A Review and Model of Auditor Judgments in Fraud-Related Planning Tasks

Abstract

In this paper, I develop a model that describes auditor and fraud risk factor characteristics that I expect to affect auditor performance in fraud-related planning tasks (i.e., fraud hypothesis generation, risk assessment, and audit program modification). I expect that auditor knowledge, especially fraud knowledge, will significantly affect auditor performance in audit program modification tasks through its effects on fraud risk factor identification and hypothesis generation. Further, due to fraud’s rarity, I expect that this knowledge is acquired primarily through indirect experience such as training rather than from direct experience and is enhanced when auditors have better problem solving skills and higher epistemic motivation. This is a significant departure from knowledge acquisition in other audit settings and there is currently no evidence in the literature examining these relationships. I also propose that the diagnosticity of fraud risk factors and specifically, the degree to which they support generation of specific testable fraud hypotheses, affects auditors’ ability to plan effective changes to audit programs. Finally, I review and summarize the extant fraud-related audit planning literature and identify opportunities for future research.

Keywords: Fraud, Risk Assessment, Hypothesis Generation, Audit Planning

JEL Classification: M40, M41, M42