Decomposition of Fraud Risk Assessments and Auditors' Sensitivity to Fraud Cues

Posted: 5 May 2004

See all articles by T. Jeffrey Wilks

T. Jeffrey Wilks

Brigham Young University

Mark F. Zimbelman

Brigham Young University

Multiple version iconThere are 2 versions of this paper

Abstract

Practitioners and regulators are concerned that when auditors perceive management's attitude or character as indicative of low fraud risk, they are not sufficiently sensitive to high levels of incentive or opportunity risks in their overall fraud risk assessments. In this study, we examine whether a fraud-triangle decomposition of fraud risk assessments (i.e., separately assessing attitude, opportunity, and incentive risks prior to assessing overall fraud risk) increases auditors' sensitivity to opportunity and incentive cues when perceptions of management's attitude suggest low fraud risk. In an experiment with 52 practicing audit managers, we find that auditors who decompose fraud risk assessments are more sensitive to opportunity and incentive cues when making their overall assessments than auditors who simply make an overall fraud risk assessment. However, this increased sensitivity to opportunity and incentive cues appears to happen only when those cues suggest low fraud risk. When opportunity and incentive cues suggest high fraud risk, auditors are equally sensitive to those cues whether they use a decomposition or a holistic approach. We discuss and examine potential explanations for this finding.

Keywords: Attribution, decomposition, fraud, risk assessment

JEL Classification: M41, M49, D80, D83

Suggested Citation

Wilks, Thomas Jeffrey and Zimbelman, Mark F., Decomposition of Fraud Risk Assessments and Auditors' Sensitivity to Fraud Cues. Contemporary Accounting Research, Vol. 21, No. 3, Fall 2004. Available at SSRN: https://ssrn.com/abstract=540522

Thomas Jeffrey Wilks (Contact Author)

Brigham Young University ( email )

School of Accountancy
526 Tanner Building
Provo, UT 84602 84602
United States
801-422-3930 (Phone)
801-422-0621 (Fax)

HOME PAGE: http://marriottschool.byu.edu/directory/details?id=5337

Mark F. Zimbelman

Brigham Young University ( email )

Marriott School of Management 540 N Eldon Tanner Building
Provo, UT 84602
United States
801-422-1227 (Phone)

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