Auditing Section Research Summaries Space

A Database of Auditing Research - Building Bridges with Practice

This is a public Custom Hive  public

research summary

    An Examination of the Effect of Inquiry and Auditor Type on...
    research summary posted October 31, 2013 by Jennifer M Mueller-Phillips, tagged 06.0 Risk and Risk Management, Including Fraud Risk, 06.01 Fraud Risk Assessment 
    125 Views
    Title:
    An Examination of the Effect of Inquiry and Auditor Type on Reporting Intentions for Fraud
    Practical Implications:

    This study implies that there could be a significant relationship between inquiries performed by internal and external auditors and the auditor’s effectiveness in preventing and detecting fraud.  However, because of the many controlled factors in this experiment would not exist in a real world scenario, further research is necessary to assess the validity of these implications. If found to be effective, these inquiries could become a low cost audit tool to identify fraud.

    For more information on this study, please contact Steven E. Kaplan.
     

    Citation:

    Kaplan, S.E., K. Pope, and J.A. Samuels. 2011. An Examination of the Effect of Inquiry and Auditor Type on Reporting Intentions for Fraud. Auditing: A Journal of Practice and Theory. 30 (4): 29-49.

    Keywords:
    Auditor inquiry; reporting intentions; misappropriations of assets; fraudulent financial reporting.
    Purpose of the Study:

    Internal controls are presumably implemented to prevent and detect fraud of all forms. Since internal controls can be very costly and fraud is very difficult to detect and prevent, however, the internal controls of a company tend to be incomplete. Alternatively, evidence shows that the most common form of initial fraud detection comes from company employees. This study analyzes the relationship between auditors and employees and how that relationship can influence the employee’s intentions to report fraud to auditors. The study also examines the effect of different types of fraudulent acts such as, misappropriation of assets and fraudulent financial reporting, on the employee’s reporting intentions.  Specifically, this study aims to develop an understanding of the actions that auditors could take to strengthen an employee’s willingness to report fraud.

    Design/Method/ Approach:

    This study used an experimental approach that entailed providing a hypothetical situation to evening M.B.A. students from a major metropolitan university and analyzing the participant’s responses to issues described in the scenario. Participants were provided with background information of the hypothetical firm as well as with information about a supervisor engaging in fraud. Evidence was collected prior to November 2011. 

    Findings:
    • The term, reporting intention, means one’s likelihood of reporting fraud to an auditor for the purposes of this study. The study found three issues related to reporting intentions among employees who are aware of fraud.
    • First, reporting intentions to an inquiring auditor are much stronger than to a noninquiring auditor.  This evidence implies that auditors can better satisfy their oversight responsibilities by engaging in fraud inquiries with company personnel.
    • Second, reporting intentions of the employee are much higher if reporting to an internal auditor rather than an external auditor.  This evidence implies that employees prefer to use internal channels rather than external ones to report any wrongdoing in the company.
    • Third, the study found that the type of fraud discovered had no effect on either, reporting intentions, inquiry on fraud reporting, or auditor type. This suggests that the aforementioned findings are not contingent on whether the fraud was a misappropriation of earnings or fraudulent financial reporting. 
       
    Category:
    Risk & Risk Management - Including Fraud Risk
    Sub-category:
    Fraud Risk Assessment