The Effects of Judgments of New Clients' Integrity upon Risk Judgments, Audit Evidence, and Fees

2001 ◽  
Vol 20 (2) ◽  
pp. 85-99 ◽  
Author(s):  
Philip R. Beaulieu
Keyword(s):  
Source Credibility ◽  
Prospective Audit ◽  
Fraud Risk ◽  
Audit Evidence ◽  
Risk Judgments

Client integrity concerns auditors when they plan new audit engagements because it is related to both fraud risk and the source credibility of clients. Auditors may increase audit work and fees when they judge integrity to be below normal. In an experiment, a sample of 63 Canadian audit partners read information about a prospective audit client, including information about the client's CFO. This information was manipulated to support a judgment of either high or low integrity. As hypothesized, judgments of client integrity were negatively related to risk judgments, audit evidence extent recommendations (indirectly through risk judgments), and fee recommendations (indirectly through risk judgments and extent recommendations).

The effect of alternative fraud model use on auditors’ fraud risk judgments

2015 ◽  
Vol 34 (6) ◽  
pp. 578-596 ◽  
Author(s):  
Douglas M. Boyle ◽  
F. Todd DeZoort ◽  
Dana R. Hermanson
Keyword(s):  
Fraud Risk ◽  
Risk Judgments

scholarly journals Client Likeability in Auditor Fraud Risk Judgments: The Mitigating Influence of Task Experience, the Review Process, and a “Consider the Opposite” Strategy

2018 ◽  
Vol 12 (1) ◽  
pp. P11-P16 ◽  
Author(s):  
Brad A. Schafer ◽  
Jennifer Kahle Schafer
Keyword(s):  
Review Process ◽  
Education And Training ◽  
Related Research ◽  
Fraud Risk ◽  
Auditor Judgments ◽  
Evaluation Of Evidence ◽  
Task Experience ◽  
Risk Judgments ◽  
Global Bias ◽  
And Training

SUMMARY Auditors contend with an array of management personalities during the course of an audit engagement. Some clients by their nature are more likeable, while others create a stressful or unpleasant environment. We summarize two related research studies that examine whether and how a client's likeability influences auditors' fraud likelihood judgments. Results indicate that more likeable (dislikeable) clients cause lower (higher) auditor judgments of fraud likelihood. Results also indicate this bias operates indirectly by influencing the evaluation of evidence statements made by the client that relate to management pressures or attitudes rather than operating as a global bias on all evidence. Requiring an explanation for the judgment mitigates this bias, but only for experienced auditors. For inexperienced auditors and experienced non-audit CPAs, a prompt to “consider the opposite” mitigates the bias. These findings suggest that education and training can clarify relevant and irrelevant evidence cues in fraud judgments.

Effects of Decomposition and Categorization on Fraud-Risk Assessments

2013 ◽  
Vol 32 (4) ◽  
pp. 201-219 ◽  
Author(s):  
Michael Favere-Marchesi
Keyword(s):  
Risk Factors ◽  
Risk Assessment ◽  
Risk Assessments ◽  
Risk Decomposition ◽  
Fraud Risk ◽  
Perceived Need ◽  
Significant Difference ◽  
Risk Judgments ◽  
Fraud Risk Assessments

SUMMARY This study examines two issues related to the decomposition of fraud-risk assessments. First, it investigates whether there is a significant difference in the fraud-risk assessment of auditors who decompose the fraud judgment from that of auditors who merely categorize fraud-risk factors. Second, it examines whether the perceived need to modify the audit plan and the extent of testing in response to the fraud-risk assessment is significantly influenced by the decomposition of the fraud judgment. In an experiment with 60 audit managers, auditors who decomposed fraud-risk judgments have significantly different fraud-risk assessments than those of auditors who simply categorized fraud cues. When management's attitude cues are indicative of a low fraud risk, decomposition auditors are significantly more sensitive to changes in incentive and opportunity cues than categorization auditors. Finally, auditors who decompose fraud-risk assessments perceive a significantly higher need to revise audit plans and to increase the extent of audit testing.

scholarly journals The Effects of Tone at the Top and Professional Skepticism on Fraud Risk Judgment Among Internal Auditors in Indonesia

2021 ◽  
Vol 20 (1) ◽  
pp. 139-154
Author(s):  
Lufti Juliana ◽  
◽  
Razana Juhaida Johari ◽  
Jamaliah Said ◽  
Ludovicus Sensi Wondabio ◽  
...  
Keyword(s):  
Working Environment ◽  
Professional Skepticism ◽  
Internal Auditors ◽  
Audit Failure ◽  
Fraud Risk ◽  
Risk Judgment ◽  
Tone At The Top ◽  
New Finding ◽  
Regulatory Bodies ◽  
Risk Judgments

Failure of the internal auditors (IAs) to appropriately apply fraud risk judgment could result in audit failure in revealing fraud and scandals. It leads to significant harmful consequences to the IAs’ profession. In carrying out their duties, IAs sometimes have to face top management pressure. Tone at the top becomes essential in creating an ideal working environment for the IAs. Moreover, the lack of professional skepticism has been one factor causing an auditor’s failure to achieve the optimal result in detecting fraud. The findings from 202 respondents revealed that the IAs who have high professional skepticism are more effective in making fraud risk judgments. However, the direct influence of the tone at the top on fraud risk judgment is not statistically supported. This new finding may help professional regulatory bodies and the internal auditing function consider the profile and its necessary environment to elevate fraud risk judgment to regain public trust in the profession.

