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  • Jennifer M Mueller-Phillips
    A Review and Model of Auditor Judgments in Fraud-Related...
    research summary posted October 22, 2013 by Jennifer M Mueller-Phillips, tagged 06.0 Risk and Risk Management, Including Fraud Risk, 06.01 Fraud Risk Assessment, 06.02 Fraud Risk Models 
    Title:
    A Review and Model of Auditor Judgments in Fraud-Related Planning Tasks
    Practical Implications:

    The primary implication of the model based on the literature is that simply because auditors may assess fraud risk at a higher level due to the presence of risk factors, it does not necessarily mean that planned audit procedures designed to address these risks will be effective.  Although being aware of fraud risk is necessary to respond appropriately, being aware of only general risk factors makes it difficult for auditors to formulate possible fraud schemes that a client may perpetrate.  As a result, audit plans designed to respond to general fraud risks tend to increase the extent of testing, but do not alter the nature of the testing in a way that would be more likely to catch fraud.  If auditors identify specific situational cues and are able to generate a plausible fraud scheme as a result, more effective tests that alter the nature of the procedures can be identified and carried out.  Therefore, knowledge of fraud risks via experience or training, particularly for risks specific to a client or industry, will help to allow generation of plausible fraud schemes and the design of effective tests.

    For more information on this study, please contact Jacqueline Hammersley.
     

    Citation:

    Hammersley, J. S. 2011. A Review and Model of Auditor Judgments in Fraud-Related Planning Tasks. Auditing: A Journal of Practice & Theory 30 (4), 101-128.

  • Jennifer M Mueller-Phillips
    A Risk Model to Opine on Internal Control.
    research summary posted October 19, 2015 by Jennifer M Mueller-Phillips, tagged 06.0 Risk and Risk Management, Including Fraud Risk, 06.02 Fraud Risk Models, 06.05 Assessing Risk of Material Misstatement, 07.0 Internal Control, 07.02 Assessing Material Weaknesses, 07.03 Reporting Material Weaknesses 
    Title:
    A Risk Model to Opine on Internal Control.
    Practical Implications:

    The auditor needs a different model for audits of internal control. The auditor needs to apply two different models in an integrated audit, the original model for the opinion on the financial statements and a different model for the opinion on internal controls.

    The author believes standard setters should sponsor research on an appropriate risk model for audits of internal control. Even before the research is completed, the standards could be enhanced in the following ways:
    • indicate that the original audit risk model is intended for use only in financial statement audits, not internal control audits;
    • write standards that consistently use risk terminology and are clear as to which risk they are discussing; and
    • provide guidance on the use of models in integrated audits.

    Citation:

    Akresh, A. D. 2010. A Risk Model to Opine on Internal Control. Accounting Horizons 24 (1): 65-78.

  • Jennifer M Mueller-Phillips
    Accounting Variables, Deception, and a Bag of Words:...
    research summary posted October 20, 2015 by Jennifer M Mueller-Phillips, tagged 06.0 Risk and Risk Management, Including Fraud Risk, 06.01 Fraud Risk Assessment, 06.02 Fraud Risk Models 
    Title:
    Accounting Variables, Deception, and a Bag of Words: Assessing the Tools of Fraud Detection.
    Practical Implications:

    This paper presents a fraud-detection tool developed based on textual analysis of the MD&A sections in public companies’ annual and quarterly reports. This tool correctly classifies reports into truthful and fraudulent more than 82% of the time. Compared with other fraud-detection approaches documented in prior literature, this tool has the highest predictive power for both annual reports and quarterly reports. Using the tool to analyze a sequence of reports of a company further increases the accuracy of predictions. This paper provides insights for regulators and practitioners in designing fraud-detection tools. As the tool is “trained” using the AAER database, one limitation is the tool may not detect fraudulent reports if the SEC fails to discover certain types of frauds and/or has bias in selecting firms to investigate.     

    Citation:

    Purda, L. and D. Skillicorn. 2015. Accounting Variables, Deception, and a Bag of Words: Assessing the Tools of Fraud Detection. Contemporary Accounting Research 32 (3): 11931223.

