The Differences In Perceived Level Of Fraud-Detecting Effectiveness Of SAS No. 99 Red Flags Between External And Internal Auditors

The purpose of this study is to examine the differences and the causes for the differences between external and internal auditors regarding the perceived levels of fraud detection of the 42 red flags found in Statement of Auditing Standard (SAS) No. 99.  SAS No. 99 requires the 42 red flags to be used in financial statement audits in order to detect fraudulent financial reporting activity.  No differences were found between external and internal auditors with respect to overall perceptions.  However, 17 of the 42 red flags had significant differences regarding the effectiveness of red flags in the detection of fraud.  For the external auditors, the extent of use and exposure to red flags were significant predictors regarding perceived effectiveness.  For internal auditors, perceived fraud-detecting effectiveness was a function of one’s internal and total audit experience.  Surprisingly, gender differences occurred with both external and internal auditors with females rating the red flag effectiveness consistently higher than male auditors.  With the exception of two red flags, external auditors displayed a higher degree of consensus regarding the effectiveness rating of each red flag than internal auditors.  When asked to identify the more effective red flags based on the SAS No. 99 categories, both groups of auditors perceived the attitude/rationalization red flag category as the most effective red flags.

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Professional Demographic Factors That Influence Iranian Auditors Perceptions Of The Fraud-Detecting Effectiveness Of Red Flags

International Business & Economics Research Journal (IBER) ◽

10.19030/iber.v9i1.510 ◽

2010 ◽

Vol 9 (1) ◽

Author(s):

Weifang Yang ◽

Glen D. Moyes ◽

Hamed Hamedian ◽

Azar Rahdarian

Keyword(s):

Financial Reporting ◽

Demographic Factors ◽

Red Flags ◽

Fraudulent Financial Reporting ◽

Internal Auditors ◽

Red Flag ◽

The Relationship

The purpose of this study is to explore the relationship between professional demographic factors concerning external and internal auditors and the perceived level of effectiveness of the Statement of Auditing Standard (SAS) No. 99 red flags in detecting fraudulent financial reporting activities as perceived by external and internal auditors. The six hypotheses are: (1) the type of auditors using red flags to detect fraud, (2) highest degrees received by auditors, (3) areas that auditors majored in at universities, (4) auditors’ accumulated knowledge of red flags, (5) auditors who have or have not used red flags to detect fraud, and (6) auditors whohave or have not received in-house red flag training. The six hypotheses explore how six professional demographic factors may influence the level of fraud-detecting effectiveness of the SAS No. 99 red flags as perceived by 227 external and internal auditors in Iran. The results of this study indicate that all six hypotheses were accepted. In conclusion, the level of fraud-detecting effectiveness of these red flags as perceived by the Iranian auditors may be influenced by the following factors: (1) the type of auditors, (2) the highest degrees received by auditors, (3) areas that auditors majored in at universities, (4) knowledge about red flags accumulated by auditors, (5) auditors whohave or have not previously used red flags to detect fraud, and (6) auditors whohave or have not previously received in-house red flag training.

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Effects Of A Decision Aid For The Assessment Of Fraudulent Financial Reporting: An Application Of SAS No. 82

Journal of Business & Economics Research (JBER) ◽

10.19030/jber.v4i9.2696 ◽

2011 ◽

Vol 4 (9) ◽

Author(s):

Yee-Chy Tseng ◽

Ruey-Dang Chang

Keyword(s):

Risk Factors ◽

Logistic Regression ◽

Financial Reporting ◽

Logistic Model ◽

Decision Aid ◽

Logistic Regression Model ◽

Financial Statement ◽

Font Size ◽

Fraudulent Financial Reporting ◽

Financial Statement Audit

The Statement on Auditing Standards (SAS) No.82, Consideration of Fraud in a Financial Statement Audit, requires the auditor to assess the risk of material misstatement due to a fraud and to consider the assessment in designing appropriate audit procedures to be performed. The SAS No. 82 has thus explicitly made the detection of material fraud the auditor’s responsibility. The purpose of the study is to use the risk factors identified in SAS No. 82 as the foundation to develop a decision aid to help auditors assess the likelihood of fraudulent financial reporting and to empirically test the effects of the decision aid on assessing the likelihood of fraudulent financial reporting. Using a sample of 45 fraud engagements and 206 nonfraud engagements, we developed and tested a logistic regression model that estimates the likelihood of fraudulent financial reporting. We found that the logistic model (proxied as a decision aid in the study) outperforms the practicing auditors in assessing risk for fraud and nonfraud cases.

