Factors That Influence The External Auditor's Assessment Of The Risk Of Fraud: An Auditor’s Perception

Hadi Mahmudah Hadi Mahmudah,Neneng Lasmita,Noviriliza Nadia Putri

doi:10.30656/jak.v9i1.2899

Abstract

ABSTRACT Financial reporting fraud has become a concern for the accounting profession in Indonesia. The accounting profession specifically issued Audit Standards Section 316 in response to the emergence of fraudulent financial reporting. One of the rules of the standard is the discussion of fraud risk assessment. This study aims to examine the effect of professional skepticism, independence, client narcissism, and time pressure on the risk assessment of fraud. This study uses primary data by distributing questionnaires to auditors who work in the DKI Jakarta area. The total respondents of this study were 120 auditors. The method of analysis used to test the hypothesis is multiple regression using SPSS version 22 software. The results of this study indicate that professional skepticism has a positive and significant effect on the risk assessment of fraud, independence has a positive and significant effect on the risk assessment of fraud, client narcissism has a positive and insignificant effect on the risk assessment of fraud, and time pressure has a negative and insignificant effect on the risk assessment of fraud. Keywords: professional skepticism, independence, client narcissism, time pressure, the auditor's fraud risk assessment.

Highlights

Fraudulent financial reporting has become a severe issue in recent years since it can result in financial and non-financial losses, such as the financial system and bankruptcy
Results of the Determination Coefficient Test (R2) This test is used to determine the ability of the independent variables, namely professional skepticism, Independence, customer narcissism, and time pressure, to explain the variation in the dependent variable, namely the risk of fraud assessment
The variable fraud risk assessment (Y) is 14.1 percent, which may be explained by the variables professional skepticism (X1), Independence (X2), customer narcissism (X3), and time pressure (X4)

Summary

Introduction

Fraudulent financial reporting has become a severe issue in recent years since it can result in financial and non-financial losses, such as the financial system and bankruptcy. According to a survey performed by Ernst & Young (2013), 30% of respondents feel their country's corporations have given fraudulent financial figures. Firms must be more vigilant about corporate governance, while external auditors are expected to play a more prominent role in avoiding future fraud. Existing fraud cases and the findings of surveys suggest that fraud is still big enough to be observed by anyone with a significant role, mainly external auditors. With the auditor's professional skepticism, the external auditor's fraud evaluation plays a critical function. The amount of professional skepticism of auditors is related to the expertise and character of each auditor. Because a suspicious mentality leads to more cautious audit conclusions, the auditor must cultivate his professional skepticism to mitigate the negative

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Conclusion