemic forms, and identies the varied effects of fraud in accounting and audit.
Such research extends to examinations of the nature of
honesty, organizational and social pressures to behave
dishonestly or fraudulently, modes of regulating fraudulent activity and how understandings of what constitutes
fraud and wrongdoing impact understandings of who or
what is responsible and accountable.
In this essay we emphasize three themes: the importance of contextualizing fraud, the social construction of
fraud and associated categories of wrongdoing including
the effects of such denitional work, and nally the recognition that fraud takes place in multiple domains, such as
the individual, the rm, the organizational eld and societies more generally. Collectively, the papers selected for
this issue do not uniformly address all these issues (we
did not select papers based on focus) but the issues not addressed by the papers in this issue do enable us to identify
gaps in the literature.
Our rst theme, contextualizing frauds, suggests that
accounting fraud needs to be understood in a social, legal,
political and economic context, such as whether a particular society encourages (or not) risk taking, socializes losses,
or encourages rule following. Contextualizing fraud also

1
We are aware that we may be seen to be condoning fraud. We certainly
believe that audit authorities should seek out and combat legally dened
concepts of fraud, but we also believe that it is important to explore how
and why the powers and responsibilities of specic audit institutions in
respect to fraud and wrongdoing are created and dened, and what the
implications are for audit practice. Our purpose is to point out that research
needs to be careful in considering who looses and who benets from
specic forms of fraud, understanding the role of accounting as a
mechanism to produce and allocate blame for fraud, as well as problematizing (and likely expanding) conceptions of fraud beyond what is legal
proscribed.

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applies to understanding frauds not just in a context of

organizational norms, structures, practices and culture,
but also that societal corruption needs to be appreciated
in relation to distributions of wealth, inequality and deprivation, as well as regional and tribal rivalries and histories.
While we do not propose to initially distinguish between terms such as wrongdoing, fraud, illegal acts, corruption, unethical behavior and crime, a second theme of
this essay is that the boundaries and relationships between
such terms (and what are seen to be their opposites)
should themselves be objects of analysis. What is seen as
fraud or corruption is likely to vary across contexts and
over time; the dynamics and the social construction of
fraud need to be considered. As recent controversies
(involving multinationals such as Google, Amazon and
Starbucks) about the boundaries between tax evasion
and avoidance demonstrate, whether behavior is treated
as unethical, criminal or indeed rational, not only changes
due to legislative or cultural shifts, but also due to economic and political re-assessments.
An important approach in criminology examines the
labeling of deviance, such that certain activities are
deemed fraudulent whereas other, typically non criminal,
activities (poor products, dangerous working conditions,
misrepresentations and behavior that might be regarded
as unethical or unscrupulous) are deemed outside the
analysis. Thus for Becker (1963) fraud is socially constructed and how and why rules are followed is an important research question. Why people break rules requires an
understanding of why others follow them. In this approach, fraud (and white collar crime more generally) is
partly about who gets to fashion rules (legal and social)
about what is fraudulent, and why people follow (or break)
these rules.
Post structuralism has extended this concern with constructivism and asked about how and why specic categories of behavior are deemed fraudulent, and what are the
mechanisms that encourage rule following. Thus Lawrence
and Robinson (2007) examine organizational deviance as
an approach to labeling resistance. This is a tradition familiar to may readers of Accounting, Organizations and Society,
as it draws on analysis inspired by Foucault (e.g. 1984; see
also Khan, Munir, & Willmott, 2007) and, more recently, by
actor network theory. For example, Callon (1998) emphasizes the role of networks and calculative devices in an
analysis of externalities like pollution and crime, and that
these can extend and help to construct (and perform)
markets.
Out third theme is that fraud takes place in multiple domains and involves multiple levels. Given that much audit
research examines fraudulent activity in large corporations
and that the avoidance and detection of fraud is a central
activity of auditors, it is easy to overlook fraud issues in
families, governments and the organization of global society. Fraud issues include not only the incidence of activities that are legally dened as fraudulent, but the
organization of forces that constructs rules and laws that
dene fraud in specic ways in different domains. For
example, what might be considered unethical behavior
(but typically regarded as outside the legal denitions of
fraud) might include the selling of personal nancial

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Editorial / Accounting, Organizations and Society 38 (2013) 440457

products, and involve individuals, families, corporations,

industry groups and rule making bodies. All these levels
and domains seem to have been implicated in various
mortgage frauds in recent years in several countries,
apparently involving a mix of illegal activity, lobbying
behavior to change the rules and dubious selling practices.
Similar observations can be made with regard to consulting fees paid by multinationals, such as Siemens and SNC
Lavalin, in securing international contracts and which appear to involve the corporations themselves, banks, governments and various intermediaries (Martin, Cullen,
Johnson, & Parboteeah, 2007). As we point out later, transfer pricing practices (in relation both to conventional products and services, and to intangible products such as
intellectual property) can involve lawyers, accountants,
professional bodies who write rules about ethical conduct,
nancial institutions, tax authorities and lobbyists that try
to re-write tax and other laws (Gramlich & Wheeler, 2003).
Our initial ideas were captured by the call for papers
that sought to briey highlight some possibilities. In the
rest of the paper we will draw on some of these preliminary possibilities. First, we suggested that sociologists have
been interested in various aspects of while collar crime,
the boundaries between entrepreneurialism, rules and
criminal and fraudulent activity and the social construction of fraud, scandal and corruption (Coleman, 1987;
Durkheim, 1893, 1897). Williams (this issue) and Power
(this issue), in very different ways, exemplify this tradition.
Neu, Everett, Rahaman, and Martinez (this issue) focus on
accounting and control mechanisms that enable and constrain fraud and how behavior deemed fraudulent arises
from the skillful and imaginative acts of fraudsters. Second,
the initial call pointed out that legal scholars have ranged
from a concern with liability regimes, the enforcement of
law and regulations and the roles of various professional
rms and associations in producing legal and commercial
practice in relation to insolvency, bankruptcy, liability
and the enforcement of contracts (Braithwaite, Walker, &
Grabosky, 1987). Power (this issue) offers an innovative
approach to understanding the effects of regulatory regimes for fraud. A third area highlighted related to political
science concerns about the regulation of fraud and the inter-relations between governance and corruption (Anderson & Tverdova, 2003; Clarke, 1983; Douglas & Johnson,
1977). Neu et al. (this issue) highlight in their case study
of fraud in government that accounting and audit procedures and controls can also be complicit in the operation
of frauds.
The initial call went on to suggest that, fourthly, economists have examined the relationship between property
rights, governance regimes in corporations and economies
and linked these to measures of economic crime, fraud,
corruption and assessments of well being (Ades & Di Tella,
1999; Elliott, 1997). Davis and Pesch (this issue) analyze
organizational design issues relating to fraud from the perspective of multi period and multi agent economic models.
Fifth, the boundaries between formal and informal economic activity connects with a concern with fraud and
tax revenues (Braithwaite, 2003). Braithwaite (this issue)
combines elements of scholarship in law and regulation
to examine boundaries in tax fraud, as well as regulatory

issues. Sixth, management and organization researchers

have been concerned with wrong doing and illegal activity
in organizations, including a concern with the nature and
identity of fraudsters and whistle blowers (Palmer,
2012). Gabbioneta, Greenwood, Mazzola, and Minoja (this
issue) uses organizational theories of institutionalization
to examine a notorious case of fraud. Finally, research in
ethics, often based in social psychology, raises questions
about the moral character of fraud and corruption, offering
models of ethical decision making and ways of avoiding
fraud (Bazerman & Tenbrunsel, 2011). One of the papers
presented at the conference (Chen, Kelly, & Salterio,
2012) focuses on skepticism to deter potentially fraudulent
acts, using psychology based models of auditors.
This rest of this essay is organized into three sections. In
the next section we review the main research traditions on
fraud and wrongdoing, offering comments on current research on fraud in accounting and auditing. In section
three we review the papers in this special issue, highlighting their commonalities and specic contributions. We
conclude by drawing out the three themes and offering
observations about the future direction of theory and research on fraud in accounting, organizations and society.
Examining fraud and wrongdoing
Berger (2011) usefully distinguishes between macro,
micro and individual approaches to discuss corporate and
government crime and fraud. We identify four broad aspects of fraud on which researchers have focused: the decision to engage in fraud, the temporally evolving character
of frauds, the context in which frauds occur, and the effects
of fraud and wrongdoing. In illustrating these aspects, we
point out both the major emphases in accounting research
on fraud and what other traditions may have to offer in
developing and enhancing the accounting literature. These
different aspects are inevitably partial and overlapping but
they are based on a review of the accounting literature on
fraud (where we reviewed all publications since 2000 in
nine major accounting journals) and a review of major
management journals (for details see Greve, Palmer, & Pozner, 2010; Palmer, 2012). Throughout our discussion of
these aspects of research on fraud, we contrast them with
a more constructivist tradition that focuses on the practices and discourses that shape the boundaries of what
constitutes particular behaviors as fraudulent, illegal, immoral or corrupt.
Decision making
Perhaps the most dominant view of fraud emphasizes
that acts of fraud can be the outcome of decision processes.
Typically, it assumes that actors weight costs and benets
of wrongdoing and embark on fraud when they conclude
that the benets outweigh the costs. The approach typically
focuses on individual decision making, or treats organizational or national fraud as the result of a dominant decision
maker (e.g. Board, CEO, or executive). Decision making approaches, focused on the choices made to commit or contribute (or not) to fraud, to whistle blow on suspected
frauds, or choices by auditors in identifying fraud, is rooted

