scholarly journals How Strategic Reasoning and Brainstorming Can Help Auditors Detect Fraud

2012 ◽  
Vol 6 (2) ◽  
pp. P25-P33 ◽  
Author(s):  
Vicky B. Hoffman ◽  
Mark F. Zimbelman
Keyword(s):  
Fraud Detection ◽  
Strategic Reasoning ◽  
Fraud Risk ◽  
Planning Judgments

SUMMARY Auditors often fail to effectively modify their standard audit procedures in response to fraud risk. Two audit interventions, strategic reasoning (i.e., considering how the audit client may be concealing a fraud from the auditor) and brainstorming in groups, have been suggested to help auditors design better fraud detection procedures. This paper summarizes a recent study (“Do Strategic Reasoning and Brainstorming Help Auditors Change Their Standard Audit Procedures in Response to Fraud Risk?” [Hoffman and Zimbelman 2009], The Accounting Review) in which an experiment was conducted in a high-fraud-risk setting to see whether these interventions helped audit managers design better fraud procedures. The study found that both interventions improved auditors' planning judgments, but that combining them was not more effective than either one alone. That is, once individual audit managers reasoned strategically, adding more audit managers to the process in a brainstorming group did not result in better judgments, and brainstorming groups did not obtain additional benefits from reasoning strategically together.

Financial fraud detection and big data analytics – implications on auditors’ use of fraud brainstorming session

2019 ◽  
Vol 34 (3) ◽  
pp. 324-337 ◽  
Author(s):  
Jiali Tang ◽  
Khondkar E. Karim
Keyword(s):  
Big Data ◽  
Data Analytics ◽  
Big Data Analytics ◽  
Idea Generation ◽  
Fraud Detection ◽  
Content Type ◽  
Collective Wisdom ◽  
Fraud Risk ◽  
Collection Data ◽  
Audit Team

PurposeThis paper aims to discuss the application of Big Data analytics to the brainstorming session in the current auditing standards.Design/methodology/approachThe authors review the literature related to fraud, brainstorming sessions and Big Data, and propose a model that auditors can follow during the brainstorming sessions by applying Big Data analytics at different steps.FindingsThe existing audit practice aimed at identifying the fraud risk factors needs enhancement, due to the inefficient use of unstructured data. The brainstorming session provides a useful setting for such concern as it draws on collective wisdom and encourages idea generation. The integration of Big Data analytics into brainstorming can broaden the information size, strengthen the results from analytical procedures and facilitate auditors’ communication. In the model proposed, an audit team can use Big Data tools at every step of the brainstorming process, including initial data collection, data integration, fraud indicator identification, group meetings, conclusions and documentation.Originality/valueThe proposed model can both address the current issues contained in brainstorming (e.g. low-quality discussions and production blocking) and improve the overall effectiveness of fraud detection.

Integration of Fraud Risk in the Risk of Material Misstatement and the Effect on Auditors' Planning Decisions

2018 ◽  
Vol 3 (1) ◽  
pp. A52-A79
Author(s):  
Velina K. Popova
Keyword(s):  
Data Availability ◽  
Risk Environment ◽  
Major Area ◽  
Audit Planning ◽  
Fraud Risk ◽  
Planning Decisions ◽  
Public Company ◽  
Study Participants ◽  
Audit Program ◽  
Planning Judgments

ABSTRACT Prior research finds that although auditors assess fraud risk accurately, they generally fail to adjust audit procedures appropriately. The most recent Public Company Accounting Oversight Board (PCAOB) inspections in 2016 still identify response to risks of material misstatement (RMM) as a major area of inspection focus and cite it as a recurring audit deficiency. In this study, participants assess RMM and make audit-planning judgments in a high/low fraud risk environment using either a traditional source-based representation of RMM (i.e., based on inherent, control, and fraud risk) or a newer type-based representation of RMM (i.e., based on error and fraud risk). The results indicate that while auditors in both groups show similar sensitivity to risk, the type-based group of auditors are better able modify their audit plans by using more procedures that are new to a standard audit program and assigning more experienced staff to address high fraud risk. Data Availability: Contact the author.

Do Strategic Reasoning and Brainstorming Help Auditors Change Their Standard Audit Procedures in Response to Fraud Risk?