  • Jennifer M Mueller-Phillips
    Broadening the Fraud Triangle: Instrumental Climate and...
    research summary posted November 15, 2016 by Jennifer M Mueller-Phillips, tagged 06.0 Risk and Risk Management, Including Fraud Risk, 06.01 Fraud Risk Assessment, 06.02 Fraud Risk Models 
    Title:
    Broadening the Fraud Triangle: Instrumental Climate and Fraud
    Practical Implications:

    This paper incorporates important organizational theory into the fraud literature by reporting the presence of an instrumental climate when fraud is being perpetrated within an organization. Internal auditors and those charged with governance could adapt this climate measure as a red flag for potential fraud. 

    Citation:

    Murphy, P. R. and C. Free. 2016. Broadening the Fraud Triangle: Instrumental Climate and Fraud. Behavioral Research in Accounting 28 (1): 41-56.

  • Jennifer M Mueller-Phillips
    COMMENTARY FROM THE AMERICAN ACCOUNTING ASSOCIATION’S 2011 A...
    research summary posted October 22, 2013 by Jennifer M Mueller-Phillips, tagged 06.0 Risk and Risk Management, Including Fraud Risk, 06.02 Fraud Risk Models, 09.0 Auditor Judgment, 09.10 Prior Dispositions/Biases/Auditor state of mind 
    Title:
    COMMENTARY FROM THE AMERICAN ACCOUNTING ASSOCIATION’S 2011 ANNUAL MEETING PANEL ON EMERGING ISSUES IN FRAUD RESEARCH
    Practical Implications:

    When performing brainstorming sessions as mandated by SAS 99, auditors should brainstorm personality traits that may reveal potential fraudsters. Additionally, firms and academics should work to identify characteristics that provide an indication of which individuals are more likely to commit fraud.

    For more information on this study, please contact Sara Melendy.
     

    Citation:

    Brody, R. G., S. R. Melendy, and F. S. Perri 2012. Commentary from the American Accounting Association’s 2011 annual meeting panel on emerging issues in fraud research. Accounting Horizons 26 (3): 513-531.

  • Jennifer M Mueller-Phillips
    Detecting and Predicting Accounting Irregularities: A...
    research summary posted October 20, 2014 by Jennifer M Mueller-Phillips, tagged 06.0 Risk and Risk Management, Including Fraud Risk, 06.02 Fraud Risk Models, 06.05 Assessing Risk of Material Misstatement 
    Title:
    Detecting and Predicting Accounting Irregularities: A Comparison of Commercial and Academic Risk Measures
    Practical Implications:

    The results of this study should be useful to research practitioners, regulators, investors, auditors (internal and external), managers, boards of directors, and analysts.  Academic researchers who study fraud or aggressive financial reporting should also be interested in understanding which risk measures have the highest statistical power and construct validity.  One clear advantage of the academic risk measures is that, unlike commercially developed risk measures that are proprietary by nature, researchers know all of the inputs to the academic measures.  On the other hand, studies that need an overall estimate of ex ante financial reporting risk or studies with small or limited sample sizes are likely to benefit the most from using comprehensive, commercially developed risk measures like AGR due to its improved statistical power.

     

    For more information on this study, please contact David A. Wood.

    Citation:

    Price III, R. A., N. Y. Sharp, and D. A. Wood. 2011. Detecting and predicting accounting irregularities:  A comparison of commercial and academic risk measures. Accounting Horizons 25 (4): 755-780

  • Jennifer M Mueller-Phillips
    Does Intent Modify Risk-Based Auditing?
    research summary posted July 16, 2015 by Jennifer M Mueller-Phillips, tagged 06.0 Risk and Risk Management, Including Fraud Risk, 06.01 Fraud Risk Assessment, 06.02 Fraud Risk Models 
    Title:
    Does Intent Modify Risk-Based Auditing?
    Practical Implications:

    The findings suggest that such sensitization is not merely a main effect” that shifts the risk-to-resource mapping upward. Rather, human intent appears to exert an interactive effect that flattens the risk-to-resource mapping by changing the cognitive mindset of risk from a magnitude-based calculation. For audit practice, the interaction the authors detect relates to the PCAOB’s efforts to differentiate fraud risks from the more general logic that risks should be evaluated based on magnitudes and likelihoods. The study suggests that people are more comfortable conditioning audit resources on risk magnitudes for unintentional reporting risks than for the same risks arising from human intent.

