How Do Audit Seniors Respond to Heightened Fraud Risk?

39 Pages Posted: 28 Jul 2008 Last revised: 27 Mar 2011

See all articles by Jacqueline S. Hammersley

Jacqueline S. Hammersley

University of Georgia - J.M. Tull School of Accounting

Karla M. Zehms

University of Wisconsin - Madison - Department of Accounting and Information Systems

Kathryn Kadous

Emory University - Goizueta Business School

Date Written: March 24, 2011

Abstract

This paper describes how audit seniors modify a standard audit program in response to heightened fraud risk when cues allow formation of specific hypotheses about the nature of the fraud. We conduct an experiment in which we manipulate provision of information about an internal control material weakness. We find that when fraud risk is heightened by provision of material weakness information, audit seniors’ programs are of lower quality. This occurs because these auditors tend to propose audit program modifications that are not effective in detecting the fraud, resulting in programs that are less efficient. We also investigate determinants of higher quality audit programs, finding that program quality increases as auditors identify more risk factors focused on the specific fraud. These results suggest that identifying risk factors focused on the fraud area is critical to the development of high quality audit plans, and thus to fraud detection.

Keywords: Audit planning, Fraud detection, Fraud risk factors, Audit seniors, Risk assessments

JEL Classification: M49, M41, M43, G34, G38, C91

Suggested Citation

Hammersley, Jacqueline S. and Zehms, Karla M. and Kadous, Kathryn, How Do Audit Seniors Respond to Heightened Fraud Risk? (March 24, 2011). Available at SSRN: https://ssrn.com/abstract=1183172 or http://dx.doi.org/10.2139/ssrn.1183172

Jacqueline S. Hammersley (Contact Author)

University of Georgia - J.M. Tull School of Accounting ( email )

Athens, GA 30602
United States

Karla M. Zehms

University of Wisconsin - Madison - Department of Accounting and Information Systems ( email )

School of Business
975 University Avenue
Madison, WI 53706
United States
608-234-1052 (Phone)
608-265-5031 (Fax)

Kathryn Kadous

Emory University - Goizueta Business School ( email )

1300 Clifton Road
Atlanta, GA 30322-2722
United States
404-727-4967 (Phone)

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