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    The Influence of Documentation Specificity and on...
    research summary posted May 7, 2012 by The Auditing Section, last edited May 25, 2012, tagged 06.0 Risk and Risk Management, Including Fraud Risk, 06.01 Fraud Risk Assessment, 06.08 SAS No. 99 Brainstorming – effectiveness, 09.0 Auditor Judgment, 09.02 Documentation Specificity 
    The Influence of Documentation Specificity and on Auditors’ Fraud risk Assessments and Evidence Evaluation Decisions
    Practical Implications:

    This study provides important insights into the fraud assessment process. The most common method of risk assessment is to create summary fraud risk memos. However, the PCAOB recommends that auditors make documentation more specific in their assessments of fraud risk. This study suggests that when auditors receive specific documentation of fraud risks, alone, their fraud related judgments improve. However, the study provides evidence that when a more specific fraud risk memo is prepared and auditors are also reminded about the possibility of fraud (i.e., primed) that assessments of fraud actually decline. This is a significant finding considering that it is common in practice for auditors to be reminded about the possibilities of fraud, as a way to increase auditors’ awareness of fraud risk.


    Hammersley, J.S., E.M. Bamber, and T.D. Carpenter. 2010.  The influence of documentation specificity and priming on auditors’ fraud risk assessments and evidence evaluation decisions.  The Accounting Review 85 (2): 547-571.

    audit documentation; evidence evaluation; fraud risk; priming; Support Theory; auditor judgment
    Purpose of the Study:

    The authors investigate the effect of fraud planning discussions on subsequent fraud risk assessments, issue identification, and collection of additional evidence.  The PCAOB has expressed concern that auditors have a mindset that is too compliance-oriented and insufficiently fraud-oriented, especially during the evidence evaluation stage of an audit.  One suggested method of increasing fraud awareness is to increase documentation around fraud risks in the planning stage of the audit.  This study seeks to increase  nderstanding about the impact of increased fraud awareness in the planning of an audit.  Specifically, this study addresses the following questions:

    • How does the level of specificity of the documentation of the fraud-related discussion prepared in the audit planning stage influence initial fraud risk assessments and subsequent evidence  evaluation?
    • How does reminding an auditor of previously identified fraud risks impact his/her fraud mindset and influence subsequent judgments?

    Much of the research is based on Support Theory, which predicts that a person will evaluate the likelihood of an event by evaluating the support for the underlying components of the events rather than assessing the probability of the event itself.

    Design/Method/ Approach:

    Audit seniors participated in this experiment.  The experiment took place prior to 2008 and was completed over two sessions.  During the first session, participants: read a case with key information regarding a client; listed 3 risks that would be raised at a fraud brainstorming session; watched a short video of the brainstorming session; read a briefing memo that outlined the planning decisions; and assessed preliminary client business risk.

    In the second session, participants: received a summary of findings from completed audit work; listed important fraud risks (in one condition); reviewed and evaluated summary workpapers; and assessed final client business risk. 

    • Auditors who reviewed memos that listed specific fraud risks, initially assessed fraud higher than those that reviewed summary fraud risk memos.
    • Documenting specific risks in the planning stage fraud-risk memo causes auditors to assess fraud risk higher even after evidence evaluation.
    • Auditors who review summary memos, assess fraud risk higher if they are reminded about the possibilities of fraud (i.e., primed), compared to if they are not reminded (i.e., unprimed).  Auditors who review specific memos, assess fraud risk higher if they are not reminded about the possibilities of fraud, compared to if they are reminded.
    • Auditors not reminded about the possibilities of fraud and provided a specific memo will identify more issues than those provided a summary memo. However, there is no difference in the amount of additional evidence each group requests.
    • When provided a summary memo, auditors reminded about the possibilities of fraud identify more issues and request more evidence than auditors not reminded.
    • When provided a specific memo, auditors reminded about the possibilities of fraud identify fewer issues and request less evidence than auditors who are provided the summary memo and are not reminded.
    Risk & Risk Management - Including Fraud Risk, Auditor Judgment
    Fraud Risk Assessment, SAS No. 99 Brainstorming – effectiveness, Documentation Specificity
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