    Citation:

    Kachelmeier, S. J., Majors, T., & Williamson, M. G. 2014. Does Intent Modify Risk-Based Auditing? Accounting Review 89 (6): 2181-2201.

  • Jennifer M Mueller-Phillips
    Finding Needles in a Haystack: Using Data Analaytics to...
    research summary posted June 26, 2017 by Jennifer M Mueller-Phillips, tagged 06.02 Fraud Risk Models, 08.09 Impact of Technology on Audit Procedures 
    Title:
    Finding Needles in a Haystack: Using Data Analaytics to Improve Fraud Predication
    Practical Implications:

    Data analytics can be used to create fraud prediction models that help auditors improve audit planning decisions. It can also be used to help regulators identify firms for potential fraud investigation. In particular, the SEC is investing resources to develop better fraud risk models and the results of this study could be useful. 

    Citation:

    Perols, Johan L., R. M. Bowen, C. Zimmermann, and B. Samba. 2017. “Finding Needles in a Haystack: Using Data Analytics to Improve Fraud Prediction”. The Accounting Review. 92.2 (2017): 221.

    Home:

    http://commons.aaahq.org/groups/e5075f0eec/summary

  • Jennifer M Mueller-Phillips
    Fraud dynamics and controls in organizations.
    research summary posted September 16, 2015 by Jennifer M Mueller-Phillips, tagged 06.0 Risk and Risk Management, Including Fraud Risk, 06.01 Fraud Risk Assessment, 06.02 Fraud Risk Models, 06.04 Management Integrity 
    Title:
    Fraud dynamics and controls in organizations.
    Practical Implications:

    The findings have important implications for auditors and other individuals responsible for assessing fraud risk and detecting and preventing fraud. First, for certain types of organizations aggregate fraud levels can vary tremendously over time. Furthermore, the effectiveness of mechanisms to prevent and detect fraud can be contingent on the type of organization and related individual susceptibilities to social influence. Therefore, it may be inappropriate for auditors to evaluate fraud prevention and detection mechanisms in a uniform manner. The results suggest that the same fraud prevention and detection mechanisms implemented in a similar manner in two different organizations cannot be expected to be equally effective without considering the average susceptibilities to social influence of the individuals therein.

    Citation:

    Davis, J. S., and H. L. Pesch. 2013. Fraud dynamics and controls in organizations. Accounting, Organizations & Society 38 (6/7): 469-483.

  • Jennifer M Mueller-Phillips
    Insights for Research and Practice: What We Learn about...
    research summary posted March 2, 2015 by Jennifer M Mueller-Phillips, tagged 06.0 Risk and Risk Management, Including Fraud Risk, 06.01 Fraud Risk Assessment, 06.02 Fraud Risk Models 
    Title:
    Insights for Research and Practice: What We Learn about Fraud from Other Disciplines
    Practical Implications:

    While other fraud research syntheses focus primarily on research that has been published in accounting journals, this synthesis surveys academic literature from non-accounting publications related to fraud and financial crimes: (1) to better understand the nature and extent of fraud acts; (2) to share with accounting researchers and practitioners ideas, theories, variables, constructs, and research designs used in other fields that might inform anti-fraud research and actions in accounting; and (3) to highlight opportunities for future research. In this review and synthesis of the literature, the authors move beyond the fraud triangle to consider a broader spectrum of factors that researchers and practitioners may consider in an effort to provide a more complete perspective on fraud and related financial crimes.

    For more information on this study, please contact Gregory M. Trompeter.

    Citation:

    Trompeter, G., T. Carpenter, K. Jones, and R. Riley. 2014. Insights for Research and Practice: What We Learn about Fraud from Other Disciplines. Accounting Horizons 28 (4): 769-804.

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