The Effects of Contrasts in Account-level Fraud Risk Assessments on Auditors' Evidence Evaluation

The Effects of Contrasts in Account-level Fraud Risk Assessments on Auditors' Evidence Evaluation
Author: Grace Ngonidzashe Mubako
Publisher:
Total Pages: 230
Release: 2012
Genre:
ISBN:

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Evidence from research in psychology and auditor judgment has shown that perceptions that form early in a sequential judgment process can influence subsequent judgments. Auditing Standard 12 requires auditors to identify fraud risk factors and assess the risk of fraud as part of the process of assessing overall misstatement risk. While it is expected that fraud risk assessments should have a bearing on overall risk assessments, it is possible that perceptions formed from assessments of fraud risk can negatively affect the evaluation of any evidence reviewed thereafter. Because different classes of transactions may be affected by fraud risk factors in different ways, fraud risk assessments may differ across classes of transactions. These differences may make subsequent auditor judgments susceptible to the contrast effects bias, where subjects overreact to the differences such that the fraud risk assessments influence auditor judgment more than they should. This study examines whether auditors who learn that fraud risk is low for one class of transactions immediately after examining a class of transactions that has high fraud risk, can overreact to the contrast such that they reduce their sensitivity to evidence that suggests increased misstatement risk. The study also examines whether these contrast effects can be mitigated by acquiring information about fraud risk assessments later in the sequence of evidence, after auditors have reviewed and assimilated evidence related to other risks. The study finds that, as predicted, auditor judgments are influenced by contrast effects. Auditors who examined classes of accounts for which fraud risk assessments were different were less sensitive to evidence suggesting increased risk in accounts that had been identified as having low fraud risk. However, contrary to predictions, these contrast effects were not mitigated by evidence order.

Behavioural Aspects of Auditors' Evidence Evaluation

Behavioural Aspects of Auditors' Evidence Evaluation
Author: Magda Abou-Seada
Publisher: Routledge
Total Pages: 256
Release: 2017-11-22
Genre: Business & Economics
ISBN: 1351761242

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This title was first published in 2003. Based on psychological research, auditing studies have focused on 'belief revision' as a way of understanding how auditors evaluate evidence. Moreover a belief revision process is consistent with US auditing standards. UK standards on the other hand do not appear to give guidance on the process to follow when evaluating evidence. Research in the US indicates that auditors do in fact follow a belief revision process in accordance with US standards. Employing survey research (based on personal interviews with a number of experienced UK auditors) this book demonstrates how auditors prefer to be described as following the open mind approach. Building on the findings of the interviews the book then describes an experimental study to investigate the differences between the belief revision and open mind approaches in terms of their effect on the efficiency and effectiveness of the audit process. The book concludes that the belief revision approach would improve the efficiency of the audit process without affecting its effectiveness or outcomes.

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

The Influence of Documentation Specificity and Priming on Auditors' Fraud Risk Assessments and Evidence Evaluation Decisions
Author: Jacqueline S. Hammersley
Publisher:
Total Pages: 42
Release: 2009
Genre:
ISBN:

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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 do 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 Risk Assessment

Fraud Risk Assessment
Author: Tommie W. Singleton
Publisher: John Wiley and Sons
Total Pages: 342
Release: 2011-04-12
Genre: Business & Economics
ISBN: 1118021789

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Praise for the Fourth Edition of Fraud Auditing and Forensic Accounting "Tommie and Aaron Singleton have made important updates to a book I personally rely very heavily upon: Fraud Auditing and Forensic Accounting (FAFA). In the newest edition, they take difficult topics and explain them in straightforward actionable language. All my students benefitted from reading the third edition of the FAFA to better understand the issues and area of fraud and forensic accounting. With their singular focus on understandability and practicality, this Fourth Edition of the book makes a very important contribution for academics, researchers, practitioners, and students. Bravo!"—Dr. Timothy A. Pearson, Director, Division of Accounting, West Virginia University, Executive Director, Institute for Fraud Prevention "Finally someone has written a book that combines fraud examination and forensic accounting. The authors have clearly explained both in their earlier edition and now they have enhanced the first with additional materials. The order in which the material is presented is easy to grasp and logically follows the 'typical' fraud examination from the awareness that something is wrong to the court case. The explanatory materials presented aid this effort by being both well placed within the book and relevant to the narrative." —Dr. Douglas E. Ziegenfuss, Chair and Professor, Department of Accounting, Old Dominion University "Fraud Auditing and Forensic Accounting is a masterful compilation of the concepts found in this field. The organization of the text with the incorporation of actual cases, facts, and figures provides a logical and comprehensive basis for learning the intricacies of fraud examination and forensic accounting. The authors successfully blend the necessary basics with advanced principles in a manner that makes the book an outstanding resource for students and professionals alike."—Ralph Q. Summerford, President of Forensic/Strategic Solutions, PC

