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Professional Paper: Fouten of Fraude (NL-version)
Dr. Luc Quadackers
Professional Papers
01-04-2021
Details
 

Een manager die fraudeert in de jaarrekening zal proberen zijn bedrog te verbergen. Als de accountant de bijbehorende afwijking ontdekt, wat zegt de manager dan om niet als fraudeur te worden bestempeld? Het meest waarschijnlijke scenario is dat de manager de afwijking zal presenteren als een onbewust gemaakte fout. En het is niet onwaarschijnlijk dat de accountant vervolgens akkoord gaat met deze verklaring, met alle gevolgen van dien. Oppassen dus.

Maar hoe krijgt een manager de accountant zover? Het antwoord ligt zo voor de hand, dat dit lange tijd is onderschat: de manager laat het liefst acties achterwege. 

De fout-verklaring van een manager is plausibeler als een transactie helemaal niet is geboekt (een omissie), ten opzichte van het verkeerd boeken van een transactie (een actie). De accountant zal een omissie dus eerder als een onopzettelijke fout zien dan als fraude.

‘Maar fouten komen toch veel vaker voor dan daadwerkelijke fraude?’, zal menigeen beweren. ‘Dat is toch een bekend statistisch gegeven?’ 

Recent onderzoek van Erin Hamilton en Jason Smith stelt juist deze aanname ter discussie. Zij onderzoeken of omissies van transacties een fraudemethode vormen die succesvol onder de radar van de accountant is gebleven.

Authors

Dr. Luc Quadackers
Professional Paper: Error or Fraud (ENG-version)
Dr. Luc Quadackers
Professional Papers
01-04-2021
Details
 

A manager who cheats on financial statements will try to hide his fraud. If the auditor discovers the associated misstatement, what does the manager say to avoid being labeled a fraudster? The most likely scenario is that the manager will present the deviation as a mistake that was made inadvertently. And it is not unlikely that the auditor will subsequently agree with this statement, with all its consequences. So be careful.

But how does a manager get the auditor to do so? The answer is so obvious that it has been underestimated for a long time: the manager prefers to omit rather than to make up a number.

A manager's error statement is more plausible if a transaction was ignored (an omission), compared to the incorrect entry of a transaction (an action). The auditor is, therefore, more likely to see an omission as an unintentional error than as a fraud.

But, statistics would support the idea that mistakes are much more common than actual fraud. Are these statistics wrong?

Recent research by Erin Hamilton and Jason Smith calls into question this very question. They investigate whether omissions of transactions are a fraud method that has successfully stayed under the (auditor's) radar.

Authors

Dr. Luc Quadackers
MAB summary of round table discussion on Audit Quality Indicators
Dr. Luc Quadackers
Other Publications
10-03-2021
Details
 

A roundtable meeting was held on January 25 on the search for suitable audit quality indicators, or AQIs. No fewer than four project groups of the 'Quartermasters' for the Future of Accountancy are currently working on the development of AQIs.

But does audit quality actually allow itself to be captured in AQIs? What place can they occupy in the assessment of quality? Are audit quality and AQIs the same for different stakeholders? And above all: how do AQIs fit into the bigger story of auditor and audit firm, for example in the transparency reports? All these questions were addressed during the roundtable discussion organized by the Monthly Journal of Accountancy and Business Economics (MAB) and the Foundation for Auditing Research.

Authors

Dr. Luc Quadackers
FAR Practice Note - "Can audit committee support improve auditors’ application of professional skepticism?”
Prof. Joseph Brazel Prof. dr. Anna Gold Dr. Justin Leiby Tammie Schaefer PhD
Practice Notes - practitioner's notes
03-03-2021
Details
 

Despite the recognized importance of professional skepticism, auditors’ failure to consistently exercise a sufficient level of professional skepticism continues to be a globally recognized issue. In this study, we seek to gain a better understanding of the role audit committees, who oversee the audit process and can help/aid in improving auditors’ application of skepticism. In a survey of audit practitioners, we found that: audit committee support varies substantially between audit engagements; audit committee support is multifaceted; and the support is often not conveyed to the lower-level members of the engagement team. Given our survey findings, we experimentally investigated whether and how audit committee support being explicitly conveyed to the entire engagement team (by either the partner or audit committee chair) impacts the skeptical judgments and actions of auditors.