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in decision making theories. We identify three such theories. First, rational choice theory recognizes the importance
of risk and attitudes to risk, and has developed agency and
game theory in economics (e.g. Becker, 1968; Kulik, 2005)
and strain theory in sociology (Merton, 1938). Agency theory and issues of adverse selection and moral hazard (often
connected to issues of corporate governance) have been
prominent concerns in the fraud literature (e.g., Farber,
2005). The second variant is behavioral decision theory that
relaxes the rationality assumption. For example, studies of
ethical decision making often focus on how individual attributes (age, training, gender, etc.) inuence how people
make what are conventionally understood as unethical or
fraudulent decisions (Tenbrunsel & Smith-Crowe, 2008).
Behavioral decision theory also examines the ways in
which individuals and organizations presented with ethical
decisions fall victim to one or more cognitive biases,
framing effects or organizational limitations (Bazerman &
Tenbrunsel, 2011).
The third variant of decision making approaches are
garbage can models of decision making (Cohen, March, &
Olsen, 1972; March & Olsen, 1976). These focuse on what
could be described as fraud as an outcome of not making
conscious decisions and tends to emphasis the role of impulse, error and organizational routines and structures in
the creation (and detection) of fraud. It is more a theory
of organizational rather than individual decision making.
The concept of decision expands to include organizational
choices based not only on connecting choice opportunities,
problems and solutions, but the resolution of choice situations through what Cohen et al. (1972) refer to as ight
and oversight. This seems to connect to recent approaches
to fraud and wrongdoing that assumes that acts of fraud
can be unintentional, inadvertent or based on the complexity of technical situations. Notably, Vaughan (1996),
Vaughan (1999) analyzes how accidental fraud and wrongdoing can evolve over time, known as the normalization of
deviance. Perrow (1999) builds on such insights to examine the organizational characteristics that make accidents
(which might include fraudulent acts) more likely, and in
some cases even inevitable: system complexity and tight
coupling.
Such research raises questions about the boundaries of
fraud, for example whether intentionality is a necessary
element. Mezias (1994) applied Perrows framework to
analyze the U.S. savings and loan crisis of the 1980; while
intentional fraud undoubtedly took place (Merino & York
Kenny, 1994), Mezias stresses the complexity of issues
and the possibility for accidental fraud. Palmer and Maher
(2006) extend this approach to analyze wrongdoing in
organizations more generally, and further argue (2010)
that the US home mortgage crisis of 2008 was due to system complexity and tight coupling, rather than human
intentionality (Perrow, 2010 disputes this latter conclusion). As far as we are aware, there has been little recognition of the possibility of accidental or unintentional fraud
in the accounting and audit literature.
The role of auditing in the prevention and detection of
fraud is a major area of accounting research on fraud that
has a decision making focus. It mainly focuses on how to
impact potential fraudsters decisions not to commit fraud

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or in aiding auditors in decisions about identifying and acting on signals of potential fraud.2 The research is often
based on behavioral decision making (e.g., Trotman &
Wright, 2012) but also uses agency theory (e.g., Erickson,
Hanlon, & Maydew, 2006) as a basis for its models. The
work that uses behavioral decision theory has typically applied various social psychological theories and the research
has been laboratory based, no doubt partly due to difculties in access and a desire for internal validity and control.
Agency theory based work tends to use analytical economic models, perhaps augmented by large scale empirical
work using extensive data bases.
As Power (this issue) points out, these methods for
combating and detecting fraud construct a relatively new
category of risk, known as fraud risk, and then posit methods to manage this risk (e.g. Norman, Rose, & Rose, 2010).
These methods are mainly informed by psychological
models of decision making, designed to help auditors identify early warning signs (red ags) or to overcome well
known cognitive limits in detection. For example, Hoffman
and Zimbelman (2009) evaluate the effectiveness of brainstorming, a technique commonly examined by audit
researchers, in helping to detect frauds. Hunton and Gold
(2010) examine three decision aides to help auditors detect fraud, and Hammersley (2013) discusses audit planning models to help detect potential frauds. In this
research, it is assumed that it is socially desirable that
auditors detect fraud and that audit research should help
these rms improve their performance in this task. There
appears to be little concern about the costs of such methods, or indeed whether such research should be conducted
using private funding of the rms, rather than public funds
that are often used in this type of research.3 The managerialist concerns of much audit research can be contrasted
with the legal tax literature that looks at strategies used
by tax regulators to detect tax fraud.
After the Enron and WorldCom scandals, professional
audit bodies revised their rules regarding auditor responsibility for the detection of fraud (AICPA, 2002; IFAC, 2006),
conceptualizing accounting frauds based on an individual
decision making model that emphasizes three elements:
opportunity, incentive and rationalization. This model is
known as the fraud triangle, and this, and its many variants (e.g. adding a fourth element such as capability, Wolfe
& Hermanson, 2004) have signicantly inuenced not only
professional and media discourse, but the world of teaching and research. Morales, Gendron, and Gunin-Paracini
(2013) provides a genealogy of the the model, pointing
out how it was transformed from early research in criminology that placed considerable attention on context
2
Auditors deny responsibility for detecting fraud- they often claim they
are watchdogs not bloodhounds. While their legal responsibilities are
limited, there is no doubt the public in many countries expect more (hence
what the audit profession calls the expectations gap, see Sikka, Puxty,
Willmott, & Cooper, 1998). Public expectations also highlight the political
and moral boundaries that demarcate the world of fraud and auditing.
Further, limits of legal responsibility (and liability) do not seem to limit the
fraud related services offered by audit rms, such as forensic audit.
3
The focus on audit and auditors extends to concerns about the risks to
audit rms from identifying fraud (Reffert, 2010) and support for the audit
industrys attempts to limit their liability for detecting fraud (for a critique,
see Humphrey, Moizer, & Turley, 1992).

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(notably Sutherland (1937, 1940), and his student, Cressey

(1953)) but which is now almost entirely based on individual decision making.
This decision making model has been inuential in
audit research, with various laboratory experiments indicating that each of the factors in the fraud triangle inuence behavior (Hogan, Rezaee, Riley, & Velury, 2008;
Murphy, 2012; Peecher, 1996). Morales et al. (2013)
emphasize that a focus on these three factors tends to individualize fraud and focus on the individual perpetrator. At
the same time, and inuenced by the promotional efforts
of the Association of Certied Fraud Examiners (ACFE)
and professional auditing groups who look to extend their
market, the fraud triangle helps to construct a view of society as full of potential fraudsters (Morales et al., 2013). To
these groups, risk of fraud is based on individual character
traits and decisions, and is everywhere. The fraud triangle
rarely considers the wider context, and when it does, it
does so mainly in terms of administrative rules and a limited notion of culture (e.g. tone at the top). It ignores the
wider economic and institutional context and issues of
power, thereby ignoring macro social and economic
dimensions (such as poverty) and occludes other models
and understandings of fraud.4
Donegan and Ganon (2008) point out that the audit literature has tended to ignore explanations for fraud outside
individual decision making that is the focus of the fraud
triangle. Their analysis points out the insights derived from
other group level approaches in criminology. They identify strain theories as emphasizing the pressure felt when
people or groups believe they are excluded from social
and economic opportunities (e.g. through poverty, the
exclusionary power of elites or poor education) or feel
strained by external pressures, such as capital market
expectations. Donegan and Ganon (2008) offer a useful critique of the individualist approach of the fraud triangle, yet
their proposal to use strain theory is still a theory of decision making, albeit one that stresses social and group decision processes.
Research using a decision making approach have helped
auditors deter and identify frauds. Auditors and fraud
examiners have adopted the fraud triangle as a particular
approach to accounting fraud, but there is a danger that
the individual focus of this decision making model will distract attention from other decision making approaches and
other issues related to fraud and corruption, for example
frauds resulting from what we called non decisions and
accidents.
Temporality
Many of the social sciences have recognized time as an
important dimension of life (e.g., Giddens, 1984; Pierson,
2004; Shackle, 1967). As Ezzamel and Robson (1995) show,

4
The title of Brody et al. (2012) suggests a broad perspective on
expanding the horizons of fraud research, but the specic suggestions
offered are a very narrow and technicist program for emerging issues. We
suspect this is due to their reliance on the limited and self serving
conception of fraud offered by ACFE, and the focus on the fraud triangle,
and its variants.

