Responsibility For Fraud Detection Research Articles

Organizational commitment, religiosity, and auditors’ responsibility for fraud detection

The government auditor plays a crucial role in the oversight and prevention of fraudulent activities inside the government. The examination of elements that influence the auditor's responsibilities in identifying fraud holds significant importance. This is also supported by previous literature, which states that there is quite a lot of understanding related to fraud behavior that has not been explored in the fields of accounting and auditing. This study aims to examine the influence of affective commitment, continuance commitment, normative commitment, and religiosity on the fraud detection responsibility of the auditor. The present study employed a quantitative methodology utilizing a survey-based research design. The participants in this research comprised a sample of 101 government auditors employed at the Audit Board of the Republic of Indonesia. The hypothesis was tested using Structural Equation Modeling-Partial Least Squares (SEM-PLS). The results showed that affective commitment, continuance commitment, normative commitment, and religiosity have a positive influence on the auditor’s responsibility in detecting fraud. This study also confirms the Theory of Planned Behavior (TPB). This research contributes to the development of literature related to behavioral accounting, especially regarding fraud detection responsibility. The implication of this research is that it is important for the audit board, especially human resource management, to consider providing activities that can increase the organizational commitment and religiosity of auditors, which can then be used as motivation for auditors to increase their responsibility in detecting fraud.

Triangle Model of Responsibility Theory in Perspective of Internal Auditor's Responsibility for Fraud Detection

Triangle Model of Responsibility Theory in Perspective of Internal Auditor's Responsibility for Fraud Detection

Public accounting profession and fraud detection responsibility

PurposeThe study aims to examine the influence of auditor personal factors, such as goal orientation, self-efficacy and professional commitment to auditor’s responsibility to detect the fraudulent, particularly in small accounting firms.Design/methodology/approachThe authors surveyed 86 auditors working in small accounting firms in Bali Province, Indonesia.FindingsThe results prove the role of self-efficacy as a mediating variable in the relationship of goal orientation and auditor responsibility. This result at once confirms that self-efficacy can improve individual performance even in complex tasks. This study also proves the role of professional commitment as a mediator variable.Research limitations/implicationsGiven that the respondents came from small accounting firms, these findings are not intended to be generalized with auditors in large accounting firms.Practical implicationsThese findings highlight essential efforts to reduce audit expectation gaps between auditors and the public. The small accounting firms’ leaders must to alignment workplace organizational goals and organization professional goals. A dualism of purpose causes the auditor to fail to fulfill the responsibility of fraud detection.Social implicationsThere is a severe audit expectation gap related to the auditor’s role in detecting fraud. This finding expected to answer public questions related to auditors’ ability and responsibility in small accounting firms in detecting fraud.Originality/valueThere is limited research on auditor responsibility, particularly in small audit firms in developing countries. Also, there is still debate scientific about the influence of goal orientation, self-efficacy and professional commitment to auditor performance.

An Examination of Internal Audit Function Size: Evidence from U.S. Government and Nonprofit Sectors

SUMMARY We examine factors associated with internal audit function (IAF) size in U.S. government and nonprofit (GNP) entities. Our results, based on responses from 345 GNP participants, indicate several factors related to organizational characteristics, IAF characteristics, IAF responsibilities, and information technology (IT) tools and audit activities that are associated with IAF size. Specifically, we find IAF size is positively associated with: (1) mandated IAFs, (2) activity related to audits of general IT risks, (3) use of a rotational staffing model, (4) degree of fraud detection responsibility, (5) conduct of performance audits, (6) extent of sophisticated audit technologies, (7) organization size, (8) opportunity to receive a bonus, and (9) age of the IAF. IAF size is negatively related to (1) extent of access to records and property appropriate for the performance of audits, (2) nonprofit organizations, (3) healthcare institutions, and (4) educational institutions. Additional analysis reveals variation between large and small organizations.

