Impact of Digital Finance on Audit Quality and Accounting Fraud: An Empirical Study

This study investigates the impact of digital finance practices on audit quality in the Iraqi banking sector. It also aims to assess the impact of digital finance on accounting fraud by reducing the likelihood of breaches in electronic financial control systems. A quantitative approach was adopted, using financial data from a sample of 16 Iraqi banks spanning the years 2015 to 2024. Using panel data, the paper assesses the effect of digital finance practices on audit quality and accounting fraud in the Iraqi banking sector. Data were collected from the sample banks’ annual reports and analyzed using content analysis to quantitatively identify digital finance. The audit fee ratio was used to measure audit quality. The study employed the Benesch model to detect fraudulent financial statements. The results indicate that digital finance practices enhance audit quality by improving the transparency and reliability of accounting information; however, they also have a negative impact on the detection of accounting fraud. The results also demonstrate that digital finance practices have an inverse impact on accounting fraud, as they enhance the performance of external audits and support the effectiveness of banks’ internal control systems. The results of this study provide policymakers and bank managers in Iraq with a better understanding of how to enhance financial oversight and strengthen internal control systems. This paper adds to the accounting literature on the impacts of digital finance in a developing economy with a unique socio-political context, Iraq, thus filling the gap in studies that have focused on developed markets.