there are many conceptualizations of time, including the

most common view of time as linear (clock time), a view
that emphasizes the sequencing of events. Other conceptualizations emphasize the experience and tempo of time,
the value of time, or issues of feedback and other recursive
dimensions of time. Thus, at its most basic, fraud can be
understood either as a onetime phenomenon or as a process where actions and decisions develop over time, and
where there might be feedback, temporal dynamics and/
or emotional elements.
Many case studies of frauds have a strong historical element. The organizing idea behind most historical research
on fraud is the development of methods and the escalation
of attempts over time. The cases in Jones (2011) and Clikeman (2009) document a vast array of corporate frauds
and scandals associated with accounting manipulations
across many countries and throughout history. By and
large, these historical case studies do not articulate a theory to explain fraud or offer much guidance about combating it (other than the important lesson that fraud occurs
across social or economic contexts). They do, however,
highlight the temporal, evolving and often messy nature
of notorious cases. They also bring frauds to life to students
and others, and likely make auditors and other more sensitive to the issues.5
A more aggregated and quantitative approach to historical case studies is offered by research that identies
the general nature of rms impacted by fraud or the nature and scale of the fraud. For example, Beasley et al.,
1999 examine the fraudulent reporting occurrences
investigated by the U.S. Securities and Exchange Commission (SEC) between 1987 and 1997, focusing on the characteristics of the frauds (size, nature, etc.) and the
governance structures of the corporations that were involved (e.g. their auditors, Board composition and so
on).6 Bonner, Palmrose, and Young (1998) focus on the
nature of the fraud and the extent the auditors are involved in subsequent litigation. In a later study, Beasley
et al. (2010) show that the most common accounting
manipulations investigated by the SEC were improper
revenue recognition, followed by the overstatement of
existing assets or capitalization of expenses. That latter
report also indicates that the median size of the frauds
was $12.05 and that there were about 650 fraudulent
cases investigated by the SEC between 1987 and 2007.
Importantly, longitudinal comparisons of the characteristics of accounting and audit frauds permit historical analyses of the evolution of frauds in particular societies, or
how changing regulations impact the nature and incidence of fraud.
Research on the processes by which frauds and corruption become institutionalized and taken for granted in
organizations, elds and nation states highlights the value
5
However, underlying much of the interest in these histories is often an
implicit theory that legal and regulatory change in accounting and auditing
is precipitated by frauds and scandals (Carnegie & OConnell, 2013; Jones,
2011).
6
Such studies, and indeed most of the studies that focus on the
temporality of frauds, tend not to problematize the construction of fraud.
But this would be an excellent area for future research: the development of
regimes of laws and regulation concerning what is considered fraudulent.

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of considering the temporal features of fraud. This appears

to be a relatively under-researched area, and studies of the
development of cultures of corruption at the level of organizations, elds and nation states (e.g., Ashforth & Anand,
2003; Palmer, 2008) and how these feedback and impact
other behaviors and cultural dimensions (as discussed below) would seem very worthwhile, both for accounting
and for other social scientic concerns. Further, we should
explore other dimensions of fraud and time, such as how
frauds are experienced by those involved. Research on
the tempo of fraud and corruption processes would also
enrich of understanding of the impacts of accounting
fraud, and perhaps also warning signs and alternative approaches to detection.
Context
Although many accounting approaches to fraud focus
on the fraudster or white collar criminal, in the wider literature on fraud there is a long standing concern to locate
wrongdoing within a social, economic, ethical and political
culture; this starts from a position that morality and fraud
are neither personal nor universal, but are situated in specic social and historical contexts.
Context has been conceptualized in many ways, for
example as incentive systems (were governance mechanisms are often of particular interest), culture, institutions, and power structures. One approach is to consider
the administrative structures that pervade organizations
and governments. Economic models of organizations
and government place particular emphasis on governance, incentives and monitoring systems. Research on
administrative structures also typically distinguishes
obtrusive controls (such as governance mechanisms,
rules, standard operating procedures) and unobtrusive
controls (such as schemas and scripts and the controls
implicit in technologies).
A cultural approach to context assumes that actors
are situated in collectivities that share the same assumptions, norms, values and beliefs about the nature of the
world they inhabit. A concern with culture can be extended to consider context in terms of elds of ideas,
traditions, habits, and taken for granted practices. For
nation states, context is also often understood as national or tribal culture, although forms of economic or
social organization, such as particular versions of capitalism, feudalism, tribalism and so on, could be thought of
as cultural.
An institutional approach has become a dominant social science understanding of context (Hodgson, 1998;
North, 1981; Scott, 2001). It emphasizes the elds that actors are embedded within, whether the habitus of individuals, the industry of organizations or the traditions and
norms of societies. A popular view of institutions emphasizes three dimensions (Scott, 2001). The rst consists of
regulative structures (including governance, legal and
administrative regimes), the second consists of normative
structures (incorporating culture and moral codes), and
the third emphasizes cognitive structures (which includes
the logics and taken for granted understandings of the
world). Studies of institutions emphasize how actions

445

and interactions are embedded in practices, structures

and traditions.7
Greif (1994), for example, examines how problems
associated with dangers of fraud and embezzlement in
dealing with overseas agents was handled differently in
different societies. Shadnam and Lawrence (2011) focus
on moral collapse, where corruption is a widespread feature of organizations; they emphasise the multi-level
interaction between moral communities, organizational
context and the values and norms of individuals. An institutional approach emphasizes legitimacy and the symbolic, and their approach to moral collapse integrates
both the broader institutional context in which it occurs
and the beliefs and choices of the individuals involved
(2011, 380). An institutional approach can thus also contribute to temporal understandings of fraud since it examines how fraud and immoral cultures become
institutionalized in organizations, elds and societies more
generally.
Context can also be understood in terms of power.
There are many versions and conceptions of power, from
equating power with authority to studies of pluralism,
elites and ideology (Lukes, 2005). Traditional approaches
to power (what Lukes refers to as one dimensional views)
take seriously that much fraud takes place in contexts that
exhibit vertical and horizontal differentiation. Power, as
authority, emphasizes how those high in the chain of command (elites) can compel lower level employees to do their
bidding, either automatically or reluctantly. Since Milgrams classic experiments on obedience to authority, it
has been widely recognized that subordinates will comply
with the orders of superiors who possess legitimate
authority (formal power) over them, even when subordinates recognize those commands to be unethical and even
illegal (Milgram, 1965). But legitimate authority is only
one form of power operative in organizations. Informal
power stemming from the control of scarce valued resources also shapes behavior in organizations. Mechanic
(1962) maintains that the control of three categories of resources, information, people, and a category that he labels
instrumentalities, can provide individuals with power,
regardless of their position in the formal hierarchy. Pfeffer
and Salancik (1978) maintain that resources that reduce
uncertainty tend to be the most valued resources and thus
the most important basis of resource-dependence power in
organizations.
Few have explicitly recognized that people will comply
with the demands of actors who possess resource dependence based power, even when those demands are unethical and even illegal (Palmer, 2012). Lukes (2005) refers to
two dimensional views of power that stress power as setting agendas and inuencing the focus of action. In relation
to fraud, there are many examples of how resource dependence based power enables the setting of organizational
priorities and practices which may facilitate organizational
wrongdoing. For example, MCIs top management allowed
the rms sales executives to sign long term contracts with
7
Another version of institutional theory conceives context in terms of
world society and its dominant logics (Alford & Friedland, 1985; Meyer,
2009).

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Editorial / Accounting, Organizations and Society 38 (2013) 440457

customers they knew were unlikely to pay their bills, over

the opposition of the executives in nance whose responsibility it was to collect those bills, partly because top management depended on the sales force to generate revenues
that made the rm an attractive acquisition partner to
Worldcom. As the number of deadbeat customers grew
(causing the sales executives commissions to swell) and
the volume of unpaid bills increased, nance executives
were left to falsify accounts (Pavlo & Weinberg, 2007).
In each of these conceptualizations, actors can be
viewed as automatons (dopes) who simply respond to
their context, or they can be regarded as calculating and
willful, deciding how to respond to (or even change) their
context (Misangyi, Weaver, & Elms, 2008). For example,
interpersonal interaction can shape an actors attitudes
and behaviors towards frauds in ways that are difcult
for them to perceive and, partly for this reason, resist.
In considering power as characterizing context, recent
conceptions emphasize language, discourse and symbols
(Clegg, Courpasson, & Philips, 2006), and how they shape
understandings of the world and impacts behaviors and
understandings of fraud. Lukes (2005) refers to a third
dimension of power that is less about authority and the
conscious use of resources to get ones way, and is more
about ideology, the shaping of preferences, the construction of self, and the power of language and self understandings, in the governing of individuals and populations. In this
view, actors are neither automatons nor willful, but power
operates everywhere, through multiple channels of society,
from mechanisms of surveillance to educational and moral
practices and discourses. From this perspective, analyses of
fraud and wrongdoing involve the shaping of denitions
and constructions of reality and what is seen as immoral,
wrong or illegal. It is closely linked to the global spread of
ideology and discourses that dene some practices as
fraudulent, others as immoral, others as tradition, and yet
others as innovative. Context is thus understood from a
three dimensional view of power as shaping our understandings of fraud, and what appropriate problems and
solutions might be. This theme of power as context informs
several of the contributions to this special issue.
Effects
Regulatory and policy interest in fraud and corruption
is typically embedded in concerns about the individual,
organizational and social effects of such practices. Aside
from the obvious effect of criminal and civil legal penalties,
wrongdoing and fraud, once detected, gives rise to both
economic and social (stigma) penalties. Jonsson, Greve,
and Fujiwara-Greve (2009) shows that organizations that
are associated with stigmatized actors are themselves stigmatized. While there are numerous examinations of the effects of fraud, we here highlight two that have had some
prominence in the accounting literature and have implications for an assessment of the practices of accounting
rms.
The rst prominent area is the extensive body of capital
market research that examines stock market reactions to
various forms of earnings manipulation by rms, many of
which might be considered fraudulent, as well as more