Existence of the Audit Expectation Gap and Its Impact on Stakeholders’ Confidence: The Moderating Role of the Financial Reporting Council

This paper empirically emphasizes the existence of the audit expectation gap and its impact on stakeholders’ confidence, moderated by the active role of the financial reporting council. As a maiden attempt to portray the relationship, a higher-order model has been constituted and assessed with the pragmatic exploration, smearing the partial least squares structural equation model (PLS-SEM). The data contains 174 respondents as auditors, investors, investment and credit analysts, and regulatory agencies in Bangladesh. The study explores audit expectation gap from diverse aspects, such as auditors responsibility for fraud detection, meaning, and usefulness of the audit report, auditors providing the non-audit services, auditors’ responsibility for going concern reporting, and also an unmet expectation for the other assurance services, such as assurance on the other parts of the annual report beyond the financial statements, like management discussion and analysis and corporate social and environmental disclosure. The findings suggest that the audit expectation gap is negatively related to stakeholders’ confidence and the greater the audit expectation gap is, the lower stakeholders’ confidence is in the audit. Auditors maintaining perceived independence and improving the level of communication with users will diminish the audit expectation gap and induce stakeholders’ confidence simultaneously. Moreover, the active role of the financial reporting council acts as a moderator to ensure the auditors’ perceived independence. The result of the study motivates the policymakers to concentrate on the users’ audit-related expectations and also intends the importance of independent audit oversight.

Auditors’ responsibility for fraud detection: Views of auditors, preparers, and users of financial statements in Saudi Arabia

Auditors’ responsibility for fraud detection: Views of auditors, preparers, and users of financial statements in Saudi Arabia

An Investigation of Audit Expectation Gap in Bangladesh

Massive Global corporate scandals, financial crisis and collapses of large entities have diluted the investors’ confidence in the worlds capital market The auditing profession has also come under the spotlight, following the melodramatic flop of eminent companies without any prior warning signals and highlighted the miracle phenomena, the audit expectation gap (AEG). Based on a questionnaire survey with auditors and investors, this paper discovers significant audit expectation gap (AEG) in the areas of auditor’s general responsibility, auditor’s responsibility for fraud detection, auditor’s responsibility for internal control reporting assessment, meaning of the audit report, and also auditor’s responsibility for going concern reporting in Bangladesh. No expectation gap is emerged regarding the usefulness of audit report. Most of the gap has been refereed as reasonableness gap, but it can lead the standard setters and the practitioners of audit profession to set higher standards of performance.Â

Understanding Auditors’ Sense of Responsibility for Detecting Fraud Within Organizations

The objective of this study is to evaluate auditors’ perceived responsibility for fraud detection. Auditors play a critical role in managing fraud risk within organizations. Although professional standards and guidance prescribe responsibility in the area, little is known about auditors’ sense of responsibility for fraud detection, the factors affecting perceived responsibility, and how responsibility affects auditor performance. We use the triangle model of responsibility as a theoretical basis for examining responsibility and the effects of accountability, fraud type, and auditor type on auditors’ perceived fraud detection responsibility. We also test how perceived responsibility affects auditor brainstorming performance given the importance of brainstorming in audits. A sample of 878 auditors (241 external auditors and 637 internal auditors) participated in an experiment with accountability pressure and fraud type manipulated randomly between subjects. As predicted, accountable auditors report higher detection responsibility than anonymous auditors. We also find a significant fraud type × auditor type interaction with external auditors perceiving the most detection responsibility for financial statement fraud, while internal auditors report similar detection responsibility for all fraud types. Analysis of the triangle model’s formative links reveals that professional obligation and personal control are significantly related to responsibility, while task clarity is not. Finally, the results indicate that perceived responsibility positively affects the number of detection procedures brainstormed and partially mediates the significant accountability–brainstorming relation.