We find that an expression of audit committee support conveyed explicitly by the audit partner can increase the skeptical actions of auditors, whereas such an expression of support by the audit committee chair does not. Our findings point to the crucial role audit partners can play in improving auditors’ application of professional skepticism.

Authors

Prof. Joseph Brazel
Prof. dr. Anna Gold

Anna Gold obtained her Ph.D. from the University of Amsterdam in 2004, worked as an assistant professor at Rotterdam School of Management, Erasmus University for six years and is currently professor at the Vrije Universiteit Amsterdam where she teaches Auditing at the BSc and MSc level, as well as PhD courses in Auditing and Experimental Methods. Anna’s research interests are in the judgment and decision-making area, primarily applied to the field of Auditing. Her research has focused on the impact of regulatory changes, on judgments and decisions of auditors and financial statement users. Her recent work focuses on how auditors and audit firms handle errors and whether varying the error management climate affects auditors’ error reporting willingness and audit firm learning. Anna’s work and her publications have appeared in a number of prestigious journals such as The Accounting Review, Accounting Horizons, Journal of Business Ethics, and International Journal of Auditing.

Dr. Justin Leiby

Associate Professor of Accountancy and Professor Ken Perry Faculty Fellow University of Illinois

Tammie Schaefer PhD

Tammie Schaefer is an Assistant Professor of Accounting at the University of Missouri – Kansas City where she teaches undergraduate and graduate courses in auditing and tax. Her research focuses on fraud detection, professional skepticism, nonfinancial measures, consultations, and judgment and decision-making in auditing and tax. Her research in these areas has led to publications in The Accounting Review and Contemporary Accounting Research. The Institute for Fraud Prevention, the Center for Audit Quality, KMPG, the International Association for Accounting Education and Research, the University of South Carolina, and the University of Missouri – Kansas City have all supplied her with grants to support her research. In 2013 Tammie received the American Accounting Association Auditing Section’s Best Ph.D. Student Paper Award for her dissertation. She is a member of the AICPA’s Accounting Doctoral Scholars (ADS) Program, and prior to obtaining her Ph.D., Tammie was an audit senior with PwC.

FAR Working Paper - Network Structure and Auditor Compensation: Evidence from a Bipartite Network
James Zhang PhD student Prof. dr. Reggy Hooghiemstra Dr. Dennis Veltrop Prof. dr. Floor Rink
Working Papers
24-02-2021
Details
 

This paper examines the relationship between the extent of knowledge flow during audit practice (measured by the local network clustering coefficient) and auditor compensation. We exploit a unique bipartite (i.e. two-mode) network composed of individual auditors assigned to different audit engagements from an audit firm for one full year to determine our local network clustering coefficient and auditor compensation data from this audit firm’s personnel records. Informed by social networks theory and determinants of wage in labor economics, we find a positive association between local network clustering and auditor compensation, which is both statistically and economically significant. Our results are robust to alternative measures of local network clustering coefficient, alternative explanations of structural holes and centrality, alternative linear specification and endogeneity concern. Furthermore, we find that this positive association may be primarily driven by seniors working on audit engagements. Overall, our results suggest that embeddedness within knowledge networks plays an important role for auditor compensation.

Authors

James Zhang PhD student
Prof. dr. Reggy Hooghiemstra

Reggy Hooghiemstra is a professor at the University of Groningen. He has published on a wide variety of topics including board processes, corporate governance, the role of culture in auditing and accounting, and impression management. His papers have appeared in both management (e.g., Journal of Management, Journal of Business Ethics) and accounting journals (e.g., Auditing: Journal of Practice and Theory, European Accounting Review). 

Dr. Dennis Veltrop

Dennis Veltrop is an assistant professor at the University of Groningen and holds a position as an economist at the research department at De Nederlandsche Bank. He is also co-founder of BoardResearch.org. His research focuses on corporate governance and board behavior in particular. His papers have appeared in corporate governance and management journals (e.g., Journal of Management, Journal of Management Studies, CorporateGovernance).

