Psychology Versus Rationality Theories: Explanation of Managerss Fraud

Abstract

The financial statement fraud (management fraud) occurred in three different ways: lack of awareness of acting fraudulently (by error), awareness of acting fraudulently coupled with rationalization to avoid negative affect or emotion (individual’s intuition support committing a fraud), or awareness of acting fraudulently coupled with reasoning through cost-benefit analysis (individual’s intuition unclear). The management fraud can be viewed as a decisional, behavioral, cognitive, societal, emotional, or ethical phenomenon. In summary, the management fraud, as a human behavior, is an intentional, complex, multidimensional act that results from multiple interactive factors. In other words, the management fraud is the outcome of management decision-making, which is influenced by managers’ personal values, personal beliefs, organizational factor, and social factors. It can be viewed as a decisional, behavioral, cognitive, societal, emotional, or ethical phenomenon. Multiple theories explained the management fraud behavior based on different perspectives including agency theory, a fraud triangle theory, a theory of planned behavior, a rational choice theory, a prospect theory, a differential association theory, a general stain theory, and business ethics theory.