2017B04 - Improving audit quality by enhancing auditor’s detection of markers of management deception (Prof. Peecher)

What?

Based on two experiments, this study explores the effectiveness of using a (negative affect) instruction to improve auditor fraud detection and skepticism. Given the importance of auditor interview of management during field work (e.g., the ISA 240 fraud enquiry) and resulting narratives in the audit process, this intervention (i.e., instruction) may help auditors overcome their experientially learned avoidance of false positives.

Why?

Auditors’ knowledge, skills, and experience of repeatedly interacting with managers gives them the rare ability to detect (client) deception. Although they have a learned ability to detect deception, they need a prompt to use those abilities – because the ability is subconsciously suppressed due to learned disincentives (e.g., over time, auditors experientially learn that there are few rewards and numerous costs to undertake skeptical actions). In other words, auditors can detect deception, but they subconsciously avoid it (the “illusion of objectivity”).

Knowledge Dissemination

2019 FAR International Conference Summary - Does listening to earnings calls affect assessed misstatement risk or alter audit plans?

Literature Review: Deception Detection in Auditing and Auditors’ Assessment of Risk of Material Misstatement Due to Fraud

Key take-aways online Masterclass on 4 December 2020 by Mark Peecher on 'Assessing and addressing fraud risk based on earnings calls'

Summary online Masterclass on Assessing and addressing fraud risk based on earnings calls"

Video Masterclass Mark Peecher on "Assessing and addressing fraud risk based on earnings calls"

Podcast FARview #12 with Mark Peecher