Expectation Gap and Corporate Fraud: Is Public Opinion Reconcilable with Auditors’ Duties?

37 Pages Posted: 15 Jan 2013

See all articles by Jeffrey R. Cohen

Jeffrey R. Cohen

Boston College - Department of Accounting

Yuan Ding

China Europe International Business School (CEIBS)

Cédric Lesage

JMSB

Hervé Stolowy

HEC Paris - Accounting and Management Control Department

Date Written: January 15, 2013

Abstract

The objective of this paper is to answer the key question of whether auditors’ view of their fraud detection duties is reconcilable with the public’s view. We perform a content analysis of press articles covering 37 U.S. corporate fraud cases discovered during the period 1992-2005. We compare the auditors’ duties (as described by the auditing standards) with the public opinion represented by these press articles. Consistent with Porter (1993), we identify three types of divergence between public expectations and auditing standards: deficient performance (that we label “Type 1”), deficient standards (“Type 2”) and unreasonable expectations (“Type 3”). The Type 1 gap can be reduced by strengthening auditors’ willingness and ability to apply existing auditing standards on fraud detection. The Type 2 gap can be narrowed by improving the existing auditing standards. The Type 3 gap, however, concerns highly subjective criteria beyond the auditors’ usual sphere of control. The results of our analysis confirm that the expectation gap is unlikely to disappear given that the rational auditor is unable or unwilling to assess the subjective components of fraudulent behavior, and that value judgments, as demonstrated in the media, retain their popularity.

Keywords: expectation gap, corporate fraud, management behavior, Fraud-related professional standards

Suggested Citation

Cohen, Jeffrey R. and Ding, Yuan and Lesage, Cédric and Stolowy, Hervé, Expectation Gap and Corporate Fraud: Is Public Opinion Reconcilable with Auditors’ Duties? (January 15, 2013). CAAA Annual Conference 2013. Available at SSRN: https://ssrn.com/abstract=2201023 or http://dx.doi.org/10.2139/ssrn.2201023

Jeffrey R. Cohen

Boston College - Department of Accounting ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States
617-552-3165 (Phone)
617-552-2097 (Fax)

Yuan Ding

China Europe International Business School (CEIBS) ( email )

699, Hongfeng Road
Shanghai 201206, Shanghai 201206
China

Cédric Lesage (Contact Author)

JMSB ( email )

1455 de Maisonneuve Blvd. W.
Montreal, Quebec H3G 1M8
Canada

Hervé Stolowy

HEC Paris - Accounting and Management Control Department ( email )

Jouy-en-Josas Cedex
France
+33 1 39 67 94 42 (Phone)
+33 1 39 67 70 86 (Fax)

HOME PAGE: http://www.hec.fr/stolowy

Register to save articles to
your library

Register

Paper statistics

Downloads
556
rank
47,505
Abstract Views
2,570
PlumX Metrics
!

Under construction: SSRN citations while be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information