2021B02 - Improving auditor’s fraud planning judgements through premortem reasoning (Prof. S. Asare)
The purpose of this project is to evaluate the efficacy of premortem reasoning in fraud planning judgments. Specifically, we examine whether asking auditors to use this reasoning approach will improve their fraud planning effectiveness without compromising audit efficiency.
A premortem is the hypothetical antonym of postmortem. Unlike a postmortem, which occurs after a tragic event has occurred to allow people to get an understanding of why it occurred, a premortem comes at the beginning of a project rather than the end, so that the project can be improved rather than autopsied (Klein 2007). In premortem reasoning, project team members are asked to assume that the “patient” has died and then are asked to focus on what did go wrong (Mitchell, Russo and Pennington 1989). The team members’ task is to generate plausible reasons for the project’s failure (Klein 2007; Mitchell et al. 1989). Research has shown that this mode of reasoning is very useful in identifying problems early on and helps sensitize team members to pick up early signs of trouble once the project gets underway (Klein 2007).
Auditors have difficulties planning an audit engagement to detect their client’s fraudulent financial reporting (Asare and Wright 2004; Wilks and Zimbelman 2004; Hammersley 2011; Asare, Wright and Zimbelman 2015). At the same time, there is an emerging consensus across jurisdictions that auditors can and should do more in terms of detecting material fraudulent financial reporting (fraud) to narrow the gap between society’s expectation and what auditors can and must deliver (e.g., Ottow 2020; Brydon 2019; NBA 2018). Considering the renewed pressure on auditors to do more in terms of fraud, continued concerns about managers’ incentives to commit fraud, the high cost of fraud and the low rate of fraud detection by auditors, additional studies are necessary to find interventions that can improve auditors’ fraud planning effectiveness without compromising audit efficiency.
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