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    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 
    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.


    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.

    fraud; risk assessment; hypothesis generation; audit planning.
    Purpose of the Study:

    The PCAOB has expressed concern regarding auditors’ frequent failure to properly adapt their audit plans for fraud risk factors and fraud cues.  Fraud is unique in the audit process in that auditors must plan their audits to address fraud risk, but most auditors have not been on engagements where fraud was discovered, reducing the likelihood that they will assess the risk of fraud effectively from experience.  Much research has been conducted to examine the various aspects of how auditors assess fraud risk and how they react to it.  This paper integrates this research into a qualitative model that shows the relationships between the identified activities of the fraud assessment process and how the related judgments are formed.

    This paper also summarizes auditing research that tests the links in the model, discussing the implications of their findings on these links.  The findings are then related to aspects of the client and situations where certain fraud risk factors may be present and how practitioners should consider these aspects, whether in the process of planning an audit or in training auditors.

    Design/Method/ Approach:

    The paper reviews and discusses a large number of research findings in the fraud assessment literature dating back to the early 1990s, synthesizing the results and discussing potential implications of their findings.


    The model can be summarized as follows:

    • Auditors’ knowledge of fraud is based on their experience, ability, and epistemic motivation (the extent to which they develop rich and accurate understandings of situations).
    • Auditors’ knowledge, combined with relevant risk factors identified for the audit, contributes to their ability to generate possible fraud schemes.
    • The generated schemes allow for the assessment of overall fraud risk, which the auditors then use to modify the audit program to detect fraud that may arise from the identified risks.


    Risk & Risk Management - Including Fraud Risk
    Fraud Risk Assessment, Fraud Risk Models