Mitigating the Dilution Effect in Auditors' Judgments Using a Frequency Response Mode

2019 ◽  
Vol 31 (2) ◽  
pp. 51-71
Author(s):  
Aasmund Eilifsen ◽  
Natalia Kochetova ◽  
William F. Messier
Keyword(s):  
Frequency Response ◽  
Research Question ◽  
Dilution Effect ◽  
Irrelevant Information ◽  
Response Mode ◽  
Mode Frequency ◽  
Data Availability ◽  
Fraud Risk ◽  
Risk Judgments ◽  
Summary Data

ABSTRACT This paper investigates the potential of using a frequency response mode to reduce the dilution effect of non-diagnostic evidence on auditors' fraud risk judgments. In two experiments, we test one hypothesis and examine a research question related to the dilution effect where response mode (frequency versus probability) and type of non-diagnostic or irrelevant information are manipulated between-participants. Results of the hypothesis tests show that auditors' fraud risk judgments demonstrate a significantly lower dilution effect when they evaluate diagnostic and non-diagnostic or irrelevant evidence using a frequency response mode, as compared to the probability response mode; this effect is most pronounced when auditors are provided with favorable non-diagnostic or irrelevant evidence. JEL Classifications: M4; M40; M420. Data Availability: Summary data are available from the authors upon request.

The Effects of Internal Audit Report Type and Reporting Relationship on Internal Auditors' Risk Judgments

2015 ◽  
Vol 29 (3) ◽  
pp. 695-718 ◽  
Author(s):  
Douglas M. Boyle ◽  
F. Todd DeZoort ◽  
Dana R. Hermanson
Keyword(s):  
Audit Committee ◽  
Internal Audit ◽  
Risk Assessments ◽  
Audit Report ◽  
Internal Auditors ◽  
Fraud Risk ◽  
External Stakeholders ◽  
Risk Judgments ◽  
Audit Information ◽  
Control Risk

SYNOPSIS The governance literature (e.g., Archambeault, DeZoort, and Holt 2008) highlights the lack of internal audit information available to external stakeholders and discusses the need for a publicly available internal audit report (IAR) to describe the function and/or provide assurance. We study the effects of IAR type (i.e., descriptive IAR, assurance IAR) and internal audit reporting relationship (i.e., primarily to management or primarily to the audit committee) on internal auditors' judgments. Specifically, 108 experienced internal auditors provided fraud risk and control risk assessments in an experiment where IAR type and reporting relationship were manipulated randomly between subjects. Fraud risk assessments are higher (more conservative) when internal auditors provide assurance in an IAR or when they report primarily to the audit committee. A significant interaction indicates that internal auditors provide higher control risk assessments when they provide assurance in an IAR and report primarily to the audit committee. Providing descriptive information in an IAR to external stakeholders does not significantly affect internal auditors' fraud risk or control risk assessments. Supplemental results indicate moderate and varied support among internal auditors for the issuance of a descriptive IAR to external stakeholders, but significantly less support for the issuance of an assurance IAR. The results, in combination with Holt and DeZoort's (2009) evidence regarding the effect of descriptive IARs on investors' judgments, suggest the need for discussions of the value of IARs in practice.

Can Simple Metaphors Be Used as Decision Aids to Promote Professional Skepticism?

2019 ◽  
Vol 34 (1) ◽  
pp. 47-60
Author(s):  
Mary P. Durkin ◽  
Jacob M. Rose ◽  
Jay C. Thibodeau
Keyword(s):  
Decision Aids ◽  
Sources Of Information ◽  
High Quality ◽  
Efficient Tool ◽  
Professional Skepticism ◽  
Fraud Risk ◽  
Big 4 ◽  
Audit Firms ◽  
Audit Evidence

ABSTRACT This study examines the potential for metaphorical priming to promote professional skepticism. Results of an experiment with 99 senior auditors from two Big 4 audit firms indicate that reading metaphors that are entirely unrelated to audit evidence can promote professional skepticism and influence auditors' judgments. Relative to auditor participants who did not read a metaphor, participants who read a metaphor related to concerns about the honesty of the sources of information (client-skeptical metaphor) or concerns about one's own ability to detect problems (self-skeptical metaphor) assessed higher levels of fraud risk. These auditors also perceived that fraud-based explanations were more likely to cause fluctuations in client ratios. Importantly, metaphorical primes improved auditors' fraud-related actions and caused them to focus on issues that were the most likely explanations for the audit evidence. Results suggest that metaphorical priming may represent a powerful and efficient tool for promoting high-quality and professionally skeptical judgments.

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