scholarly journals Using Inconsistency Between Nonfinancial Measure and Financial Measure to Access Fraud Risk

2014 ◽  
Vol null (57) ◽  
pp. 136-153
Author(s):  
허봉구 ◽  
JOINSEON ◽  
서승철
Keyword(s):  
Fraud Risk ◽  
Financial Measure

Fraud Risk Awareness and the Likelihood of Audit Enforcement Action

2016 ◽  
Vol 30 (3) ◽  
pp. 379-392 ◽  
Author(s):  
Jared Eutsler ◽  
Erin Burrell Nickell ◽  
Sean W. G. Robb
Keyword(s):  
Financial Reporting ◽  
Financial Distress ◽  
Professional Community ◽  
Securities And Exchange Commission ◽  
Counterfactual Reasoning ◽  
Going Concern ◽  
Enforcement Action ◽  
Fraud Risk ◽  
Regulatory Perspective ◽  
Going Concern Opinion

SYNOPSIS Prior research indicates that issuing a going concern opinion to financially stressed clients generally reduces the risk of litigation against the auditor following a bankruptcy (Kaplan and Williams 2013; Carcello and Palmrose 1994). However, we propose that a going concern report may indicate prior knowledge of financial distress, an important fraud risk factor, and this may have repercussions for the auditor if a fraud is subsequently uncovered. Consistent with counterfactual reasoning theory, experimental research suggests that a documented awareness of fraud risk actually increases the likelihood of litigation against the auditor following a fraud (Reffett 2010). This concern has been echoed by the professional community (AICPA 2004; Golden, Skalak, and Clayton 2006) and may be exacerbated by the current outcome-based regulatory environment (Peecher, Solomon, and Trotman 2013). To examine this issue we review Auditing and Accounting Enforcement Releases (AAERs) issued by the Securities and Exchange Commission (SEC) for alleged financial reporting frauds between 1995 and 2012. Results suggest that going concern report modifications accompanying the last set of fraudulently stated financials are associated with a greater likelihood of enforcement action against the auditor. This finding is consistent with counterfactual reasoning theory and suggests that, from a regulatory perspective, auditors may be penalized for documenting their awareness of fraud risk when financial statements are later determined to be fraudulent.

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).

Investor Perceptions of Government Deregulation: Evidence from Section 404 of the Sarbanes-Oxley Act

2020 ◽  
Author(s):  
Benjamin W Hoffman ◽  
John L. Campbell ◽  
Jason L. Smith
Keyword(s):  
Financial Reporting ◽  
Government Regulation ◽  
Abnormal Returns ◽  
Reporting Quality ◽  
Internal Controls ◽  
Litigation Risk ◽  
Section 404 ◽  
Fraud Risk ◽  
Sarbanes Oxley ◽  
Public Company

We investigate the stock market's reaction to events leading up to the Securities and Exchange Commission's (SEC) and Public Company Accounting Oversight Board's (PCAOB) 2007 regulatory changes that reduced the scope of and documentation requirements for assessments of firms' internal controls over financial reporting (ICFR), as required by Section 404 of the Sarbanes-Oxley Act. The stated goal of these regulations was to reduce firms' and auditors' compliance costs with mandatory ICFR assessments, while maintaining the effectiveness of these assessments. We examine abnormal returns surrounding key dates leading to the passage of these regulations and offer two main findings. First, investors reacted negatively on key event dates, suggesting that investors viewed the regulations as likely to reduce financial reporting quality rather than to drive firm and audit efficiencies. Second, this negative market reaction is larger when ICFR effectiveness should matter most - when firms are more complex, have higher litigation risk, and greater fraud risk. In additional analysis, we find that restatements increase in the post-regulation time period, consistent with investors' concerns that the effect of the legislation would be a reduction in ICFR effectiveness. Overall, our results may imply that investors prefer stronger government regulation when it comes to the assessments of a firm's internal controls over financial reporting.

scholarly journals Forensic Accounting Knowledge and Mindset on Task Performance Fraud Risk Assessment

2014 ◽  
Vol 9 (9) ◽  
Author(s):  
Oluwatoyin Muse Johnson Popoola ◽  
Ayoib Che Ahmad ◽  
Rose Shamsiah Samsudin
Keyword(s):  
Risk Assessment ◽  
Task Performance ◽  
Fraud Risk ◽  
Forensic Accounting

Project Similarity Bias and Variance Neglect in Forecast Metric Evaluation

2021 ◽  
Author(s):  
Shir Dekel ◽  
Micah Goldwater ◽  
Dan Lovallo ◽  
Bruce Burns
Keyword(s):  
Net Present Value ◽  
Psychological Research ◽  
Present Value ◽  
Financial Measures ◽  
Business Executives ◽  
Management Students ◽  
Financial Measure

Business executives often have to allocate resources across very dissimilar projects. They use financial measures, such as Net Present Value (NPV) that simplify this difficult comparison because they aim to be equally applicable to any kind of project, but these measures vary in their reliability. Psychological research suggests that comparing alignable objects will be easier than comparing non-alignable objects (Markman & Gentner, 1993; Markman & Medin, 1995). However, it is unclear how alignment might moderate people’s use of financial measure such as NPV. We found that laypeople accommodate their use of a financial measure (NPV) based on its reliability (as explicitly described in the introduction to the task) when allocating resources to a set of alignable projects, but use it regardless of reliability when allocating to a set of non-alignable projects. However, when NPV reliability information was presented numerically using ranges, participants’ allocation did not depend on the ranges—participants used NPV even when they had an opportunity to use the intrinsic features of the project. Overall, however, participants relied on NPV more when projects were low in alignment than when they were high in alignment. The result with numerical reliability was replicated with Masters of Management students. Our results demonstrate that considering dissimilar choices may hinder people’s ability to evaluate their importance, and that people might not be using useful variance information in their decisions.

scholarly journals Helping auditors identify deception through psycholinguistics

2018 ◽  
Vol 25 (4) ◽  
pp. 1062-1076 ◽  
Author(s):  
Rebecca Nicolaides ◽  
Richard Trafford ◽  
Russell Craig
Keyword(s):  
Oral Language ◽  
Research Agenda ◽  
Relevant Literature ◽  
Bibliographic Databases ◽  
Future Research ◽  
Content Type ◽  
Fraud Risk ◽  
Critical Elements ◽  
Future Research Agenda ◽  
Wide Range

Purpose This paper reviews an array of psycholinguistic techniques that auditors can deploy to explore written and oral language for signs of deception. The review is drawn upon to propose some elements of a forward research agenda. Design/methodology/approach Relevant literature across several disciplines is identified through keyword searches of major bibliographic databases. Findings The techniques highlighted have considerable potential for use by auditors to identify audit contexts which merit closer audit investigation. However, the techniques need further contextual empirical investigation in audit contexts. Seven specific propositions are presented for empirical testing. Originality/value This paper assembles literature on deceptive communication from a wide range of disciplines and relates it to the audit context. Auditors’ attention is directed to potential linguistic signals of fraud risk, and opportunities for future research are suggested. The paper is consciousness-raising, has pedagogic purpose and suggests critical elements for a future research agenda.

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