Examination of Professional Auditor Scepticism on Tax Fraud Judgment: In-depth Analysis of The Client’s Risk Factors

NONE 20260327111640516 wseas/wseas content-registration-form+ja@crossref.org content-registration-form WSEAS TRANSACTIONS ON BUSINESS AND ECONOMICS 1109-9526 2224-2899 Examination of Professional Auditor Scepticism on Tax Fraud Judgment: In-depth Analysis of The Client’s Risk Factors Nurliyana Haji Khalid Taylor’s University, Subang Jaya, Selangor, MALAYSIA https://orcid.org/0009-0008-9521-1017 Marhamah Mohd Rafidi Taylor’s University, Subang Jaya, Selangor, MALAYSIA https://orcid.org/0000-0002-9951-732X Zuraidah Mohd Sanusi Accounting Research Institute, Universiti Teknologi Mara, Shah Alam, Selangor, MALAYSIA https://orcid.org/0000-0002-8047-4219 Fazlida Mohd Razali Accounting Research Institute, Universiti Teknologi Mara, Shah Alam, Selangor, MALAYSIA https://orcid.org/0000-0002-3688-4616 Natalia Hakimi HOD (PhD Program), Faculty of Business, Accounting, Finance, Law & Humanity (FOBAFLH), MAHSA University, Bandar Sujana Putra,46210 Jenjarom, Selangor, MALAYSIA https://orcid.org/0009-0000-0346-9523 Rasheedul Haque School of Management and Business (SOBM), MILA University, Nilai, MALAYSIA https://orcid.org/0000-0001-8170-5413 Purpose – This study examines the effect of scepticism and the client’s risk factors (internal control and financial pressure) on the tax fraud judgement of the Inland Revenue Board of Malaysia (IRBM). Additionally, it explores the interaction effects of these variables on tax fraud judgment. The analysis aims to identify the key factors contributing to tax fraud judgment among tax officers. This will assist them in conducting effective tax audits and tax investigations aligned with IRBM’s Tax Audit and Investigation Framework 2023. Design/ methodology/approach – An experimental study was conducted with four case scenarios for 176 tax officers from the IRBM tax officers. The paper utilised a quantitative approach, specifically employing structural equation modelling. Findings – The study reveals that both scepticism and the client’s internal control are critical factors that influence how tax officers assess the risk of tax fraud, while the client’s financial pressure does not directly impact tax fraud judgements. This could indicate that financial pressure alone does not necessarily raise red flags for tax fraud without other factors being present. However, the client's internal control does not significantly moderate the relationship between scepticism and tax fraud judgment. Therefore, internal control alone has a significant impact on how tax fraud is judged, even without interacting with scepticism. Research Limitations – This study is limited to examining scepticism, client’s internal control and client’s financial pressure on tax fraud judgement. Future studies may consider other additional individual and contextual factors that could influence tax fraud judgment, such as competency, technology and regulatory enforcement. Originality/ value – This paper offers a valuable contribution to the body of knowledge by addressing significant gaps in the literature on tax fraud. 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