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Internal Auditors' Perceptions of the Effectiveness of Red Flags to Detect Fraudulent Financial Reporting

SSRN Electronic Journal ◽

10.2139/ssrn.961457 ◽

2006 ◽

Cited By ~ 1

Author(s):

Glen D. Moyes ◽

Ping Lin ◽

Raymond M. Landry ◽

Handan Vicdan

Keyword(s):

Financial Reporting ◽

Red Flags ◽

Fraudulent Financial Reporting ◽

Internal Auditors

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The Impact of Internal Audit Function Quality and Contribution on Audit Delay

Auditing A Journal of Practice & Theory ◽

10.2308/ajpt-50848 ◽

2014 ◽

Vol 34 (1) ◽

pp. 25-58 ◽

Cited By ~ 47

Author(s):

Mina Pizzini ◽

Shu Lin ◽

Douglas E. Ziegenfuss

Keyword(s):

Financial Reporting ◽

Internal Control ◽

House Of Representatives ◽

Internal Audit ◽

Financial Statement ◽

Internal Auditors ◽

External Auditors ◽

Sarbanes Oxley ◽

The Impact ◽

Relevant Work

SUMMARY The number of days required to complete financial statement audits (i.e., audit delay) increased significantly with the implementation of Section 404 of the Sarbanes-Oxley Act (SOX, U.S. House of Representatives 2002). As firms' in-house experts on internal control, Internal Audit Functions (IAFs) can substantially affect financial reporting processes and, thus, audit delay. Internal auditors can help management maintain strong internal controls and assist external auditors with financial statement audits. Accordingly, we investigate whether IAF quality and the IAF's contribution to financial statement audits affect audit delay in a sample of 292 firm-year observations drawn from the pre-SOX 404 period. Using survey data from the Institute of Internal Auditors (IIA), we develop a comprehensive proxy for IAF quality; we measure different aspects of IAF quality (e.g., competence, objectivity, fieldwork rigor); and we measure the nature of the IAF's contribution to financial statement audits (independently performed work and direct assistance). Results indicate audit delay is decreasing in IAF quality, and this decrease is driven by IAF competence and fieldwork quality. Delay is four days shorter when IAFs contribute to external audits by independently performing relevant work. High-quality IAFs contribute to financial statement audits by independently performing relevant work, while low-quality IAFs provide direct assistance.

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Internal Auditors' Fraud Judgments: The Benefits of Brainstorming in Groups

Auditing A Journal of Practice & Theory ◽

10.2308/ajpt-10054 ◽

2011 ◽

Vol 30 (3) ◽

pp. 211-224 ◽

Cited By ~ 9

Author(s):

Tina D. Carpenter ◽

Jane L. Reimers ◽

Phillip Z. Fretwell

Keyword(s):

Financial Reporting ◽

Group Interaction ◽

Data Availability ◽

Fraudulent Financial Reporting ◽

Internal Auditors ◽

External Auditors ◽

Fraud Risk ◽

Nominal Groups ◽

Psychology Theory ◽

Group Brainstorming

SUMMARY Recent fraud scandals have encouraged actions by standard-setters to improve both corporate governance among firms and auditors' fraud investigations. Internal auditors are now viewed as playing an important role in reducing fraudulent financial reporting. Although brainstorming is not required by internal auditors, researchers and leaders in the profession suggest that it may be helpful to internal auditors in assessing and identifying risks. In this study, we investigate whether the group interaction associated with brainstorming is necessary to reap the benefits of brainstorming for internal auditors' fraud judgments. Guided by psychology theory on cognitive load, we also examine whether this group interaction can reduce a response mode bias that auditors have exhibited when assessing risk. Consistent with prior research on external auditors, we find that internal auditors who brainstorm in groups identify fewer fraud risks (i.e., quantity) than nominal groups of individual auditors who brainstorm alone, but brainstorming groups identify more quality fraud risks than nominal groups. Further, we find that auditors who assess risk qualitatively generally provide higher fraud risk assessments than those auditors who assess risk quantitatively. However, after group brainstorming this bias is reduced. Data Availability: Contact the authors.