Tanggung Jawab Pendeteksian Kecurangan sebagai Pencegahan Kegagalan Audit (Studi pada Kantor Akuntan Publik di Jakarta)

This study aims to determine how the impact of fraud detection responsibility to the prevention of audit failure are. The object of this study includes responsibility of fraud detection as an independent variable whose influence the dependent variable (dependent), called the audit failure prevention. Method used in this study is the Correlative relationship research method, alongside the clausal relation as the type of relation between variable studied in this study. These variables were analyzing using the descriptive statistics and regression to test the hypothesis. The data collected obtained through questionnaires and auditors as respondents at Accounting Firm in Jakarta. After obtaining data, results tended to show that responsibility for fraud detection have significant effect on the audit failure prevention.

An Investigation of Auditors’ Responsibility for Fraud Detection in Taiwan

Purpose – Corporate fraud is an issue that has become increasingly prevalent in the western countries and Taiwan as well. As a result, external auditors in these countries continually face widespread mistrust and criticism. It is premised, that this is a manifestation of the audit expectation gap—the gap between the users’ expectations of auditors and their role in detecting corporate fraud, as perhaps evidenced in audited financial statements. This study investigates how auditors and users perceive the auditors’ responsibility for fraud detection in Taiwan. Design/methodology/approach – A total 964 respondents were surveyed regarding their perceptions on fraud, using quantitative analysis approach. Findings – The findings indicate that gap exist on auditors’ responsibility to detect corporate fraud. The auditors strongly disagreed that they were responsible for detecting the material fraud during an audit, compared with the non-auditor groups’ strongly views that they should be responsible. However, there was a general consensus by the surveyed groups that auditor should work to detect fraud that materially affects the true and fair view of financial statement, or for fraud detecting only when the audit was specifically designed for such detection. Originality/value – The findings have important implications for auditors and the users in Taiwan, especially the company’s directors and managers, the financial analysts, investors and banker. This paper fills a void in research in this area and makes an interesting contribution to our understanding of fraud in Taiwan.

Tax Professionals' Responsibility for Fraud Detection: The Effects of Engagement Type and Audit Status

SYNOPSIS Despite a traditional advocacy role, tax professionals face growing pressure to help manage the tax fraud problem. However, the authoritative tax literature lacks explicit guidance in the area, motivating questions about the extent tax professionals perceive fraud detection responsibility. This study evaluates 236 tax professionals' perceived responsibility for tax fraud detection, and the extent that tax engagement type (planning versus compliance) and audit client status (audit client versus not an audit client) affect responsibility. We also use the triangle model of responsibility to test the extent that task clarity, professional obligation, and personal control mediate the effects of engagement type and audit client status on detection responsibility. The results indicate moderate and varied perceived detection responsibility among the participants. We also find that reported detection responsibility varies across tax engagement type and audit client status. As expected, tax professionals report higher detection responsibility in a tax compliance engagement and when the tax client is also an audit client. Subsequent path analysis results show that the triangle model components are positively related to detection responsibility, and that professional obligation and personal control mediate the effects of engagement type and audit client status on detection responsibility.

An empirical investigation of the audit expectations gap in Iran

PurposeThis paper investigates whether an audit expectation gap exists among independent auditors and users of financial statements in Iran.Design/methodology/approachThe study uses a survey instrument to identify the audit expectation gap in Iran. The research method is similar to that adopted by Schelluch, Best et al., Fadzly and Ahmad and Dixon et al.FindingsAudit expectation gaps are found to exist in the areas of auditor responsibility for fraud detection, soundness of the internal controls, and preparation of financial statements. Results indicate no significant difference between users and independent auditors regarding the reliability and utility of audited financial statements. The insignificant results in terms of audit function could be attributed to the culture of trust between auditors and stakeholders in Iran.Research limitations/implicationsDespite normal precautionary steps to increase the response rate, non‐response bias may affect the findings. Another limitation of the study is the different economic and cultural conditions of Iran compared to other countries. Therefore, caution should be used in generalizing the findings to other countries.Practical implicationsThe findings will help to reduce the expectation gaps through improvement in auditor‐user communication in the audit reports as well as educating users on the nature and functions of audits.Originality/valueThe paper extends previous studies on audit expectation gap in a different economic and cultural context, i.e. Iran.