general fraudulent corporate behavior. Feroz et al. (1991)

and Dechow et al. (1996) examine the stock market reactions to news of fraud investigations (accounting and
auditing enforcement releases8). Initial news in the press
of an alleged fraud resulted in an average 16.7% abnormal
stock price decline in the 2 days surrounding the news
announcement. In addition, news of an SEC or Department
of Justice investigation resulted in an average 7.3% abnormal stock price decline (Beasley et al., 2010, iii). Other
studies of earnings restatements show similar results. A recent review paper, that focuses on stock market reactions,
explains the external indicators of earnings misstatements, includes Accounting and Auditing Enforcement Releases (AAERs), restatements, and internal control
procedure deciencies reported under the Sarbanes Oxley
Act (Dechow, Ge, Larson, & Sloan, 2011).
Dechow et al. (2011) go on to describe such mis- and
re-statements as a form of management error, rather than
fraudulent or unethical behavior. This highlights the
uncritical style of this research, where management activity regarding such indicators is typically explained, often in
rationalistic terms, rather than criticized or discussed in
terms of morality. The focus is on the motives of managers
to misreport, or impacts on the market prices of individual
shares (Ball, 2009). Most of this research relies on US databases, and pays little attention to time or space; yet related research on international stock markets suggests
that we should be cautious about assuming the conclusions from the US will hold elsewhere. Moreover, the research (and related studies that examine the impact on
the rewards to CEOs, CFOs and other governance issues,
such as Fich & Shivdasani, 2007) does not study frauds or
nancial misrepresentations per se, but examines how
investors react to news of possible fraudulent activity.
A second major area of accounting and related research
concerning effects examines corruption, although research
on corruption also indicates the importance of contextualizing corrupt activities. Much of the initial impetus for
analyses of corruption arose of the concerns about corporate corruption, particularly by multinationals. Regulatory
responses included the US Foreign Corrupt Practices Act
and international codes of conduct offered by the UN and
OECD. The focus of much of the concern relates to bribes
to secure contracts and cost manipulation in defense contracting (Karpoff, Lee, & Vendrzyk, 1999), the latter being a
theme that has a long history in studies of the use of cost
accounting numbers. While one response, informed by a
decision making perspective, is to revise contracts and
incentive schemes, Chwastiak (1998) explains the importance of understanding networks of power and the context
of contracting. In general, however, the accounting literature, informed by agency theory, has been preoccupied
with contract design and monitoring, and paid limited
attention to the role of a context that makes corruption

8
Karpoff, Koester, Lee, and Martin (2012) identify some serious problems with the databases used in these types of study. Relevant to our
previous discussion of the importance of time, Karpoff et al. (2012) also
point out that frauds tend to develop over time, yet most capital market
tests are event studies that treat frauds as occurring in one period, and
thereby seriously under-represent the impact of the frauds on stock prices.

Editorial / Accounting, Organizations and Society 38 (2013) 440457

more or less feasible, or even accepted practice. This seems

an area worthy of additional research.
Corruption has also been studied from the perspective
of multinationals working internationally. This research
highlights that fraud and corruption operate at multiple
levels, of individuals, families, rms and governments.
Rodriguez, Uhlenbruck, and Eden (2005) for example,
examine how national metrics of corruption impact the
entry strategies of multinationals. Healy and Serafeim
(2012) use metrics of national corruption and transparency
to see how the performance effects of a rms own (self reported) anti-corruption efforts in countries with high and
low scores on corruption. They nd that such efforts reduce the rms own corrupt behavior, but this leads to reduced growth rates of revenues (but higher returns) in
those countries classied as highly corrupt. Managers
likely want to better understand the effects of their own
anti corruption actions, but without a moral and ethical
perspective one implication of such research might be for
rms to not invest in anti-corruption efforts, if the economic effects suggest this is efcient.
Accounting rms and organizations (such as government auditors) often have an interest in the effects of corruption on nation states. They are typically inuenced by
orthodox views of the effects of corruption (e.g. Rose-Ackerman, 1978; Aidt, 2003), which focus on corruption as a
major cause of poor national performance, particularly in
relation to economic and health outcomes. Orthodox views
of international development thus focus on the actions of
government managers in developing countries. This view
has permeated the positions of supreme audit institutions
(Dye & Stapenhurst, 1998), who increasingly are involved
in monitoring and detecting fraud and corruption, international regulatory agencies, such as the World Bank, NGOs
such as Transparency International, and the accounting
profession generally, who offer consulting services to mitigate and detect fraud. It also seems to be behind initiatives
to
create
measures
of
corruption
(and
transparency). It would be extremely useful to explore further how such measures impact both these institutions
and the nations in which they operate.
A more radical view of corruption (Everett, Neu, & Rahaman, 2007) identies it as a set of ideas, programs and
technologies that affects (in this case, disciplines) already
disadvantaged groups such as indigenous people, the poor
and women. It focuses on the involvement of corporations,
indigenous elites and the international agencies themselves in processes of corruption, placing corruption within
a history of colonization, globalization and marginalization
of the global poor. It argues that the orthodox view reproduces stereotypes of an advanced and largely ethical and
sophisticated West, and an unruly and untrustworthy
other, where transparency and accountability are seen as
neutral ideas and practices that will combat corruption
and unethical practices generally (Arnold & Sikka, 2001).
However, Shearer (2002) and Everett et al. (2007) point
out the need to understand the values and power implicit
in moves for better record keeping and auditing. In terms
of effects, more radical views raise issues relating to how
accountability is understood and how such understandings
impact the development of a managerialist and

447

bureaucratic apparatus, typically involving audit rules,

administrative procedures and the development of various
agents of inspection, audit and enforcement (Power, 1997),
performance metrics of corruption and transparency, attempts to privatize state activities (Uddin & Hopper,
2003) and threats to penalize (e.g. through removal of
development aid and funding) transgressors. Such
accounting research remains in its infancy, although it
could possibly build on some of the literature that looks
at the role of accounting in enabling or perpetuating corporate and government corruption in less developed
countries and in relation to disadvantaged and colonized
groups (Uddin & Hopper, 2001; Hopper, Tsamenyi, Uddin,
& Wickramasinghe, 2009; Neu, 2000; Rahaman, Everett,
& Neu, 2007).
A radical view of corruption can also be applied at more
micro levels, such as families and households. Corruption
is not just a characteristic of specic countries, and
accounting and audit research on fraud and corruption
could also attend to the generally corrosive effects of such
practices in a variety of settings. The interconnection between ethics, fraud and corruption can be explored at
many different levels. In 1887, Lord Aston famously wrote,
power tends to corrupt and absolute power corrupts
absolutely. Kipnis (1972) conducted early social psychological experiments on the impact that power has on those
who hold power. He found that when individuals are assigned to positions that afford them power over others,
they tend to undervalue the work and the humanity of
those subject to their power at the same time that they
overvalue their own contributions and self. Since Kipniss
path breaking study, a large number of other researchers
have expanded on this result (see Keltner, Gruenfeld, &
Anderson, 2003 for a review). Among the most important
ndings are that when people are assigned to positions
of authority or otherwise afforded power, they tend to become less attuned to the interests and needs of others,
tend to view others as less human and thus less worthy
of ethical treatment, and tend to feel authorized to pursuing self-oriented goals, even when viewed as socially unacceptable or fraudulent by others. All of these effects make
the powerful more likely to engage in behaviors that work
to their advantage, even when they are at the expense of
others and violate cannons of fairness, justice and the
law. Future researchers would do well to examine the
way in which managers accumulation of power, whether
in organizations, regulatory bodies or nation states, might
lead them to engage in fraud.
There are, no doubt, other approaches to examining
fraud and wrongdoing. Some of these will be discussed
in our conclusion. In this section, however, we have reviewed four common approaches and highlighted how
they can be applied in different settings, can be developed
by a more explicit and enriched conception of context and
identied some possibilities for thinking about the construction of denitions of fraud and their effects.
Contributions to the special issue
The contributions in this special issue of the journal reect a range of papers presented at the AOS Conference on