Prof. dr. Floor Rink
5th FAR International Conference booklet
Prof. dr. Wim Gijselaers Prof. dr. Anna Gold Tammie Schaefer PhD Prof. dr. Marshall Geiger Prof. dr. Jean Bédard Prof. dr. Alain Schatt
Conference Proceedings
27-01-2021
Details
 

The fifth annual FAR Conference was held on Monday June 22, 2020. As a result of the circumstances, the event took place in an online, Covid-19-proof setting. Still, almost 200 participants from all over the world registered for this virtual meeting. About 50 percent of these were academics.

The other 50 percent consisted of students, practitioners, regulators and government officials. This strengthens our belief that a broad group of stakeholders appreciates the work of our Foundation.

The theme of the conference was intentionally broad: ‘academic and practitioner insights into audit quality’. This theme seamlessly fits with FAR’s main purpose, which is facilitating knowledge development and knowledge dissemination concerning audit quality.

In this booklet, we proudly present the summaries of the five conference presentations. At the end of each article, a selection is included of three Q&A’s from the Q&A sessions that took place after each presentation.

We hope you will enjoy reading the summaries and viewing the presentations and Q&As, and we are looking forward to meeting you again, hopefully ‘in the flesh’, next late Spring 2021.

Authors

Prof. dr. Wim Gijselaers

Wim Gijselaers is full professor in educational research, in the School of Business and Economics at Maastricht University, the Netherlands. His research focuses on educational innovation in higher education, social determinants of team cognition and team performance, and judgment and decision making in management and accounting. His educational development work focused on the further development of Problem-Based Learning within Business Education. Next to teaching in the award-winning Master program Management of Learning, he teaches as visiting professor at the University of Bern (Switzerland) in a post-graduate program for Health Care Professionals. Wim is member of advisory boards of universities in Germany and Switzerland, and serves as chief-editor of the Springer Book Series Innovation and Change in Professional Education. Next, he is affiliated with the consulting firm Learning Miles (based in Helsinki). In this role he has presented workshops for Scandinavian-based companies on topics of Innovation and Change. He was co-founder and chair of the EDINEB network in the Nineties. Next, he was the founding editor of the Springer Book Series Educational Innovation in Economics and Business. He served positions as Program Director of International Business, and Associated Dean of Education. Currently he is chair of the department of Educational Research and Development, at the School of Business and Economics (Maastricht University). Several of his PhD’s received awards for their PhD Thesis, or papers presented at meetings of the American Educational Research Association, the Association for the Advancement of Computing in Education, and the EARLI Special Interest Group 14 “Learning and Professional Development”. Together with Professor Ann Vanstraelen he coordinates the GSBE research project "Culture, Ethics, and Leadership": https://www.maastrichtuniversity.nl/research/institutes/gsbe/gsbe-research.

Prof. dr. Anna Gold

Anna Gold obtained her Ph.D. from the University of Amsterdam in 2004, worked as an assistant professor at Rotterdam School of Management, Erasmus University for six years and is currently professor at the Vrije Universiteit Amsterdam where she teaches Auditing at the BSc and MSc level, as well as PhD courses in Auditing and Experimental Methods. Anna’s research interests are in the judgment and decision-making area, primarily applied to the field of Auditing. Her research has focused on the impact of regulatory changes, on judgments and decisions of auditors and financial statement users. Her recent work focuses on how auditors and audit firms handle errors and whether varying the error management climate affects auditors’ error reporting willingness and audit firm learning. Anna’s work and her publications have appeared in a number of prestigious journals such as The Accounting Review, Accounting Horizons, Journal of Business Ethics, and International Journal of Auditing.

Tammie Schaefer PhD

Tammie Schaefer is an Assistant Professor of Accounting at the University of Missouri – Kansas City where she teaches undergraduate and graduate courses in auditing and tax. Her research focuses on fraud detection, professional skepticism, nonfinancial measures, consultations, and judgment and decision-making in auditing and tax. Her research in these areas has led to publications in The Accounting Review and Contemporary Accounting Research. The Institute for Fraud Prevention, the Center for Audit Quality, KMPG, the International Association for Accounting Education and Research, the University of South Carolina, and the University of Missouri – Kansas City have all supplied her with grants to support her research. In 2013 Tammie received the American Accounting Association Auditing Section’s Best Ph.D. Student Paper Award for her dissertation. She is a member of the AICPA’s Accounting Doctoral Scholars (ADS) Program, and prior to obtaining her Ph.D., Tammie was an audit senior with PwC.