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Fraud of Financial Statements at Listed Enterprises on Ho Chi Minh City Securities Department

VNU Journal of Science Economics and Business ◽

10.25073/2588-1108/vnueab.4129 ◽

2018 ◽

Vol 34 (4) ◽

Author(s):

Nguyen Tien Hung ◽

Huynh Van Sau

Keyword(s):

New York ◽

Financial Reporting ◽

Financial Statements ◽

Financial Statement ◽

Viet Nam ◽

Fraud Triangle ◽

Fraudulent Financial Reporting ◽

Financial Statement Fraud ◽

Corporate Fraud ◽

Two Factors

The study was conducted to identify fraudulent financial statements at listed companies (DNNY) on the Ho Chi Minh City Stock Exchange (HOSE) through the Triangular Fraud Platform This is a test of VSA 240. At the same time, the conformity assessment of this model in the Vietnamese market. The results show that the model is based on two factors: the ratio of sales to total assets and return on assets; an Opportunity Factor (Education Level); and two factors Attitude (change of independent auditors and opinion of independent auditors). This model is capable of accurately forecasting more than 78% of surveyed sample businesses and nearly 72% forecasts for non-research firms. Keywords Triangle fraud, financial fraud report, VSA 240 References Nguyễn Tiến Hùng & Võ Hồng Đức (2017), “Nhận diện gian lận báo cáo tài chính: Bằng chứng thực nghiệm tại các doanh nghiệp niêm yết ở Việt Nam”, Tạp chí Công Nghệ Ngân Hàng, số 132 (5), tr. 58-72.[2]. Hà Thị Thúy Vân (2016), “Thủ thuật gian lận trong lập báo cáo tài chính của các công ty niêm yết”, Tạp chí tài chính, kỳ 1, tháng 4/2016 (630). [3]. Cressey, D. R. (1953). Other people's money; a study of the social psychology of embezzlement. New York, NY, US: Free Press.[4]. Bộ Tài Chính Việt Nam, (2012). Chuẩn mực kiểm toán Việt Nam số 240 – Trách nhiệm của kiểm toán viên đối với gian lận trong kiểm toán báo cáo tài chính. [5]. Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of financial economics, 3(4), 305-360.[6]. Võ Hồng Đức & Phan Bùi Gia Thủy (2014), Quản trị công ty: Lý thuyết và cơ chế kiểm soát, Ấn bản lần 1, Tp.HCM, Nxb Thanh Niên.[7]. Freeman, R. E. (1984). Strategic management: A stakeholder approach. Boston: Pitman independence on corporate fraud. Managerial Finance 26 (11): 55-67.[9]. Skousen, C. J., Smith, K. R., & Wright, C. J. (2009). Detecting and predicting financial statement fraud: The effectiveness of the fraud triangle and SAS No. 99. Available at SSRN 1295494.[10]. Lou, Y. I., & Wang, M. L. (2011). Fraud risk factor of the fraud triangle assessing the likelihood of fraudulent financial reporting. Journal of Business and Economics Research (JBER), 7(2).[11]. Perols, J. L., & Lougee, B. A. (2011). The relation between earnings management and financial statement fraud. Advances in Accounting, 27(1), 39-53.[12]. Trần Thị Giang Tân, Nguyễn Trí Tri, Đinh Ngọc Tú, Hoàng Trọng Hiệp và Nguyễn Đinh Hoàng Uyên (2014), “Đánh giá rủi ro gian lận báo cáo tài chính của các công ty niêm yết tại Việt Nam”, Tạp chí Phát triển kinh tế, số 26 (1) tr.74-94.[13]. Kirkos, E., Spathis, C., & Manolopoulos, Y. (2007). Data mining techniques for the detection of fraudulent financial statements. Expert Systems with Applications, 32(4), 995-1003.[14]. Amara, I., Amar, A. B., & Jarboui, A. (2013). Detection of Fraud in Financial Statements: French Companies as a Case Study. International Journal of Academic Research in Accounting, Finance and Management Sciences, 3(3), 40-51.[15]. Beasley, M. S. (1996). An empirical analysis of the relation between the board of director composition and financial statement fraud. Accounting Review, 443-465.[16]. Beneish, M. D. (1999). The detection of earnings manipulation. Financial Analysts Journal, 55(5), 24-36.[17]. Persons, O. S. (1995). Using financial statement data to identify factors associated with fraudulent financial reporting. Journal of Applied Business Research (JABR), 11(3), 38-46.[18]. Summers, S. L., & Sweeney, J. T. (1998). Fraudulently misstated financial statements and insider trading: An empirical analysis. Accounting Review, 131-146.[19]. Dechow, P. M., Sloan, R. G., & Sweeney, A. P. (1996). Causes and consequences of earnings manipulation: An analysis of firms subject to enforcement actions by the SEC. Contemporary accounting research, 13(1), 1-36.[20]. Loebbecke, J. K., Eining, M. M., & Willingham, J. J. (1989). Auditors experience with material irregularities – Frequency, nature, and detectability. Auditing – A journal of practice and Theory, 9(1), 1-28. [21]. Abbott, L. J., Park, Y., & Parker, S. (2000). The effects of audit committee activity and independence on corporate fraud. Managerial Finance, 26(11), 55-68.[22]. Farber, D. B. (2005). Restoring trust after fraud: Does corporate governance matter?. The Accounting Review, 80(2), 539-561.[23]. Stice, J. D. (1991). Using financial and market information to identify pre-engagement factors associated with lawsuits against auditors. Accounting Review, 516-533.[24]. Beasley, M. S., Carcello, J. V., & Hermanson, D. R. (1999). COSO's new fraud study: What it means for CPAs. Journal of Accountancy, 187(5), 12.[25]. Neter, J., Wasserman, W., & Kutner, M. H. (1990). Applied statistical models.Richard D. Irwin, Inc., Burr Ridge, IL.[26]. Gujarati, D. N. (2009). Basic econometrics. Tata McGraw-Hill Education.[27]. McFadden, D. (1974). Conditional Logit Analysis of Qualita-tive Choice Behavior," in Frontiers in Econometrics, P. Zarenm-bka, ed. New York: Academic Press, 105-42.(1989). A Method of Simulated Moments for Estimation of Discrete Response Models Without Numerical Integration," Econometrica, 54(3), 1027-1058.[28]. DA Cohen, ADey, TZ Lys. (2008), “Accrual-Based Earnings Management in the Pre-and Post-Sarbanes-Oxley Periods”. The accounting review.