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Editorial / Accounting, Organizations and Society 38 (2013) 440457

Fraud in Accounting, Organizations and Society in April

2011. The conference attracted 58 papers, and 14 were selected to be presented after an initial blind review. We
made no attempt to select papers for this special issue that
represented well researched areas. Instead they were selected (after a normal blind review process) both for quality and innovativeness. Thus, four of the papers reect a
concern with constructivism and two are quite explicit
about the role of power. Most also offer a heavily contextualized understanding of fraud, even if the context is
understood in different ways. One offers a decision making
approach, albeit one that is somewhat unusual in its method and its emphasis on temporal dynamics. We discuss the
six papers in alphabetical order, indicating how they illustrate and develop the themes in this essay.
Braithwaite offers an example of a socio-legal analysis
of fraud in the context of what he and others has been referred to as regulatory capitalism. His illustrations focus on
tax compliance and avoidance, and build on his previous
work on markets in vice and virtue (2005) and the role
of responsive regulation and restorative justice (2001).
He cites empirical evidence that suggests that most taxpayers want honest, low fuss, tax advisors but there is also
a demand for aggressive tax avoidance schemes which can
then expand rapidly under specic conditions. Yet his
analysis applies to many markets in virtue and in vice,
where the denition of virtue (goods) and vice (bads)
can be dened in relation to the ethics, culture and values
of the analyst. So, whether we see nancial derivatives as
good or bad, his analysis is about processes whereby regulators can ip markets of bads to become one where more
virtuous goods are produced.
The second half of Braithwaites analysis thus highlights
mechanisms to ip markets, drawing on his knowledge
about tax administration and his belief in the virtues of
restorative justice. He points out that there have been
many strategies for ipping markets in vice to tax virtue.
These included promoter penalties, targeting the clients of
A lists of aggressive advisers (to shift demand to the advice
market in virtue), more sophisticated shelter disclosure regimes and corporate certication of continuous improvement in tax integrity (this issue, p. 4). There is some
accounting research that illustrates each of the strategies,
although the accounting literature seems focused on analysis of problems such as the role of accounting rms in
developing and promoting tax avoidance schemes (Otusanya, 2011) and illustrated by the infamous case in the mid
2000s of KPMG LLP who were found to have created fraudulent tax shelters to help clients avoid $2.5 billion. To the
extent that the research offers solutions at all, it has typically called for greater disclosure rules in tax shelters (e.g.,
Mitchell & Sikka, 2011). While sympathetic to such regulatory solutions, Braithwaites analysis emphasises webs of
strategies, arguing that tax regimes which encourage a
mix of mechanisms and solutions that operate at multiple
levels tend to result in greater tax compliance and
integrity.
He introduces the idea of qui tam suits being more vigorously applied to tax evasion rather than the more common approach of bounty payments for whistle blowers,
which have had somewhat limited success. Qui tam builds

on US experience since 1986 in relation to corporate fraud

against the government, and offers a mix of private (typically whistle blower) and public enforcement to ip corporations away from illicit tax behavior. This aggressive and
controversial approach is to be balanced by an emphasis
on restorative justice (i.e. putting things right in the future
and becoming a leader in compliance). Braithwaite views
perpetrators of tax vice as possessing a mix of conicting
attributes and argues that a redemptive element helps to
balance the aggressiveness of other strategies designed to
enhance tax integrity. Braithwaite recognizes the problems
with his proposal, and, somewhat optimistically, calls on
social movement activists to develop institutions of restorative justice in order to create a global culture of good
citizenship.
In general, Braithwaite offers a style of reasoning that is
common in legal research, but has become rather unfashionable in accounting. While its unabashedly normative
stance may be uncomfortable to those steeped in conventional views of science, it offers a set of ideas that are
worth discussing and examining further. Moreover, the
analysis of markets in vice and virtue seems to be of quite
general application, suggesting that whatever our ethical
position is regarding tax avoidance and evasion, it is worth
examining the increasing intensity of regulatory capitalism
from this socio-legal perspective. Although the constructivist literature is not mentioned in the paper, its focus
on denitions of fraud around evasion and avoidance can
be seen as pointing to the possibilities of constructing different conceptions and practices in relation to fraud.
This journal has a reputation for being willing to take
risks with innovative perspectives and methods. Davis
and Pesch (this issue) illustrates this willingness, as it is
a rare example of the use of an agent based simulation
model to explore fraud identication and mitigation mechanisms. The paper ts within a decision making approach
to fraud, examining how actors choose particular fraud related behaviors. A simulation approach seems particularly
appropriate since it is difcult to imagine studies of real
organizational decision making about fraud, particularly
in terms of experimenting to identify the effects of different mechanisms to combat fraud.
The details of the model developed in Davis and Pesch
are carefully outlined and justied. The goal of their paper
is to improve understanding and to provide insights into
the effects of various interventions on fraud (p. 5). Thus,
their modeling goal is to identify a minimal set of plausible assumptions sufcient to generate organizations that
experience both fraud outbreaks and stable levels of fraud
(p.4).
Their model is based on a specication of agents who
vary on the attributes of opportunity, motive and attitude,
the three elements of the fraud triangle approach, discussed previously. In their model, heterogeneous actors
can change their behavior and decisions over time as their
attributes can change and they can be impacted by interaction with other actors. Thus actors operate in what the paper calls a social network, an administrative and rule
based context where rules specify how actors interact between themselves and how their behavior aggregates into
organizational outcomes.

Editorial / Accounting, Organizations and Society 38 (2013) 440457

Their base analysis (where there are no formal rules to

combat fraud) suggests that the rate of emulation of
behavior between actors (whether actors are inuenced
or not by the fraud behavior of the collectivity of those
they are connected to) dramatically impacts the nature
and dynamics of fraudulent activity in an organization.
Thus, the model is focused on the temporal dynamics of
fraud. When there is a high level of actors emulating one
another, the result is an unstable incidence of fraud, with
organizations either being comprised of no fraudsters or
nearly all actors being fraudsters. With low emulation,
rates of fraud are fairly stable, with the incidence of fraudsters being normally distributed, with a mean of about half
the actors being fraudsters. The idea that there are two
types of organizations under conditions where there are
no rules to combat fraud seems an interesting observation
in itself, worthy of empirical examination in real organizations (if that were possible); it would also seem to reinforce the ndings of Greve et al. (2010) that all
organizations (irrespective of performance history) seem
to be prone to fraud.
Davis and Pesch (this issue) show the effects of their
simulation of different mechanisms intended to control
fraud: such as what they label as tone at the top (a management hierarchy with consistent attitudes9), reducing
the opportunity to commit fraud and enhancing the ethical
tendencies of actors. It is not clear that the results of their
specic model are relevant to an assessment of the effects
of such mechanisms on actual organizations, but the simulations suggest that all mechanisms are signicantly affected by the degree of emulation. The effects of the
mechanisms on the number of fraudsters and the dynamics of fraud (the two outcomes they focus on) seem quite
variable. One nding is, unsurprisingly, that if the organization is effective in identifying fraud and removes fraudsters from the organization, the incidence of fraud tends to
zero. But generally, they offer a contingency model of fraud
prevention mechanisms, that is there is no one size-tsall fraud prevention (and/or detection) mechanism and
fraud risk may be contingent on individual susceptibilities
to social inuence in the organization (p. 13). In their conclusion, Davis and Pesch point out that it is important to
extend their model to also consider the interaction of various mechanisms a point that is also emphasized in the
ndings of Schnatterly (2003).
Gabbioneta et al. (this issue) makes the context of the
Parmalat fraud the centerpiece of their analysis. Theirs is
an explicitly contextual analysis both in terms of their
use of new institutional theory and their focus on specic
regulatory institutions (notably auditors). Their analysis
builds on studies such as Prechel and Morris (2010) which
shows that neo-liberal ideologies impact the incidence of
corporate wrongdoing in the US and Abolaa (2010) who
argues that the institutional structure of nancial capital
helps explain the 2008 nancial crisis. Gabbioneta et al.
emphasize the networks of professionals, regulators and
advisors, and their collective awe of a celebrity rm, that
allowed the Parmalat fraud to continue for at least 12 years.
9
Morales et al. (2013) point out that this concept was popularized by
Cressey and adopted by Peat Marwick Mitchell (now KPMG) in the 1980s.

