Improving Experienced Auditors’ Detection of Deception in CEO Narratives

41 Pages Posted: 16 Apr 2017 Last revised: 22 Jun 2017

See all articles by Jessen L. Hobson

Jessen L. Hobson

University of Illinois at Urbana-Champaign

William J. Mayew

Duke University - Fuqua School of Business

Mark E. Peecher

University of Illinois at Urbana-Champaign; University of Illinois College of Law

Mohan Venkatachalam

Duke University - Fuqua School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: May 20, 2017

Abstract

We experimentally study the deception detection capabilities of experienced auditors, using CEO narratives from earnings conference calls as case materials. We randomly assign narratives of fraud and non-fraud companies to auditors as well as the presence versus absence of an instruction explaining that cognitive dissonance in speech is helpful for detecting deception. We predict this instruction will weaken auditors’ learned tendency to overlook fraud cues. We find that auditors’ deception judgments are less accurate for fraud companies than for non-fraud companies, unless they receive this instruction. We also find that instructed auditors more extensively describe red flags for fraud companies and more accurately identify specific sentences in narratives that pertain to underlying frauds. These findings indicate that instructing experienced auditors to be alert for cognitive dissonance in CEO narratives can activate deception detection capabilities.

Keywords: auditors, financial misreporting, deception detection, conference calls

JEL Classification: M41, M42

Suggested Citation

Hobson, Jessen L. and Mayew, William J. and Peecher, Mark E. and Venkatachalam, Mohan, Improving Experienced Auditors’ Detection of Deception in CEO Narratives (May 20, 2017). Available at SSRN: https://ssrn.com/abstract=2951973 or http://dx.doi.org/10.2139/ssrn.2951973

Jessen L. Hobson

University of Illinois at Urbana-Champaign ( email )

4011 Business Instructional Facility
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William J. Mayew

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7781 (Phone)
919-660-7971 (Fax)

HOME PAGE: http://www.fuqua.duke.edu/faculty/alpha/mayew.htm

Mark E. Peecher (Contact Author)

University of Illinois at Urbana-Champaign ( email )

Gies College of Business
1206 South Sixth Street
Champaign, IL 61820
United States
217-333-4542 (Phone)
217-244-0902 (Fax)

University of Illinois College of Law ( email )

504 E. Pennsylvania Avenue
Champaign, IL 61820
United States

Mohan Venkatachalam

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7859 (Phone)
919-660-7971 (Fax)

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