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An Analysis of the Demand for Reporting on Internal Control

Accounting Horizons ◽

10.2308/acch.2000.14.3.325 ◽

2000 ◽

Vol 14 (3) ◽

pp. 325-341 ◽

Cited By ~ 58

Author(s):

Heather M. Hermanson

Keyword(s):

Decision Making ◽

Financial Reporting ◽

Internal Control ◽

Operational Definition ◽

Financial Statement ◽

Individual Investors ◽

Internal Auditors ◽

Additional Information ◽

User Groups ◽

Definition Of

The purpose of this study is to analyze the demand for reporting on internal control. Nine financial statement user groups were identified and surveyed to determine whether they agree that: (1) management reports on internal control (MRIC) are useful, (2) MRICs influence decisions, and (3) financial reporting is improved by adding MRICs. In addition, the paper examined whether responses varied based on: (1) the definition of internal control used (manipulated as broad, operational definition vs. narrow, financial-reporting definition) and (2) user group. The results indicate that financial statement users agree that internal controls are important. Respondents agreed that voluntary MRICs improved controls and provided additional information for decision making. Respondents also agreed that mandatory MRICs improved controls, but did not agree about their value for decision making. Using a broad definition of controls, respondents strongly agreed that MRICs improved controls and provided a better indicator of a company's long-term viability. Executive respondents were less likely to agree about the value of MRICs than individual investors and internal auditors.

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Contemporary issues in financial reporting, auditing and corporate governance

10.32890/9789670474564 ◽

2013 ◽

Author(s):

Noor Afza Amran

Keyword(s):