449

It is also one of the few papers in this special issue that addresses the role of accounting rms in enabling the frauds
(in this case several auditors went to prison and two
accounting rms were censured for their practices).
Gabbioneta et al. offers an institutional analysis in effect highlights the limitations of the fraud triangle model.
They emphasize how institutional arrangements can be
unwitting accomplices to corporate illegality, initially by
encouraging its occurrence (through the mechanism of
institutional endorsement), and then by providing opportunities for its concealment (through regulatory loopholes,
and the mechanism of institutional ascription). (Gabbioneta, p.16). A signicant institutional concept that the paper
develops and focuses on is institutional ascription, that is,
being institutionally connected to high status and inuential groups and organizations. Using an impressive and
extensive data set of documents, including media stories,
court hearings and reports, analyst reports and observation
of court proceedings, Gabbioneta et al. document not simply how Parmalat acted fraudulently, but how it played on
its connections to produce an almost uncontested sense of
probity and conformity with the norms of global nancial
markets. The case probes not just the fraudsters use of
their celebrity status (the rm and its CEO were national
celebrities) but also how a variety of actors in the institutional eld trusted the work of others, notably the auditors, over a sustained (probably at least 12 year) period.
The paper carefully documents how journalists, capital
providers and nancial analysts relied not only on each
other, repeating increasingly unwarranted claims to success and probity, but also how they operated in a network
that included corrupt auditors and other investigators of
the organization.
This paper is notable in its consideration of a cultural
conception of the context. In some governance studies,
such as Coffee (2005), there seems to be a tendency to
work with cultural stereotypes in discussing national
forms of regulation and fraud. While effectively disputing
the idea that Parmalat was a special case (the similarities
with Enron seem quite strong), the paper further argues
that this is not a peculiarly Italian case, but that the institutional features of the Third Italy a region where small,
interconnected local rms operate in clusters with local
institutions and cultures may be where institutional
ascription is most powerful.
In contrast to the familiar belief that accounting and
audit can help identify and combat fraud, Neu et al. (this
issue) highlights accountings role in enabling fraud and
corruption. The paper examines the mechanisms of fraud,
in their case the detailed record keeping and mechanics
of internal control and can thus be seen as a post structuralist approach to fraud. Further, like several other contributions to this special issue, Neu et al. contextualize the
fraud they examine through the concept of inuence market countries, such as the US, Canada and UK, where there
are strong barriers to government corruption in terms of
rules and regulations. This contrasts with the usual attention on fraud in governments in the context of developing
countries, which is often the focus of anti corruption agencies such as the World Bank and Transparency International. It is the very rules designed to mitigate fraud (e.g.

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Editorial / Accounting, Organizations and Society 38 (2013) 440457

internal audit controls) that help to construct the nature of

the fraud. Specically, accounting-based anti-corruption
barriers organize the eld of inuence politics by channeling. . .. political inuence. However, [barriers] .. . . encourage forms of corruption that depend on collaboration
within networks of politicians, bureaucrats and business
actors. Additionally, it is the accounting-implicated strategies that simultaneously makes corruption possible and
organizes the emergent network (p. 2).
In their analysis of how mundane, but extensive,
accounting record keeping and audit procedures in the
Canadian Sponsorship scandal facilitated fraud, they
encourage greater attention to mechanisms and procedures of fraud and wrongdoing. They also emphasize the
habitus of not just civil servants but the corporations that
provide services to government. It is in these senses that
Neu et al. offer a contextual and institutional analysis,
one that embeds accounting procedures in the specics
both of Canadian politics and the localized bureaucratic
rules that were circumvented, as well as made use of. Thus
their paper develops some of the themes discussed in Everett et al. (2007), pointing to the negative as well as the positive consequences of record keeping. The paper also
highlights the importance of attending to both the value
of incorporating poststructuralist concepts of power into
an analysis, and how accounting and internal control procedures can help to constitute the fraud risk they are intended to control.
They show that standard internal controls (e.g. government procurement rules), campaign nance laws and
nancial reporting requirements, what is referred to as
the rules of the game, can be overcome and maneuvered
around by the skillful use of accounting. They point out
that skill has technical (largely bookkeeping, but also skills
to creatively use the boundaries between legal entities)
and social components (the social capital of specic actors,
and their position in social, economic and political
networks).
Neu et al. (this issue) utilize the extensive report on the
Sponsorship scandal produced by the Canadian Governments Gomery Commission and associated reports by
forensic auditors. The Commissions extensive resources
and ability to obtain testimony under oath provides significant (although not unproblematic) information about the
corruption networks and the detailed mechanisms used to
carry out the frauds. These mechanisms include not simply
the selection of suppliers and the kickbacks to politicians,
civil servants and political parties, but also the use of cost
plus contracts through multiple organizations to amplify
payments (multiplying the prot component as a series
of contractors add services to the contract, as well as the
more obvious activity of falsifying invoices). Much sociologically inspired accounting research fails to take seriously the detailed mechanisms of bookkeeping and
internal controls. This paper offers a useful illustration of
how the study of fraud through mundane accounting practices is enriched by serious theoretical analysis.
Power (this issue) is concerned with the discourses of
fraud risk, a different ontological concern than a concern
with actual frauds. It thus sits rmly within a constructivist approach to fraud. Like Powers earlier projects on

discourses of audit (1997) and risk management (2007),

the attention is on the historical emergence of a discursive
category that constructs an emerging management (and
regulatory) practice, in the current case about fraud risk.
The paper draws on the managerial and governance experiences of the author, while recognizing the limitations of
such experiences. While most management and accounting literature starts from a position of external commentator and analyst, Power uses cases based on his experience
as an insider to motivate his account of the micro analytics
of fraud risk, as well as to reect on wider, societal effects.
The paper offers a potentially very useful schema for
understanding the language (grammar) of fraud risk, with
a classication that focuses on four different risky subjects and their corresponding future-oriented practice
frames (p. 16). His schema highlights the diversity of
fraud risk but also how it moves from a managerial and
regulatory focus on detection, to an emphasis on prevention and on resilience. More specically, by considering
the productive consequences of the language of fraud risk,
the paper identies emerging practices within organizations (e.g., the development of tools and techniques and
growing signicance of Board governance practices) and
the development or reframing of regulatory and institutional practices and organizations (e.g., consulting services
and the reinvigoration of bodies such as the Association of
Certied Fraud Examiners).
Like the other papers in this special issue, Power (this
issue) offers an institutional context, albeit one which
gives prominence to the power of ideas and specic conceptions of individuals, organizations and society. As the
paper states, Rather than being a matter of common sense
or functional necessity, the rise of fraud risk management
and its position in relation to corporate governance is
emblematic of a distinctive liberal project of individualization and responsibilization (p. 2). This project is understood in Foulcaudian terms, with the paper offering an
analysis of the creation of a risk and responsibility regime.
This regime includes both micro arrangements and technologies (such as fraud risk maps) within the rm and a
system of responsive regulation, which relates back to
Powers work on enterprise risk management (2007).
Williams (this issue) explores an issue that is also discussed in Power, that is, the importance of attending to
the technological mechanisms that are used to try and
identify and regulate fraud and risk.10 Williams is a constructivist study that focuses on the computer based analytical tools and instruments used by Canadian nancial
security regulators in their enforcement activities. Most
importantly, the paper examines how IT tools become
agents in the regulatory process itself and help to constitute it, what the paper refers to as the regulatory possibilities contained in the technologies. The paper points out
that these IT based technologies are part of a process of
proactive regulation, where masses of data are collected,
analyzed, and presented (visualized) to identify stock
10
Davis and Pesch also examine mechanism of fraud amelioration, but
their contrasting focus is on social and managerial mechanisms that have
been proposed in the audit literature, such as tone at the top, reducing
opportunities to commit fraud, and enhancing ethical awareness.

Editorial / Accounting, Organizations and Society 38 (2013) 440457

market irregularities. Located in a legal, moral, symbolic

and regulatory context, these technologies identify what
are deemed to be irregularities and outliers in the data
and identify patterns of interaction that may stimulate human (regulator) intervention.
The rst technology examined by Williams is the real
time monitoring (surveillance) of trading by Canadian regulators to identify representations of manipulative and improper activity by market agents. The software focuses on
short term patterns (1 month or less) of prices and volumes and alerts (arising from patterns that are unexpected
given the parameters in the softwares models). In identifying that regulators worry about whether the parameters
for surveillance should be different for large and small volume securities, the paper points out the agency of the
models the nature of what is normal (or, unexpected)
varies across securities, and regulators are faced with the
problem of making sense of particular representations of
market activity. Williams also explores how data mining
and risk proling help to identify suspicious activity. The
paper identies that regulators worry about the interpretive exibility that rms who are members of the exchange
have in their reporting to regulators (for example they are
only required to report complaints that are not service related). In using the number of clients of each rm to standardize possible violations, the software effectively
highlights small rms, a tendency that is exacerbated by
the use of risk based assessments. This means that rms
deemed small, marginal or outsiders are more likely to
be deemed worthy of regulatory attention; social evaluations are thus embedded in the use of the regulatory models that are presented by regulators as objective.
The limitations of the software are embedded in the
more general regulatory process, where the regulator has
to allocate scarce resources to cases likely to send the biggest message. The software is seen by regulators to identify the blameworthiness to market participants,
whereas this assessment is as much a product of the regulators own social understandings. Formal worksheets and
scores are used in the context of assessments of the moral
character of potential transgressors. As one of the regulators indicates in the paper, they dont need the formal templates, scoring systems and so on, since we know where
the bandits are (p. 8). Thus, Williams illustrates an argument regarding the legitimizing power of regulatory technologies, providing an image of real time monitoring using
sophisticated and rational processes. This conclusion echoes accounting studies that point out the rationalizing
and legitimizing role of management and accounting technologies more generally (Berry et al., 1985; Burchell,
Clubb, Hopwood, Hughes, & Nahapiet, 1980).
The analytical contribution of Williams, however, is the
focus on the construction (what the paper refers to as performativity) of three ways in which regulatory technologies inform mechanisms of enforcement and shape the
regulatory project. First, the paper points out that the regulatory software is based on differentiation, identifying
what are characterized as atypical, aberrant and egregious
behaviors, rather than on a notion of detection. Second, the
paper analyses nancial frames and market boundaries,
drawing on Foucaults concept of dividing practices and