Fraud Risk Assessment

Fraud Risk Assessment
Author: Leonard W. Vona
Publisher: John Wiley & Sons
Total Pages: 164
Release: 2012-06-29
Genre: Business & Economics
ISBN: 1118429087

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Providing a comprehensive framework for building an effective fraud prevention model, Fraud Risk Assessment: Building a Fraud Audit Program presents a readable overview for developing fraud audit procedures and building controls that successfully minimize fraud. An invaluable reference for auditors, fraud examiners, investigators, CFOs, controllers, corporate attorneys, and accountants, this book helps business leaders respond to the risk of asset misappropriation fraud and uncover fraud in core business systems.

Government Auditing Standards - 2018 Revision

Government Auditing Standards - 2018 Revision
Author: United States Government Accountability Office
Publisher: Lulu.com
Total Pages: 234
Release: 2019-03-24
Genre: Reference
ISBN: 0359536395

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Audits provide essential accountability and transparency over government programs. Given the current challenges facing governments and their programs, the oversight provided through auditing is more critical than ever. Government auditing provides the objective analysis and information needed to make the decisions necessary to help create a better future. The professional standards presented in this 2018 revision of Government Auditing Standards (known as the Yellow Book) provide a framework for performing high-quality audit work with competence, integrity, objectivity, and independence to provide accountability and to help improve government operations and services. These standards, commonly referred to as generally accepted government auditing standards (GAGAS), provide the foundation for government auditors to lead by example in the areas of independence, transparency, accountability, and quality through the audit process. This revision contains major changes from, and supersedes, the 2011 revision.

The Effects of Fraud and Going-Concern Risk on Auditors' Assessments of the Risk of Material Misstatement and Resulting Audit Procedures

The Effects of Fraud and Going-Concern Risk on Auditors' Assessments of the Risk of Material Misstatement and Resulting Audit Procedures
Author: Allen D. Blay
Publisher:
Total Pages: 29
Release: 2007
Genre:
ISBN:

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This study uses audit file data to analyze the association between the auditors' preliminary assessments of going-concern and fraud risk and the planning and performance of the financial statement audit. We analyze the association between the above risks and the auditor's assessment of the risk of material misstatement (RMM) within the revenue cycle, and examine whether going-concern and fraud risk assessments have an effect on the persuasiveness, timing and extent of audit evidence gathered. Our results indicate that both fraud risk and going-concern risk are significantly related to RMM. Our results also indicate that although the effect of fraud risk is fully mediated by the RMM, moderate going-concern risk remains significantly related to our proxies for the persuasiveness and timing of audit evidence, even after controlling for RMM.

Do Auditors Overemphasize Contextual Benchmarks? Archival Evidence on Contrast Effects in Auditors' Assessment of Client Risk

Do Auditors Overemphasize Contextual Benchmarks? Archival Evidence on Contrast Effects in Auditors' Assessment of Client Risk
Author: Nicholas Hallman
Publisher:
Total Pages: 49
Release: 2017
Genre:
ISBN:

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As part of planning and performing financial statement audits, auditors must assess their clients' risk. Assessed risk permeates the audit process, driving decisions regarding client retention, audit pricing, the extent of audit testing, and the nature of auditors' written opinions. Although auditors aim to assess each client's risk independently, prior research suggests that individuals draw on their idiosyncratic experiences and environments for benchmarks against which to contrast the case at hand. These “contrast effects” may skew auditors' perceptions of risk, particularly if they rely on unrepresentative benchmark firms. I provide archival evidence consistent with this prediction. Using a large sample of public firms, I find that after controlling for clients' actual risk, auditors more strictly constrain the use of discretionary accruals, are more likely to issue going concern opinions, and charge higher audit fees when clients appear riskier in the context of other clients audited by the same practice office. The reverse is true for clients that appear less risky in the context of other clients audited by the same practice office.