Corporate Governance ◽

Financial Reporting ◽

Ethnic Diversity ◽

Good Governance ◽

Internal Auditors ◽

Corporate Managers ◽

Auditor Choice ◽

External Auditors ◽

Expectation Gap ◽

Corporate Social

Contemporary Issues in Financial Reporting, Auditing and Corporate Governance offers theoretical and empirical background on three fundamental areas of accounting, namely financial reporting, auditing and corporate governance.This book is written in a clear and reader-friendly manner to create readers interest in the central issues of discussion. The uniqueness of this book is in its extensive coverage of national and internationally-oriented issues of financial reporting, auditing and corporate governance. This book is ideal for accounting and business related courses at upper undergraduate and post-graduate levels. With its broad coverage, the book should also be of interest to academicians, professionals, corporate managers, regulatory bodies and researchers.The articles written in this book are: Corporate Social Responsibility and Post-Crisis StrategyEmployee Stock Options Popularity of Financial Ratios in the Annual ReportsThe Relationship between Pension Funds and Dividend PayoutDoes Audit Firm Merger Add Value to Its Clients? Co-operation between Internal and External Auditors: From the Perspective of Internal Auditors in Malaysian Local Authorities Auditor Choice: Events and TheoriesThe Global Audit Expectation Gap: Within and between Muslim CountriesOwnership Holdings: Selected Malaysian Family Businesses Ethnic Diversity in Malaysian Initial Public OfferingsCEO Succession in Malaysian PLCs: Does Firm Characteristic Make a Difference?A Framework of Good Governance: Lessons for the Inland Revenue Board Malaysia.

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Pengaruh Kecurangan Laporan Keuangan terhadap Nilai Perusahaan: Ditinjau dari Perspektif Fraud Pentagon (Kasus di Indonesia)

Jurnal Ilmiah Universitas Batanghari Jambi ◽

10.33087/jiubj.v20i1.828 ◽

2020 ◽

Vol 20 (1) ◽

pp. 121

Author(s):

Desi Elviani ◽

Syahril Ali ◽

Rahmat Kurniawan

Keyword(s):

Financial Reporting ◽

Firm Value ◽

Stock Exchange ◽

Sample Selection ◽

Financial Statement ◽

Fraudulent Financial Reporting ◽

Financial Statement Fraud ◽

Company Value ◽

Negative Effect ◽

Five Elements

This study aims to examine how the influence of fraudulent financial reporting on firm value is viewed from the perspective of a pentagon fraud with a sample of 71 companies from the infrastructure, utilities and transportation sectors in the Indonesia Stock Exchange in 2014-2018. The sample selection used was purposive sampling method. Company value is measured by price book value, financial statement fraud is measured by fraud-score models. There are two variables that have a positive and significant influence, namely the opportunity and arrogance variables, the two variables present two of the five elements of pentagon fraud, where as the three variables, pressure, rasionalization, competence, do not affect the fraudulent financial reporting. The results of this study have proven that fraudulent financial reporting has a negative effect on firm value.

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An Examination of the Effect of Inquiry and Auditor Type on Reporting Intentions for Fraud

Auditing A Journal of Practice & Theory ◽

10.2308/ajpt-10174 ◽

2011 ◽

Vol 30 (4) ◽

pp. 29-49 ◽

Cited By ~ 27

Author(s):

Steven E. Kaplan ◽

Kelly Richmond Pope ◽

Janet A. Samuels

Keyword(s):

Experimental Study ◽

Financial Reporting ◽

Fraudulent Financial Reporting ◽

Hypothetical Situation ◽

Internal Auditor ◽

External Auditors ◽

Additional Information ◽

Different Types ◽

External Auditor ◽

Reporting Intentions

SUMMARY Employee tips are the most common form of initial fraud detection, suggesting that employees frequently are aware of fraud before others professionally charged to detect fraud, such as internal and external auditors. Given the seriousness of fraud to a range of stakeholders, it is important to increase our understanding of the willingness of employees who learn about fraud to report this information to auditors. We conduct an experimental study describing a hypothetical situation involving an employee's discovery of a fraudulent act by his supervisor. Given the hypothetical situation, participants, assuming they were facing the situation, provide their intentions to report fraud to an auditor. The study examines several issues related to participants' intentions to report fraud to auditors. First, we predict and find that participants' reporting intentions to an inquiring auditor are stronger than their reporting intentions to a noninquiring auditor. Second, we predict and find that participants' reporting intentions to an internal auditor are stronger than their reporting intentions to an external auditor. Third, based on contrast coding results, we predict and find that inquiry and auditor type interact to influence reporting intentions. Fourth, we find that reporting intentions for two different types of fraudulent acts, misappropriation of assets and fraudulent financial reporting, do not significantly differ, nor does the type of fraudulent act interact with whether the auditor engages in inquiry or the report recipient (e.g., internal versus external auditor). Supplemental analysis provides additional information on the extent to which beliefs differ between the two types of fraudulent acts.

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