451

emphasizing how the differentiations help to construct

(trustworthy) insiders and (suspicious or nave) outsiders.
Finally, the paper refers to enforcement gaps and regulatory omissions, whereby the technologies create a specic
eld of vision and inversely, fail to see other regulatory and
potentially fraudulent problems that are outside the gaze
or imagination of the models. Williams notes two classes
of gap. The rst involves complex, irregular or legally
defensible activity. The second is that existing technologies
are reliant on machine readable information and have difculty identifying complex and innovative accounting and
nancial statement frauds.
As Williams concludes, the smooth surface of algorithms and technological outputs . . .. framed in terms of
the sound principles of technocratic inquiry and disinterested deliberation (p. 12) means that the regulatory technologies represent nancial markets as orderly and
legitimate. The pre-occupation with the norm that is the
basis of technologies means that routine fraud perpetrated
by insiders is often normalized and egregious behavior by
outsiders is the focus of prosecution; the regulatory construction of the stock market tends to classify outsiders
as fraudulent while providing insiders with fraud free
image.
Conclusions
Our essay has emphasized three themes: the importance of contextualizing fraud, the social construction of
fraud and associated categories of wrongdoing (including
the effects of such denitional work), and the recognition
that fraud takes place in multiple domains, such as the
individual, the rm, the organizational eld and societies
more generally. Our review of the papers included in this
special issue illustrates some important dimensions of
these themes, as well as prompting recognition of some
gaps in the issues raised by these papers.
The institutional and societal context in which organizational illegality and wrongdoing takes place is a common
issue in all the papers. This context is conceptualized
somewhat differently among the various papers; Braithwaite emphasizes the context of regulatory capitalism,
Gabbioneta et al. provide an institutional context of a professional eld, Neu et al., stress inuence market countries,
Power and Williams understand context in terms of the
ideas and discourses of neo liberal governance and risk.
These differences notwithstanding, they each analyze
organizational and individual wrongdoing within a wider
social, economic, legal, political or intellectual frame. Davis
and Pesch also discuss context, but one that is more organizational than macro, emphasizing administrative rules
and informal collective norms. In brief, the special issue
highlights the value of a more situated view of how fraud
takes place; additional conceptions of context would enrich our understanding of fraud in accounting, organizations and society. Further, future work might consider
time more explicitly, and the dynamics of interaction between fraud and a wider context.
The construction of fraud and related categories such as
corruption, wrongdoing and unethical behavior, is a strong
theme in most of the papers in this issue. The conception

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Editorial / Accounting, Organizations and Society 38 (2013) 440457

of constructivism adopted by Power, Braithwaite, Williams

and Neu et al., shows how labeling fraud produces social
and economic effects. Their view of constructivism draws
on Austins concept of performativity, recently elaborated
by MacKenzie (2006).
The theme of constructivism is sufciently important
that we elaborate it here a little more. A focus on constructivism is important because it highlights the power to create rules (and to fashion denitions of fraudulent or illegal
activity) that favor some parties, while disadvantaging
others. This applies to all forms of rules, not just accounting and audit rules, and the power to set particular rules
(or to devise schemes, often known as loopholes, to circumvent rules) is a feature of all regulations. Braithwaites
work (2005) on tax avoidance and evasion highlights the
varieties of boundary work used by Australian and US
tax lawyers and regulators in working their respective
tax systems and rules. Braithwaite (this issue) can be seen
as an attempt to change attitudes and incentives to disclose in relation to tax schemes; in his words, to shift from
markets in vice to markets in virtue.
There is an extensive and established body of accounting research on tax avoidance and evasion. The more managerial versions tend to focus on how tax avoidance
(known as planning) can be incorporated into corporate
strategy processes (Scholes, Wolfson, Erikson, Maydew, &
Shevlin, 2008). The managerialist or orthodox tax literature accepts the distinction between tax evasion and
avoidance as being one of law (and more recently, of risk
and reputation management) rather than ethics, power
or social legitimacy. Thus, the orthodox accounting literature has examined whether aggressive tax avoidance strategies impact stock and bond prices, whether tax avoidance
strategies (the use of tax havens and off balance sheet
activities) are affected by the threat of audit by tax authorities, the link between fraud and tax aggressiveness
(Lennox, Lisowsky, & Pittman, 2013), and so on. Evasion
is a criminal activity and can be seen as fraudulent; avoidance is depicted as sensible management. In contrast, critical tax research (e.g. Boden, Killian, Mulligan, & Oats,
2010) questions the accepted distinction between evasion/
fraud and avoidance, and thus links to constitutive understandings of fraud (Gracia & Oats, 2012). Boll (2013) offers
a promising constructivist approach, using a practiceoriented focus that studies tax compliance in the sites it
takes place, and what practices and actors are used to
make compliance possible.
The role of transfer pricing in tax shifting from high to
low tax regimes (Eden, 1998; Eden, Dacin, & Wan, 2001;
Picciotto, 1992; 2007) has been widely studied. While
there are regulatory guidelines, increasing global attention
such as recent proposals by the G20, and tax authorities
are said to increasingly examine the operation of such
practices, the increase in the international movement of
intellectual property and other intangible assets has made
this a ripe area for socially important further investigation.
Case studies of tax shifting practices within multinationals
(e.g. Cools, Emmanuel, & Jorissen, 2008) and how tax
authorities detect, enforce and interpret tax rules (e.g.,
Tuck, 2010) seem potential valuable in understanding the
practices of boundary work in taxation. We also see an

important role in studying how accounting rms and other

professional advisors develop and promote tax avoidance
schemes (Sikka & Willmott, 2010). Of course, such issues
are not just relevant for tax, but are important in schemes
for working around reporting rules and indulging in earnings management and creative accounting; we encourage
further research on lobbying activities relating to changes
in criminal and civil law, as well the more usual studies of
lobbying on accounting rule making.
Our third theme, that fraud takes place in multiple domains and at multiple levels, is illustrated in all the papers
in this issue. There seems an undue concentration in the
accounting and audit literature on fraud and audit in corporations and the effects on stock markets. The management literature seems to be pre-occupied with
organizational wrongdoing. Most research attention on
corruption relates to nation states. Much has been learned
by single minded attention to one level. Yet we suggest
there is considerable attention at looking at interconnections between and across domains. Further, by looking between and across levels and domains, we notice the issue
of the detectability or invisibility of fraud. We identify
three potential areas of promise here, and all three have
to do with the extent to which fraud is embedded in cultural frameworks, every-day practices and networks.
First, fraud and corrupt practices vary across institutional contexts. Disparate cultural frameworks thwart or
enable practices such as bribery and corruption. For example, differences in the design and impact of regulatory systems enables variance in the legitimacy and enactment of
corrupt practices across national and industry settings. A
stronger understanding of the role of culture and institutions in the promotion, persistence and prevention of fraud
would enable us to address some of the more systemic issues on a macro-level (Misangyi et al., 2008)
Second, in many organizations, there exists a tremendous amount of everyday fraud. There is research on personally corrupt conduct at the individual level and the
systemic, organizational norms and practices that drive
and embed corruption (Pinto, Leana, & Pil, 2008). By everyday fraud we refer to the normalized practices embedded
in the cultural systems and milieu of the organizations.
These practices could include the misdirection or appropriation of organizational resources for individual or nonwork related activities. Discussions on ethical climate
(Simha & Cullen, 2012) point to the role of understanding
both individual and organizational predispositions to ethical transgressions. The use of organizational resources is
often undetected and remains largely invisible as over
time the behaviors become accepted and common place.
Everyday examples include the use of resources for personal gain including to further ones social position or for
non-work purposes. Organizations tend to turn a blind
eye to these activities as their enforcement is often subjective, costly or has signicant side effects. Furthermore,
both rule violations and enforcement are often selectively
enforced (Lehman & Ramanujam, 2009).
A third area of future research related to multiple levels
is an examination of the role of networks in terms of both
the promotion and prevention of fraud. OHiggins (2006)
suggests that the presence of multiple stakeholders can

