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1 – 10 of over 8000Elizabeth A. Payne and Robert J. Ramsay
To examine whether planning‐stage fraud risk assessments and audit experience affect the level of professional skepticism displayed by auditors during fieldwork.
Abstract
Purpose
To examine whether planning‐stage fraud risk assessments and audit experience affect the level of professional skepticism displayed by auditors during fieldwork.
Design/methodology/approach
The paper presents an experiment using professional auditors.
Findings
Overall, auditors predisposed to low fraud risk assessments were less skeptical than those with no knowledge of fraud risk (control group). Also, as expected, auditors in the control group were less skeptical than those predisposed to moderate/high fraud risk assessments. Staff auditors were more skeptical than seniors. Senior auditors showed no differences in skepticism between the control group and high fraud risk assessment group.
Research limitations/implications
Professional skepticism in this study is measured as the auditors’ assessment of client truthfulness. There is reasonable disagreement on the exact meaning of professional skepticism and some readers’ interpretation of the term may be different from the authors' own.
Practical implications
The results suggest a need for audit firms to use ongoing training with regard to professional skepticism and the requirements of SAS No. 99, especially since skepticism appears to decline with increasing audit experience.
Originality/value
The study contributes to auditing literature in the areas of professional skepticism and fraud risk assessment. The overall experience result supports previous studies, but additional insight is gained as to differences in the experience/skepticism relationship at different levels of planning‐stage fraud risk.
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Anna Alon and Peggy Dwyer
The purpose of this paper is to investigate how the brainstorming component of Statement of Auditing Standards (SAS) No. 99 influences decision aid use and reliance, and the…
Abstract
Purpose
The purpose of this paper is to investigate how the brainstorming component of Statement of Auditing Standards (SAS) No. 99 influences decision aid use and reliance, and the effectiveness of fraud risk assessment.
Design/methodology/approach
The research framework links the influences of the fraud assessment setting and decision aid reliance. The hypotheses are tested in an experiment with two manipulated factors: setting (group or individual) and decision aid (provided or not provided).
Findings
The results of the study provide insight on how the brainstorming impacts fraud risk assessment, decision aid use and decision aid reliance. The results show that groups using a decision aid with fraud risk factors demonstrate superior decision quality and effectiveness even with lower decision aid reliance.
Research limitations/implications
The influence of the setting (group or individual) on the fraud evaluation and detection is highlighted.
Practical implications
This paper will be informative for auditors and firms involved in designing an efficient and effective fraud risk assessment.
Originality/value
This paper integrates the fraud risk assessment and decision aid literature to evaluate decision quality and effectiveness of group fraud risk assessment.
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Commentators express concern that when auditors investigate for but fail to detect fraud, jurors might effectively penalize the auditors for having investigated for the fraud…
Abstract
Commentators express concern that when auditors investigate for but fail to detect fraud, jurors might effectively penalize the auditors for having investigated for the fraud (AICPA, 2004; Coffee, 2004; Golden, Skalak, & Clayton, 2006). Consistent with these concerns, Reffett (2010) finds that, in a between-participants setting, evaluators in cases of undetected fraud are more likely to hold auditors liable for damages when the auditors identified the perpetrated fraud as a fraud risk and then investigated for the fraud, relative to when the auditors did neither. What remains unclear, however, is the extent to which identifying versus investigating fraud risks increases evaluators’ between-participants assessments of auditor liability. That is, when auditors investigate for, but fail to detect fraud, is the increase in evaluators’ liability assessments due to the fact that the auditors identified (i.e., were aware of) the fraud risk but did not detect the fraud, or that the auditors unsuccessfully investigated for the fraud (or both)? This study addresses these questions by reporting evidence that both identifying and investigating fraud risks can each, in isolation, increase evaluators’ perceptions of auditor negligence. The processes by which identifying and investigating fraud risks increase evaluators’ negligence verdicts, however, appear to differ.
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Both the international and US auditing Standards provide guidance to the auditor in searching for material misstatements caused by errors and fraud. Auditors, especially those…
Abstract
Both the international and US auditing Standards provide guidance to the auditor in searching for material misstatements caused by errors and fraud. Auditors, especially those with clients interested in cross‐border securities markets, should comprehend the similarities and differences in the requirements found in the Standards in these significant audit areas. A comparison of the international Standard for error and fraud to the two US Standards for these topics discloses numerous similarities and a few differences. The findings are reassuring to auditors serving clients with cross‐border interests. Whether the auditor is utilizing the international or the US guidance, comparable audit work in searching for misstatements arising from errors and fraud is being performed.