2009 ◽  
Vol 84 (3) ◽  
pp. 811-837 ◽  
Author(s):  
Vicky B. Hoffman ◽  
Mark F. Zimbelman
Keyword(s):  
Academic Research ◽  
Strategic Reasoning ◽  
The Public ◽  
Fraud Risk ◽  
Planning Decisions ◽  
Public Company

ABSTRACT: The Public Company Accounting Oversight Board recently reported that its inspections show that auditors fail to effectively modify their standard audit procedures in response to fraud risk. Prior academic research is consistent with this finding. Our study examines the effects of two interventions on auditors' planning decisions in a high-fraud-risk setting: strategic reasoning and brainstorming in groups. Both interventions are predicted to lead auditors to more effectively modify their planned audit procedures. We use a panel of fraud experts to identify effective modifications to the audit plan of a specific fraud case. The experts' recommendations are then used to evaluate the effectiveness of practicing auditors' audit plans with and without the two interventions. We predict and find that each intervention leads to more effective modifications to the standard audit procedures and that the combination of the interventions is not significantly more effective than either intervention used alone.

A Test of Changes in Auditors' Fraud-Related Planning Judgments since the Issuance of SAS No. 82

2003 ◽  
Vol 22 (2) ◽  
pp. 237-251 ◽  
Author(s):  
Steven M. Glover ◽  
Douglas F. Prawitt ◽  
Joseph J. Schultz ◽  
Mark F. Zimbelman
Keyword(s):  
Risk Factors ◽  
Risk Assessment ◽  
Fraud Risk ◽  
Weak Evidence ◽  
Full Effect ◽  
Implementation Experience ◽  
And Training ◽  
Audit Policy ◽  
Planning Judgments

This study is a post-SAS No. 82 replication of Zimbelman (1997) (hereafter Z97), which examined the effect of a separate and explicit fraud-risk assessment as later required by SAS No. 82. Z97 found weak evidence that this requirement would impact auditors' planning judgments. However, because Z97 was conducted before SAS No. 82 was issued, that study was unable to capture the full effect of SAS No. 82 on the audit environment (e.g., related guidance and training, audit policy, and implementation experience). In this study, we compare pre- and post-SAS No. 82 planning judgments and find that post-SAS No. 82 judgments are more sensitive to fraud risk factors. Specifically, we find that post-SAS No. 82 participants are more aware of the need to modify audit plans and are more likely to increase the extent of their audit tests in response to increased fraud risk when compared with the pre-SAS No. 82 participants in Z97. However, we do not find evidence that auditors modify the nature of their planned tests in response to fraud risk either before or after SAS No. 82.

Game Changer: Can Modifications to Audit Firm Communication Improve Auditors’ Actions in Response to Heightened Fraud Risk?

2021 ◽  
Author(s):  
Ashley A. Austin ◽  
Tina D Carpenter
Keyword(s):  
Cognitive Processing ◽  
Current Practice ◽  
Fraud Detection ◽  
Theory And Practice ◽  
Audit Firm ◽  
Fraud Risk ◽  
Audit Firms ◽  
Psychology Theory ◽  
Firm Communication ◽  
Game Changer

Regulators express concern over auditors’ failure to respond to fraud risks. Audit firms communicate the importance of remaining skeptical and alert for fraud, but busy auditors give these messages insufficient attention. Building on psychology theory, we develop an innovative intervention designed to improve audit firm communication by incorporating game-like elements. We expect game-like elements to pique auditors’ interest, deepen their cognitive processing, enhance their awareness of important fraud concepts, and make them more alert for fraud. We experimentally demonstrate that the intervention improves auditors’ awareness of important fraud concepts, and these benefits persist to improve auditors’ fraud detection actions. Importantly, auditors receiving communication that simulates current practice fail to respond to heightened fraud risk, confirming regulators’ concerns. In additional analyses, a model supports our intervention promoting deeper processing of the communication, enabling auditors’ subsequent recognition of heightened fraud risk and effective actions. Thus, our results contribute to theory and practice.

scholarly journals Digital forensic technologies as e-fraud risk mitigation tools in the banking industry: Evidence from Zimbabwe

2014 ◽  
Vol 4 (2) ◽  
pp. 116-124 ◽  
Author(s):  
Shewangu Dzomira
Keyword(s):  
Banking Industry ◽  
Risk Mitigation ◽  
Fraud Detection ◽  
Descriptive Study ◽  
Sampling Techniques ◽  
Fraud Risk ◽  
Digital Forensic ◽  
Banking Institutions ◽  
Advanced Analytics ◽  
Analytical Tools

The paper investigates digital analytical tools and technologies used in electronic fraud prevention and detection, used in the banking industry. The paper is based on a descriptive study which studied digital forensics and cyber fraud phenomenon using content analysis. To obtain the data questionnaires and interviews were administered to the selected informants from 22 banks. Convenience and judgemental sampling techniques were used. It was found out that fraud detection and prevention tools and technologies would be most effective way of combating e-fraud if they can be utilized. It is concluded that banking institutions should reshape their anti-fraud strategies to be effective by considering fraud detection efforts using advanced analytics and related tools, software and application to get more efficient oversight.

scholarly journals Impact of Forensic Accounting on Financial Fraud Detection in Deposit Money Banks in Nigeria