Editorial / Accounting, Organizations and Society 38 (2013) 440457

often yield self-sustaining networks or systems of corruption. Take the well known case of Parmalat, where Gabbioneta et al. (this issue) emphasize its embeddedness in a
diffuse set of diverse, multi-level and geographically disparate relationships. An understanding of the critical role
played by networks would advance research on fraud in
a number of important ways. First, it would allow for a
stronger understanding as to how fraud becomes invisible
and difcult to detect over time. While members of a network can detect fraud via repeated and transparent interaction, a lot of network relationships are multiplex in
nature (Lazega & Pattison, 1999) making it difcult to
manage the webs of reciprocity and obligation that ensue
from the layering and nested of such ties. Second, a focus
on networks in fraud research allows us to consider the
relationship between fraud and trust. Finally, an examination of network size and relations in relation to the detection of fraud would be potentially valuable. For example, to
what extent does network size impact the detectability of
fraud? Is corruption easier to hide in large, diverse networks, as suggested by some (Granovetter, 1985; Nohria
& Eccles, 1992) or is the likelihood of fraud to remain hidden in smaller, more complicit network arrangements?
There are number of other themes that are prompted by
the papers in this special issue. Perhaps most clearly, several of the papers suggest a growing awareness of the
importance of studying the mechanisms and technologies
of wrongdoing and fraud, here understood as the means
by which they are actually perpetrated.11 Our view is that
the actual means used in carrying out fraud is an area
where more accounting research is warranted. This is the
focus of both Neu et al. and Williams, albeit they address
different ends of the scale of technical sophistication (from
book-keeping to data mining and computational intelligence). Power too discusses technological inscriptions,
such as fraud risk maps, that are associated with fraud risk
analysis.
In the extensive literature that documents accounting
frauds in many contexts, we can often glimpse the general
methods that are used to achieve these frauds. Studies of
creative accounting indicate how organizations create off
balance sheet activities and manage earnings and nancial
results more generally through all manner of nancial and
disclosure activities (see chapter 4 of Jones, 2011). Detailed
case studies can hopefully provide detail of the mechanisms by which creative accounting is achieved. But there
has been little documentation of the technologies of fraud
in the accounting and audit literature. Court cases and legal
documents likely identify the way alleged frauds are carried out, but these do not seem to have been analyzed or
scrutinized in the research literature, despite long standing
calls for studies of accounting in action (Hopwood, 1978).
No doubt there are huge incentives to not disclose such
mechanisms (one reason for the popularity of out of court
11
This understanding may be contrasted with a focus on psychological
techniques and mechanisms of neutralization (Sykes & Matza, 1957),
whereby wrongdoers and fraudsters seek to deny responsibility, deny
injury, deny the victim, condemn those who condemn the act, or appeal to a
higher loyalty. Discussion of such techniques informs discussions of the
rationalization dimension of the fraud triangle, but fails to consider what
devices are used to perpetrate the fraud.

453

settlements), but the failure to examine the technologies

of fraud seems a signicant gap.
There are extensive research traditions in law, economics and political science that have examined how fraud can
be regulated or controlled. A second theme prompted by
the papers in this special issue relates to the regulation
of fraud. In the study of white collar crime, the focus has
been on the development and impact of criminal laws, as
well as their enforcement. Many commentators examine
the limitations that criminal justice agents face in prosecuting and policing corporate fraud. In addition, research
has demonstrated that public and court attitudes to corporate crime vary signicantly across nations (Sanders &
Hamilton, 1997). Further, there have been debates about
the efcacy and effects of dealing with corporate crime
and fraud through the criminal system, and the effects of
sentencing guidelines. Snider (2000) looks at long term
trends in corporate crime and argues that the virtual disappearance of corporate white collar crime in the US was a
consequence of an anti-regulatory movement and the ability of corporate elites to make knowledge claims that legitimized deregulation and undermined notions of corporate
culpability. These effects have likely been mitigated since
Sniders study (2000), due to the scandals, the 2008 nancial crisis and related frauds and unethical behavior.
Braithwaites work is generally focused on the regulation of white collar misdeeds, although his paper in this
special issue concentrates more on enforcement and detection mechanisms in relation to tax fraud and evasion. He
suggests that these may not be best dealt with through traditional or criminal legal processes. Williams (2012) offers
a broad analysis of securities enforcement and his paper in
the current issue focused specically on the technologies
of regulatory agencies. Williams and Power both examine
discourses and practices of regulation and surveillance that
enable fraud to be seen and understood in specic ways.
Although there has been a urry of studies on the stock
market and organizational impact of recent regulatory
changes (notably in relation to the audit and governance
requirements of the US Sarbanes-Oxley Act), we cannot
identify much accounting and audit literature that has
examined the nature or societal impact of fraud regulation.
As previously discussed, auditors have resisted taking
responsibility for the detection of fraud, but there is an
extensive research literature on how auditors might recognize fraud and how audit procedures can mitigate against
acts of fraud. The audit profession has also developed rules
that are claimed to enhance their ability to identify fraud.
In addition, a new occupational group, forensic accountants and auditors, has developed to assess organizations
ability to avoid fraud and to identify perpetrators of frauds.
These observations point to a third theme of potential future research that is prompted by the papers in this special
issue, that is occupational competition relating to the fraud
jurisdiction.
The study of professions and occupations has indicated
how they compete and cooperate over markets and jurisdictions (Abbott, 1988). While this is a well studied area
in accounting research (Cooper & Robson, 2006), there
seem to be virtually no studies about the development of
markets and knowledge associated with the selling of

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Editorial / Accounting, Organizations and Society 38 (2013) 440457

fraud detection and examination, and the rise of occupational groups also involved in these processes. Revelations
in the British House of Commons in January 2013 by the
four largest multinational accounting rms suggest that
over 50% of their $22 billion global combined revenue in
their tax business involves tax planning advice (which largely consists in designing and implementing schemes to
work around or modify existing tax laws). Williams
(2005) offers insights into fraud and forensic accounting
services have emerged at the margins between audit, law
and crime enforcement. Morales et al. (2013) point out
the signicance of the Association of Certied Fraud examiners in developing an awareness of fraud and framing the
analysis of fraud. Mitchell and Sikka (2011) highlight the
role of accounting rms in policing fraud and yet being involved in schemes of tax avoidance and money laundering.
Accounting rms conduct not only audits but offer services that constitute tax planning, risk management, the
forensics of fraud and corporate governance. They advise
governments about nancial management and public nance, including appropriate controls on corruption, fraud
and risk management. They interact with multiple occupations in disputes about the nature, causes, effects and remedies for fraudulent and risky behavior. Often they compete
with other occupations (lawyers, the police and consultants) about appropriate knowledge and approaches. Technologies of measurement impact debates about the nature,
extent and distribution of corruption and thereby inuence
the size and distribution of foreign aid.
Inter-occupational competition is expressed and mediated in transnational organizations. Some NGOs (such as
Transparency International), regulatory organizations
(such as the World Trade Organization and World Bank)
and occupational groups and rms (e.g. International Federation of Accountants and the Big Four) attempt to x and
standardize the boundaries of law, fraud and wrongdoing
in relation to their own norms and traditions. They do so
by developing their own attempts at rules, regulations
and norms about the boundaries between fraud, entrepreneurial activity and legitimate management activity. Yet
detailed analysis of transnational rule making demonstrates the problematic nature of such attempts, particularly in a global context (Dezalay & Garth, 2002; Djelic &
Quack, 2010). Where and how such boundaries are constructed impacts the nature and incidence of those activities, as well as whom (and what) is deemed responsible,
and which groups and occupations win or lose.
The papers in this special issue illustrate important
areas of accounting and audit research. By implication, they
highlight the benet of moving away from the existing foci
of much conventional accounting research, on auditing and
capital market effects of fraudulent reporting. We have
identied several other themes that are stimulated by these
papers, and no doubt there are others. We encourage further, interdisciplinary research on the role and effects of
fraud in accounting, organizations and society.
Acknowledgments
We thank the Social Science and Humanities Research
Council, Elsevier Press, Queens School of Business Centre

for Responsible Leadership, and the Department of

Accounting, Operations and Information Systems at the Alberta School of Business for their nancial support. Thanks
to Scott Loder for research assistance, and to Keith Robson
for comments on an earlier draft. We also acknowledge the
initial stimulation for this special issue from Tina Dacin
and Pamela Murphy.
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David J. Cooper
School of Business, University of Alberta,
Canada
E-mail address: david.cooper@ualberta.ca
Tina Dacin
Queens University, Canada
Donald Palmer
University of California, Davis, United States