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Sally A Webber, Barbara Apostolou and John M Hassell
Over the past two years, fraudulent financial reporting has become a major concern of both the Securities and Exchange Commission and investors. These concerns have been spurred…
Abstract
Over the past two years, fraudulent financial reporting has become a major concern of both the Securities and Exchange Commission and investors. These concerns have been spurred by evidence that several high-profile companies such as Enron, Tyco, WorldCom, and HealthSouth have published false and/or misleading financial reports. Statement on Auditing Standards (SAS) No. 82 specifies that auditors have a responsibility to assess the likelihood of management fraud and identifies specific risk factors that should be considered when making that assessment. Apostolou et al. (2001b) examined how internal and external auditors rate the relative importance of these factors. This study extends Apostolou et al. (2001b) by examining how forensic experts at four Big 5 professional service firms assess the factors specified in SAS No. 82. These assessments produced two different models of relative importance: (a) a statistical model (produced by the Analytic Hierarchy Process); and (b) a subjective model (based on subjects’ assessment of the relative weights). These models are then used to assess the self-insight of and the degree of agreement among the forensic experts. The results indicate that forensic experts have a moderately high degree of self-insight. A moderate to high degree of consensus among experts’ judgments about the relative importance of fraud risk factors was noted.
Brad A. Schafer and Jennifer K. Schafer
This chapter examines whether professional auditors’ affect toward client management influences fraud likelihood judgments and whether accountability and experience with fraud risk…
Abstract
This chapter examines whether professional auditors’ affect toward client management influences fraud likelihood judgments and whether accountability and experience with fraud risk judgments moderate this effect. This research also explores the process by which affect influences fraud judgments by examining affect’s influence on the evaluation of fraud evidence cues. Results indicate that more positive affect toward the client results in lower fraud likelihood judgments. Accountability is found to moderate this effect, but only for experienced auditors. These findings have implications for fraud brainstorming sessions where all staff levels provide input into fraud risk assessments and because client characteristics are especially salient during these assessments. Importantly, results also support the proposition that affect impacts inexperienced auditors’ fraud assessments through errant attribution of client likability to evidence cues that refer to management, rather than biasing all client-related evaluations. Together, these findings suggest that education and training can be improved to better differentiate relevant and irrelevant cues in fraud judgment.
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This study aims to explore methods that external auditors can use to assess the rationalization of fraud in fraud risk assessment in auditing.
Abstract
Purpose
This study aims to explore methods that external auditors can use to assess the rationalization of fraud in fraud risk assessment in auditing.
Design/methodology/approach
An online questionnaire was used to collect data from 150 Big 4 auditors.
Findings
The results reveal a total of 18 methods that auditors can use to assess the rationalization of fraud. However, some methods were recommended more than others by the auditors in this study. These methods include incorporating the assessment of rationalization into the assessment of motives for fraud and integrity, understanding the client’s business and regulatory environment, inquiring management and the board of directors about past fraud cases and observing management responses and reactions during auditors’ inquiry about fraud-related matters.
Practical implications
The guidance provided by this study could help enhance auditors’ skills in assessing fraud risks, which, in turn, may increase the likelihood of detecting fraud. The guide could also be helpful for audit firms in their fraud training programs.
Originality/value
This study is the first to explore methods for assessing the rationalization of fraud by drawing on the experience and insights of Big 4 auditors.
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The study aims to explore the reasons behind external auditors' failure to detect and report fraud.
Abstract
Purpose
The study aims to explore the reasons behind external auditors' failure to detect and report fraud.
Design/methodology/approach
Semi-structured interviews were conducted with twenty-four experienced Big 4 auditors.
Findings
The present study reveals power issues within audit firms and how some dishonest audit partners deal with auditors' concerns at the higher echelons. It also shows how auditors are pressured and intimidated by audit clients when fraud-related issues are raised. Further, it sheds light on ethical, governance and regulatory issues inhibiting auditors’ ability to detect or report fraud.
Research limitations/implications
This study advances the audit literature by adding practice-based evidence on why external auditors fail to discover fraud.
Practical implications
The results draw policymakers' attention to the issues that inhibit external auditors' ability to discover fraud in practice which could help policymakers develop effective interventions. Additionally, it provides several recommendations which could aid policymakers and audit firms in designing effective audit reforms to resolve the fraud detection deficit.
Originality/value
This is the first study exploring external auditors' views on their failure to detect and report fraud and how the conflict of interests operates in the audit practice.
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The high occurrence of procurement fraud requires the management of an enterprise, the risk manager of the enterprise and the internal auditor to address procurement fraud risks…
Abstract
The high occurrence of procurement fraud requires the management of an enterprise, the risk manager of the enterprise and the internal auditor to address procurement fraud risks effectively within the enterprise risk management concept. The purpose of the article is to explain a procurement fraud risk management process which will serve as a comprehensive framework for enterprise risk managers and for internal auditors to limit the enterprise’s exposure to procurement fraud as far as possible. The study by Venter (2005) on which the article is based proposes a procurement fraud risk matrix which can be used to manage fraud risks within the procurement function efficiently. This matrix is based on the Committee of Supporting Organizations of the Treadway Commission’s (COSO’s) Enterprise Risk Management ‐Integrated Framework which is specifically applied to address the procurement fraud risk problem.
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