Prof. dr. Marshall Geiger

Marshall A. Geiger, Ph.D., CPA, is the CSX Chair in Management and Accounting and Professor of Accounting at the Robins School of Business, University of Richmond. Marshall has also been an honorary Professor of the Faculty of Business and Law at Deakin University in Australia.  He graduated from Penn State University in 1988 with his Ph.D. in accounting and has published over 75 articles, a research monograph, and a Chapter in a research reference book on numerous topics in accounting, auditing and accounting education. Marshall has been recognized as the most prolific accounting scholar among all accounting Ph.Ds graduating worldwide in 1988. He is a past Editor at Auditing: A Journal of Practice & Theory, and former Associate Editor at Accounting Horizons and holds appointments on five editorial review boards of scholarly journals in the US and internationally. Marshall has delivered over 60 educational and research seminars and programs on a broad range of topics in accounting and auditing to a wide range of participants, including audit practitioners, entrepreneurs, academics, lawyers and standard-setters.


Prof. dr. Jean Bédard

Professor in Accounting, Laval University | ULAVAL · School of Accounting

Jean Bédard is professor at Laval University in Québec City. His research covers various audit subject matters and research methods; spanning, for example, auditor expertise, audit committees and corporate governance, internal control systems, professional ethics, regulation of the accounting profession, auditor judgment, and auditor report, employing experimentation, interviewing, field work, and empirical archival methods. He received the Haim Falk Award for Distinguished Contribution to Accounting Thought from the Canadian Academic Accounting Association in 2014. His research has been published in academic as well as professional journals, including in the last five years: Contemporary Accounting Research, Auditing: A Journal of Practice and theory, and Accounting Horizon. He has served as editor for Contemporary Accounting Research and Auditing: A Journal of Practice and theory. He is quite involved in valorization and with the audit profession. He contributes to the training of corporate directors and has is a member of the Auditing and Assurance Standards Oversight Council of Canada, of the Auditing and Assurance Standards Board of Canada and of the Internal Auditing Standards Board.

Prof. dr. Alain Schatt

Alain Schatt is Full Professor of Financial Accounting at HEC Lausanne, University of Lausanne.

Before joining HEC Lausanne, he has held different positions in academia. His research focuses on financial reporting, corporate governance and the audit market. In particular, he is interested in the consequences of specific regulations on audit quality and on the value of public firms.

FAR Working Paper - Professional Skepticism Traits and Fraud Brainstorming Quality
Dr. Kris Hardies Prof. dr. Ann Vanstraelen Dr. Sanne Janssen Prof. Karla Zehms
Working Papers Professional Skepticism
15-12-2020
Details
 

Auditing standards emphasize that fraud detection is an important objective of an audit and require the exercise of professional skepticism (PS) and a discussion among the engagement team to prevent and detect fraud. The purpose of this study is to examine whether professional skepticism is a driver of fraud brainstorming quality. We investigate the relationship between fraud brainstorming quality, using the measure of Brazel et al. (2010), and auditor’s professional skepticism traits. Using proprietary data from Dutch audit firms on 125 engagements, we find that neutral trait skepticism and professional moral courage of the partner have a significant effect on fraud brainstorming quality. We observe a higher attendance rate and contribution of specialists, more extensive discussion, longer preparation, and longer sessions for engagements led by partners with high neutral trait skepticism and high moral courage. We find no significant results for partners with a high presumptive doubt trait. Additional cross-sectional analyses show that the effect of professional skepticism on FBQ depends on situational, organizational conditions.

Authors

Dr. Kris Hardies

Kris Hardies obtained his Ph.D. from the Vrije Universiteit Brussel in 2011, worked at the University of Florida in 2012 and is currently an associate professor at the Universiteit Antwerpen where he teaches accounting and auditing at the BSc and MSc level. His research interests include professional skepticism, personality and individual differences, capital markets and firm behavior, and gender inequality. His recent research focuses on the effects of personality and individual differences among auditors on audit quality. His work has been published in journals such as Auditing: A Journal of Practice & Theory, Accounting Horizon, European Accounting Review, International Journal of Auditing, and Economics Letters.

