Title:
Reconfiguring Digitally Enabled Internal Audit Capabilities Under Information Asymmetry: Evidence on Fraud Risk Boundaries

Authors:
Amin ElSayed Ahmed Lotfy, Egypt

Abstract:

Purpose:

This study examines how digitally enabled internal audit capabilities are reconfigured under conditions of information asymmetry, with a specific focus on identifying the boundaries within which internal audit can meaningfully mitigate accounting fraud risk.

Methodology/Design/Approach

The study adopts an empirical design combining advanced data-intensive analytical mechanisms with internal audit processes in complex organizational settings. A multi-period dataset is analyzed to assess how digitally enabled audit practices influence different categories of fraud risk under asymmetric information conditions. Robust econometric techniques are employed to test capability reconfiguration effects while accounting for organizational and environmental constraints.

Findings

The results show that digital enablement does not uniformly reduce fraud risk. Instead, it selectively expands internal audit capabilities in transaction-based and process-related fraud while exhibiting limited effectiveness against collusive and strategically concealed fraud. Information asymmetry is found to act as a structural constraint that defines the upper boundaries of internal audit effectiveness, even in digitally enabled environments.

Originality and Value

Rather than treating digitalization as a universal solution, this study introduces a boundary-based perspective that explains where and why digitally enabled internal audit succeeds or fails. These reframing advances auditing research by shifting the focus from effectiveness claims to capability limits under real-world conditions.

Theoretical, Practical, and Social Implications

The study contributes theoretically by integrating capability theory with information asymmetry in internal auditing. Practically, it guides audit leaders on realistic expectations of digital enablement. Socially, it supports more credible fraud prevention strategies by avoiding overreliance on technological promises.

DOI: https://doi.org/10.51505/IJEBMR.2026.10403