Illuminating the Limits of Auditor Accountability Through a Historical Review of Internal Control Evaluation

Messner (2009) and Roberts (2009) argue that there are limits of accountability and transparency for accountants. We study the 20th-century development of independent auditors’ evaluation of internal controls as a U.S. example of attempted limits on auditors’ fraud detection responsibilities. While internal controls provide market value, their evaluation during an audit has value largely to auditors themselves, who shift some of the costs of the audit and much of the responsibility for fraud detection to management. A content analysis of the Montgomery’s Auditing series from 1912 to 1998 demonstrates that the percent of text devoted to both internal control techniques and their evaluation was a positive function of time, while the attention given to fraud detection techniques moved in the opposite direction. Our data do not support the literature that explains internal controls evaluation by auditors as an efficiency measure or reaction to competitive price pressures.

One Hundred Years of Disappointed Expectations: A Quantitative Content Analysis of the Auditor's Responsibility to Discover Fraud Traced Through Montgomery's Auditing, 1912-1998

We use the authoritative Montgomery’s Auditing reference series from 1912 to 1998 as a proxy for the U.S. auditing profession’s stance towards fraud detection as an audit goal and its attention to the implementation of this goal. A quantitative content analysis of the editions finds that the amount of text expressing a position on the auditor’s fraud detection responsibility, whether affirmative, negative, or ambivalent, was very high in the early 20th century, low from 1916-1975, and high in the last decades. In contrast, text explaining how to detect fraud lagged the three positions variables (affirmation, denial, ambivalence). How-to text was voluminous until mid-century, plummeted after 1949, and stayed low thereafter despite the appearance of new standards acknowledging fraud detection as a goal and despite the series’ stated support of the new standards.

Impact on pre-and post-sarbanes oxley users’ perceptions by incorporating the auditor’s fraud detection responsibility into the auditor’s internal control report

The Department of the Treasury’s Advisory Committee on the Auditing Profession ( Advisory Committee, 2008) has recommended that the Public Company Accounting Oversight Board (PCAOB) clarify the auditor’s role in detecting fraud in the auditor’s report. The PCAOB replaced Auditing Standard No. 2 (AS2) with Auditing Standard No. 5 (AS5) but did not clarify the auditor’s fraud detection responsibility in the auditor’s report covering internal control and/or the financial statements. The focus of this study is to evaluate (i) whether the PCAOB mandated auditor’s internal control report (ICR) format with a ‘limitations’ paragraph meets users’ expectations, (ii) whether users’ prefer an ICR incorporating auditor’s fraud detection responsibility, and (iii) whether users’ expectations have changed over time. Results based on analyses of data from prior studies indicate that in pre-and post-SOX time frames, an ICR format without a limitations paragraph and clarifying the auditor’s role for fraud detection best met users’ expectations from an audit, consistent with the Advisory Committee’s recommendation. Users’ perceptions of potential auditor liability associated with ICR formats have changed significantly over time. Pre-SOX users perceived reduced auditor liability associated with an ICR that contained a limitations paragraph, but post-SOX users perceive similar potential auditor liability with all ICR formats.

Internal Auditors' Perceptions of the Effectiveness of Red Flags to Detect Fraudulent Financial Reporting

The purpose of this study is to investigate the level of effectiveness of 42 red flags for detecting fraudulent financial reporting as perceived by 82 internal auditors. According to Practice Advisory 1210.A2-2.2: Responsibility for Fraud Detection (IIA, 2004), internal auditors have a responsibility to exercise 'due professional care' ... with respect to fraud detection. The Professional Practices Framework (IIA, 2005) expects internal auditors to deter, detect, investigate and report fraud. While Statement of Auditing Standard (SAS) No. 99 requires external auditors to use red flags in financial statement audits, internal auditors also use them in conducting operational, compliance and financial statement audits. Of the 42 red flags, we found 15 were rated as more effective, 14 were considered effective, and 13 were perceived to be ineffective as indicators that fraud might be present. SAS No. 99 further categorizes these red flags into three groups - opportunities, incentives and pressures, and attitudes and rationalizations. The results also show that internal auditors consistently rated red flags categorized as opportunity and attitudes and rationalizations as more effective in detecting fraudulent financial reporting activity than red flags labeled incentives and pressures.