Prof. dr. Ann Vanstraelen

Ann Vanstraelen is Full Professor of Accounting and Assurance Services at Maastricht University and serves as Head of the department of Accounting and Information Management. She coordinates the multidisciplinary research theme "Culture, Ethics and Leadership". She earned her PhD at the University of Antwerp. Her research interests relate to the broad field of auditing and assurance services, governance, corporate reporting and disclosure, with a specific focus on the quality of accounting and auditing practices. 

 


Dr. Sanne Janssen

PhD Researcher at University of Antwerp & Maastricht University

Prof. Karla Zehms
FAR Working Paper - Auditors’ Professional Skepticism: Traits, Behavioral Intentions, and Actions
Dr. Kris Hardies Prof. dr. Ann Vanstraelen Dr. Sanne Janssen Prof. Karla Zehms
Working Papers Professional Skepticism
15-12-2020
Details
 

Auditors’ professional skepticism is critical to applying auditing standards and achieving audit quality. Prior research provides measures of skepticism in general, and auditor-specific trait skepticism. Other research develops and tests a theoretical model of auditor professional skepticism, positing factors that contribute to skeptical intentions and skeptical actions. In this paper, we provide an empirical test of these measures and theories, examining individual differences and personality traits that affect trait-based professional skepticism, testing the associations between factors related to behavioral intentions toward skepticism, and revealing their collective association with skeptical actions. We use data from a sample of 663 auditors across all ranks from staff through partner who each completed an experiential questionnaire relating to one of their actual audit engagements. We find that individual differences (gender, experience, and knowledge) are associated with differential levels of professional trait skepticism, as are personality traits (agreeableness, conscientiousness, openness, narcissism and psychopathy).

Authors

Dr. Kris Hardies

Kris Hardies obtained his Ph.D. from the Vrije Universiteit Brussel in 2011, worked at the University of Florida in 2012 and is currently an associate professor at the Universiteit Antwerpen where he teaches accounting and auditing at the BSc and MSc level. His research interests include professional skepticism, personality and individual differences, capital markets and firm behavior, and gender inequality. His recent research focuses on the effects of personality and individual differences among auditors on audit quality. His work has been published in journals such as Auditing: A Journal of Practice & Theory, Accounting Horizon, European Accounting Review, International Journal of Auditing, and Economics Letters.

Prof. dr. Ann Vanstraelen

Ann Vanstraelen is Full Professor of Accounting and Assurance Services at Maastricht University and serves as Head of the department of Accounting and Information Management. She coordinates the multidisciplinary research theme "Culture, Ethics and Leadership". She earned her PhD at the University of Antwerp. Her research interests relate to the broad field of auditing and assurance services, governance, corporate reporting and disclosure, with a specific focus on the quality of accounting and auditing practices. 

 


Dr. Sanne Janssen

PhD Researcher at University of Antwerp & Maastricht University

Prof. Karla Zehms
FAR Practice Note - Internal control quality and audit quality: the role of financial analysts
Prof. dr. C. Hofmann Dr. J. van Raak Dr. N. Schwaiger Sebastian Kuhn PhD student
Practice Notes - practitioner's notes
16-11-2020
Details
 

This project studies the role of internal control quality during the audit process and proposes a new source which auditors can use to gain information on control risk.

The study aims at understanding the relevance of internal control quality for audit quality and identifying an information channel which may help auditors to assess internal control quality more accurately and efficiently. Since financial analysts are typically macroeconomic experts and have profound industry knowledge, they are arguably able to form a relatively precise assessment of fraud risk. In this context, the team views fraud risk and internal control quality as two sides of the same coin. Financial analysts have an incentive to acquire information on fraud risk (including governance and controls) as undetected fraud negatively affects the quality of financial statements, which are an essential information source of financial analysts’ earnings forecasts. Moreover, analysts explicitly and implicitly include their assessment of fraud risk during earnings conference calls as well as in their analyst reports, which provide an overview of the information that analysts collected of their covered firms and include buy or sell recommendations. Consequently, they argue that the information provided by financial analysts may be a valuable information source for auditors to more accurately and efficiently assess inherent and control risk.

Authors

Prof. dr. C. Hofmann
Dr. J. van Raak
Dr. N. Schwaiger
Sebastian Kuhn PhD student
Economic Consequences of Joint Audits - