Auditors’ Use of Brainstorming in the Consideration of Fraud: Reports from the Field

2010 ◽  
Vol 85 (4) ◽  
pp. 1273-1301 ◽  
Author(s):  
Joseph F. Brazel ◽  
Tina D. Carpenter ◽  
J. Gregory Jenkins
Keyword(s):  
Best Practices ◽  
Risk Assessments ◽  
High Quality ◽  
The Public ◽  
Fraud Risk ◽  
Public Company ◽  
Decision Making Processes ◽  
Fraud Risk Assessments ◽  
Audit Standards

ABSTRACT: Audit standards require auditors to conduct fraud brainstorming sessions on every audit. The Public Company Accounting Oversight Board has raised concerns about auditors’ fraud judgments and the quality of their brainstorming sessions. We develop a measure of brainstorming quality to examine how it affects auditors’ fraud decision-making processes. We test our measure using field survey data of auditors’ actual brainstorming sessions for 179 audit engagements. Respondents report considerable variation in the quality of brainstorming in practice. We find some evidence that high-quality brainstorming improves the relations between fraud risk factors and fraud risk assessments. We also determine that brainstorming quality positively moderates the relations between fraud risk assessments and fraud-related testing. Our results suggest that the benefits of brainstorming do not apply uniformly, because low-quality sessions likely incur the costs of such interactions without receiving the attendant benefits. By documenting best practices from high-quality brainstorming sessions, our findings can inform auditors on how to improve their consideration of fraud.

scholarly journals Assessing Management Integrity: Insights from Big 4 Auditors in Egypt

2018 ◽  
Vol 12 (1) ◽  
pp. A29-A39
Author(s):  
Rasha Kassem
Keyword(s):  
Best Practices ◽  
Training Programs ◽  
Risk Assessments ◽  
External Auditors ◽  
Corporate Scandals ◽  
Fraud Risk ◽  
Big 4 ◽  
Audit Firms ◽  
Fraud Risk Assessments ◽  
Audit Standards

SUMMARY Recent corporate scandals have raised concerns about the quality and value of the audit profession and have generated demands for improving auditors' evaluation of management integrity. The literature lacks evidence regarding methods of assessing management integrity, while audit standards provide little if any guidance on this matter. This raises questions about how external auditors can comply with the audit standards in this area and what best practices and deficiencies exist in the assessment of management integrity. This study examines methods of assessing management integrity by providing insights from the Big 4 auditors in Egypt. The findings of this study will benefit audit firms in their professional audit training programs, as well as auditors conducting fraud risk assessments.

Professional Skepticism: The Effects of a Partner's Influence and the Level of Fraud Indicators on Auditors' Fraud Judgments and Actions

2013 ◽  
Vol 25 (2) ◽  
pp. 45-69 ◽  
Author(s):  
Tina D. Carpenter ◽  
Jane L. Reimers
Keyword(s):  
Risk Factors ◽  
Risk Assessments ◽  
Costs And Benefits ◽  
Professional Skepticism ◽  
The Public ◽  
Fraud Risk ◽  
Public Company ◽  
Academic Researchers ◽  
Fraud Risk Assessments ◽  
Selection Of

ABSTRACT: The Public Company Accounting Oversight Board (PCAOB), in its recent auditor inspections, cited a lack of professional skepticism and selection of appropriate audit procedures as serious problems for auditors, and suggested that the tone set by audit partners is critical for auditors' fraud investigations. We investigate selected components of Nelson's (2009) model of professional skepticism: the effects of the partner's emphasis on professional skepticism and the effect of the level of fraud indicators on auditors' identification of fraud risk factors, auditors' fraud risk assessments, and their selection of audit procedures. Thus, we provide an initial test of predictions of the links established in his model, and our results suggest a possible extension to his model. This study provides evidence that a partner's emphasis on professional skepticism is critical for both effective and efficient identification of relevant fraud risk factors and choice of relevant audit procedures. These results should be informative to both standard setters and academic researchers because they highlight the costs and benefits of an audit partner's attitude toward professional skepticism on the evaluation of fraud.

The Influence of Documentation Specificity and Priming on Auditors' Fraud Risk Assessments and Evidence Evaluation Decisions

2010 ◽  
Vol 85 (2) ◽  
pp. 547-571 ◽  
Author(s):  
Jacqueline S. Hammersley ◽  
E. Michael Bamber ◽  
Tina D. Carpenter
Keyword(s):  
Unintended Consequence ◽  
Risk Assessments ◽  
Planning Stage ◽  
The Public ◽  
Audit Planning ◽  
Fraud Risk ◽  
Support Theory ◽  
Public Company ◽  
Evidence Evaluation ◽  
Fraud Risk Assessments

ABSTRACT: The Public Company Accounting Oversight Board (PCAOB) recently suggested that auditors' lack of specific fraud planning documentation has led auditors to devote insufficient attention to fraud risks in subsequent audit work. Guided by Support Theory, we experimentally investigate how the specificity of fraud risk documentation during audit planning influences auditors' subsequent audit work. We also examine the effect of priming auditors about the fraud risks identified during planning before they begin subsequent evidence evaluation. We find that auditors' planning stage efforts affect subsequent fraud risk assessments and evidence evaluation decisions. Unprimed auditors who receive more specific documentation increase their fraud risk assessments and evidence requests. Priming's effects are more complex. Priming auditors who receive summary documentation also increases fraud risk assessments and evidence requests; however, priming auditors who receive specific documentation reduces these judgments because the priming makes the client-specific risks seem less typical. Accordingly, the PCAOB's call for more documentation can have the unintended consequence of reducing auditors' sensitivity to fraud.

Fraud Brainstorming Using Computer-Mediated Communication: The Effects of Brainstorming Technique and Facilitation

2009 ◽  
Vol 84 (4) ◽  
pp. 1209-1232 ◽  
Author(s):  
Antoinette L. Lynch ◽  
Uday S. Murthy ◽  
Terry J. Engle
Keyword(s):  
Computer Mediated Communication ◽  
Risk Assessments ◽  
Mediated Communication ◽  
Face To Face ◽  
Fraud Risk ◽  
Treatment Conditions ◽  
Computer Mediated ◽  
Significant Difference ◽  
Fraud Risk Assessments

ABSTRACT: This study experimentally investigates the effectiveness of computer-mediated brainstorming in the context of the SAS No. 99 mandated fraud brainstorming requirement. Results indicate that brainstorming effectiveness is significantly higher for teams brainstorming electronically relative to teams using traditional face-to-face brainstorming. There is no significant difference in brainstorming effectiveness between electronic interactive brainstorming and electronic nominal brainstorming. Brainstorming effectiveness is significantly higher for teams receiving content facilitation relative to teams not receiving content facilitation. The post-brainstorming fraud risk assessments are significantly higher than the pre-brainstorming assessments in all treatment conditions, indicating that the SAS No. 99 mandated brainstorming session has the intended effect. This research informs audit practice by demonstrating that computer-mediated fraud brainstorming can be more effective than face-to-face brainstorming and also by establishing the effectiveness of content facilitation for improving the quality of the fraud risk factors generated by auditors.

Facilitating Brainstorming: Impact of Task Representation on Auditors' Identification of Potential Frauds

2014 ◽  
Vol 34 (3) ◽  
pp. 1-22 ◽  
Author(s):  
Wei Chen ◽  
Amna Saeed Khalifa ◽  
Ken T. Trotman
Keyword(s):  
Data Availability ◽  
Risk Assessments ◽  
Task Representation ◽  
Team Members ◽  
Professional Skepticism ◽  
Fraud Risk ◽  
Negative Effect ◽  
Group Brainstorming ◽  
Fraud Risk Assessments

SUMMARY Individual auditor brainstorming is an important input to group brainstorming. In a setting where multiple potential frauds exist, we examine the effect of brainstorming task representation (simultaneous versus sequential unpacking of potential frauds) on individual auditors' identification of potential frauds and fraud risk assessments. Results from an experiment with experienced auditors show that the sequential unpacking of the brainstorming task into risk categories (potential frauds identified for each category individually) leads to a greater quantity and quality of potential frauds identified by auditors compared to the simultaneous unpacking (potential frauds identified for the categories together). Additional analysis suggests that the positive effect of sequential unpacking on the quality of frauds identified persists when auditors subsequently receive frauds identified by other team members. We also find a potential negative effect of sequential unpacking as it reduces auditors' fraud risk assessments thus potentially reducing the level of professional skepticism. Data Availability: Contact the authors.

