Unravelling deception: a comprehensive literature review of the fraud hexagon theory in predicting and understanding fraudulent financial reporting

Financial reporting fraud (FFR) remains a significant threat to organizations, regulators, and shareholders, undermining the integrity of financial systems and leading to substantial financial and reputational losses. Traditional models, such as the Fraud Triangle that highlights pressure, opportunity, and rationalization, and the Fraud Diamond that adds the element of capability, have been increasingly criticized for their inability to fully address the complexity of modern fraud schemes. The Fraud Hexagon Theory introduces additional factors, emphasizing the critical role of collusion and the involvement of multiple players, both internal and external to organizations, in perpetuating and concealing fraudulent financial reporting (FFR). This study aims to conduct a comprehensive literature review on the influence of fraud hexagon theory elements on the likelihood of fraudulent financial reporting. The findings suggest that various proxies have been used for fraud hexagon theory elements with inconsistent results which offer empirical gaps for future study. Besides, previous studies address the limitations of narrowly defined variables and proxies in the fraud hexagon model, which may overlook nuanced fraud indicators across different contexts. Additionally, it explores moderating factors such as corporate governance mechanism systems to understand their influence on the relationship between hexagon elements and fraud incidence, aiming to enhance the model’s predictive accuracy