2021 ◽  
Vol 4 (3) ◽  
pp. 74-119
Author(s):  
Edward Idemudia Agboare
Keyword(s):  
Fraud Detection ◽  
Control Measures ◽  
Primary Data ◽  
Financial Fraud ◽  
Biometric Authentication ◽  
Automated Control ◽  
Fraud Risk ◽  
Forensic Accounting ◽  
Financial Transactions ◽  
The Impact

The study examines the impact of forensic accounting on financial fraud detection in Deposit Money Banks (DMBs) in Nigeria. Survey research design was employed for the study with extensive reliance on primary data obtained through the use of structured Likert scale questionnaire. The data were tested using descriptive statistics and regression analysis on Statistical Package for Social Sciences (SPSS version 20.0). The study findings showed that forensic accounting techniques of conducting investigation, analyzing financial transactions and reconstructing incomplete accounting records have significant effect on financial fraud detection in deposit money banks in Nigeria. In the light of the study findings, the following recommendations were provided; more forensic accountants should be employed by DMBs in Nigeria to assist curb modern day financial fraud brought about by advancement in technology. The Central Bank of Nigeria (CBN) should in collaboration with all financial institutions establish an electronic fraud risk information center staffed with forensic accountants. DMBs should incorporate automated control measures such as biometric authentication of transactions to serve as deterrent for fraud occurring.

The Effect of Fraud Risk Assessment Frequency and Fraud Inquiry Timing on Auditors' Skeptical Judgments and Actions

2019 ◽  
Vol 33 (1) ◽  
pp. 1-15 ◽  
Author(s):  
Kelsey R. Brasel ◽  
Richard C. Hatfield ◽  
Erin Burrell Nickell ◽  
Linda M. Parsons
Keyword(s):  
Risk Assessment ◽  
Fraud Detection ◽  
Risk Assessments ◽  
Professional Skepticism ◽  
Fraud Risk ◽  
Operational Level ◽  
Assessment Frequency ◽  
Fraud Risk Assessments

SYNOPSIS Identifying ways to improve and maintain professional skepticism, particularly for the purpose of reducing the risk of material misstatement due to fraud, continues to be a top priority for the auditing profession. This study examines two strategies for improving skeptical behavior in a fraud-related task: (1) practicing inward-directed skepticism through repeated risk assessments and (2) performing timely fraud inquiries of operational-level employees. Results indicate auditors made more skeptical judgments when revisiting and reassessing fraud risk assessments. Further, when auditors performed operational-level fraud inquiries prior to substantive testing, participants exhibited significantly greater increases in skeptical judgment than those who performed inquiries subsequently or not at all. We also observed a greater tendency toward skeptical action, but only on the part of participants who were highly skeptical by nature. These findings support the effectiveness of two strategies for improving skepticism throughout an audit engagement that can improve fraud detection.

Fraud Risk Assessment Using the Fraud Risk Model as a Decision Aid

2017 ◽  
Vol 14 (1) ◽  
pp. 37-56 ◽  
Author(s):  
Theodore J. Mock ◽  
Rajendra P. Srivastava ◽  
Arnold M. Wright
Keyword(s):  
Risk Model ◽  
Program Planning ◽  
Fraud Detection ◽  
Data Availability ◽  
Fraud Triangle ◽  
Audit Risk ◽  
Risk Decomposition ◽  
Fraud Risk ◽  
Planning Decisions ◽  
Risk Condition

ABSTRACT This study investigates the efficacy of using a technology based on an elaboration of the traditional fraud risk model to assess the risk of fraud and subsequently plan the audit. The fraud risk model used is based on Srivastava, Mock, and Turner (2007, 2009) and explicitly assesses the presence of fraud triangle factors and the need for forensic tests to aid in the assessment of fraud detection risk and audit planning. Previous studies that examine fraud risk decomposition simply advise subjects to assess fraud risks separately without an analytical model. We examine the effectiveness of the approach using an experiment involving 76 experienced auditors where specific fraud risks are present or absent. As expected, the results indicate that the model significantly enhances auditors' sensitivity to differences in the level of fraud risks. That is, the auditors using the fraud risk model appropriately assessed low fraud risk as low and high fraud risk as high, whereas the auditors using the traditional Audit Risk Model approach assessed fraud risk at essentially the same level under either risk condition. The experiment also investigates effects on audit program planning decisions. Contrary to expectations but consistent with prior research, the risk decomposition technology tested did not result in auditors providing more effective fraud detection procedures. In all, the results suggest that although the tested risk decomposition technology can enhance risk assessments and recognition of the need for additional forensic tests, auditors continue to have difficulties in responding to fraud risks, perhaps because they lack the requisite fraud experience and training. Data Availability: Copies of the instruments are available from the first author.

Sign in / Sign up

Export Citation Format

Share Document