scholarly journals How Fraud Risk Decomposition Affects Auditors' Fraud Risk Assessments

2020 ◽  
Vol 14 (1) ◽  
pp. P26-P32
Author(s):  
Chad A. Simon ◽  
Jason L. Smith ◽  
Mark F. Zimbelman
Keyword(s):  
High Risk ◽  
Unintended Consequences ◽  
Risk Assessments ◽  
Risk Decomposition ◽  
Fraud Risk ◽  
Trade Offs ◽  
Auditing Standards ◽  
Fraud Risk Assessments

SUMMARY In this paper, we provide a practitioner summary of our paper “The Influence of Judgment Decomposition on Auditors' Fraud Risk Assessments: Some Trade-Offs” (Simon, Smith, and Zimbelman 2018). In that study, we investigate potential unintended consequences from current auditing guidance on risk assessments. Specifically, auditing standards recommend separate assessments of the likelihood and magnitude of risks (hereafter, LM decomposition) when auditors assess risk. Our study involved several experiments, including one with experienced auditors, where we found evidence that LM decomposition leads auditors to be less concerned about high-risk fraud schemes relative to auditors who make holistic risk assessments. Our other experiments involved non-auditing settings and replicated this finding while exploring potential explanations for it. After providing a summary of our study and its results, we offer concluding remarks on the potential implications of our findings.

On the Use of Checklists in Auditing: A Commentary

2014 ◽  
Vol 8 (1) ◽  
pp. C1-C25 ◽  
Author(s):  
J. Efrim Boritz ◽  
Lev M. Timoshenko
Keyword(s):  
Risk Assessment ◽  
Experimental Studies ◽  
Risk Assessments ◽  
Cue Combination ◽  
Assessment Task ◽  
Fraud Risk ◽  
Red Flag ◽  
Application Methods ◽  
Effective Use ◽  
Fraud Risk Assessments

SUMMARYExperimental studies concerning fraud (or “red flag”) checklists often are interpreted as providing evidence that checklists are dysfunctional because their use yields results inferior to unaided judgments (Hogan et al. 2008). However, some of the criticisms leveled against checklists are directed at generic checklists applied by individual auditors who combine the cues using their own judgment. Based on a review and synthesis of the literature on the use of checklists in auditing and other fields, we offer a framework for effective use of checklists that incorporates the nature of the audit task, checklist design, checklist application, and contextual factors. Our analysis of checklist research in auditing suggests that improvements to checklist design and to checklist application methods can make checklists more effective. In particular, with regard to fraud risk assessments, customizing checklists to fit both client circumstances and the characteristics of the fraud risk assessment task, along with auditor reliance on formal cue-combination models rather than on judgmental cue combinations, could make fraud checklists more effective than extant research implies.

scholarly journals Disclosure and Audit Implications of Nonfinancial Measures: A Teaching Case

2018 ◽  
Vol 12 (1) ◽  
pp. I1-I13 ◽  
Author(s):  
Matthew L. Hoag ◽  
Gabriel D. Saucedo
Keyword(s):  
Financial Statements ◽  
Risk Assessments ◽  
Microsoft Excel ◽  
Teaching Case ◽  
Fraud Risk ◽  
Nonfinancial Measures ◽  
Analytical Procedures ◽  
Fraud Risk Assessments ◽  
Substantive Analytical Procedures

SUMMARY This case introduces students to nonfinancial measures (NFMs) and encourages thoughtful consideration and discourse surrounding their reporting and use by managers and auditors. NFMs are commonly reported by companies to provide increased transparency of operations and to more effectively describe performance. External parties such as analysts and auditors make use of NFMs in performing valuation assessments, fraud risk assessments, and substantive analytical procedures. In completing this case, students will be exposed to actual NFMs disclosed in SEC filings and employ Microsoft Excel knowledge to perform foundational analytical procedures. Students will also analyze how these NFMs link to the financial statements, as well as reflect upon the implications of NFMs for both internal and external users.

Sign in / Sign up

Export Citation Format

Share Document