An exploratory study of auditors’ responsibility for fraud detection in Barbados

PurposeRecently, fraud has been brought to the forefront with the scandals of Enron and Worldcom. Fraudulent financial reporting and misappropriation of assets served to undermine investors’ confidence in audited financial statements. This study investigates how auditors and users perceive the auditors’ responsibility for uncovering fraud, the nature and extent of fraud in Barbados, and audit procedures utilised in Barbados since Enron.Design/methodology/approachA total of 43 respondents (19 auditors and 24 users) were surveyed regarding their perceptions and experiences on fraud, using qualitative and quantitative approaches.FindingsIndicates that the expectation gap is wide, as auditors felt that the detection of fraud is management's responsibility, while users and management disagreed. Also finds that fraud is not a major issue in Barbados and that companies who have internal auditors, sound internal controls and effective audit committees are better equipped to deal with fraud prevention and detection.Research limitations/implicationsThe sample size is relatively small and it is not intended nor claimed that those interviewed comprise a representative sample.Practical implicationsThis research fills a void in research in this area in a small country like Barbados. These findings have important implications for users of Barbadian accounts, especially investors, auditors and regulators.Originality/valueThis paper fulfils a resource need for academics and practitioners, and makes an interesting contribution to our understanding of fraud in Barbados.

Defrauding the public interest: A critical examination of reengineered audit processes and the likelihood of detecting fraud

In the past few years, most of the major international public accounting firms have reengineered their audit processes to improve the cost effectiveness of completing an audit and to focus on value-added services for clients. The reengineered audit processes generally focus on a client’s business processes and the information systems used by the client to generate financial information. In essence, the new audit approaches deemphasize direct testing of the underlying transactions and account balances. Such an approach emphasizes analytical procedures as the main source of substantive evidence. During this same time period, however, the profession (through the AICPA) explicitly acknowledged the profession’s responsibility for fraud detection. The main premise of this paper is that the increased emphasis on systems assessments is at odds with the profession’s position regarding fraud detection because most material frauds originate at the top levels of the organization, where controls and systems are least prevalent and effective. As such, the profession may be paying lip service to fraud detection, while at the same time changing the audit process in a manner that is less effective at detecting the most common frauds.

Accountant's guide to fraud detection and control

FRAUD-SPECIFIC EXAMINATIONS AND INTERNAL CONTROL. Audit Responsibility for Fraud Detection After Cohen and Treadway. New Perspectives on Fraud. Principles and Standards for Fraud-Specific Examinations. Classifying Fraud for Improved Detection. Internal Control and Fraud-Specific Internal Control. Establishing and Operating an Effective Fraud-Specific Internal Control System: Seven Steps to Internal Control. Computer Fraud 101. Fraud Case Studies. Fraud Case Studies--Solutions. Custodial Fraud. INVESTIGATING FRAUD. Investigating Suspected Fraud. Proactive and Reactive Investigations. PROSECUTING FRAUD. Rules of Evidence, Fraud Discovery, and Prosecution. The Legal Cases in Fraud. Ethical Conduct and Fraud Prevention. Bibliography. Index.

Audit Effectiveness Versus Audit Efficiency: Are The Two in Conflict?

A recent analysis using signal detection theory held that there is an unacceptably high trade‐off between audit effectiveness and audit efficiency when the auditor bears responsibility for fraud detection. This study re‐examined the data sets from two previous studies of fraud detection effectiveness for evidence about the relationship between effectiveness and efficiency. The variables included auditors' prior probabilities concerning fraud, staff level (experience), and the amount and type of audit information examined. While increased sensitivity to fraud was associated with increased effectiveness and some differences in the types of information examined could marginally increase audit costs, the evidence did not support a significant effectiveness—efficiency tradeoff.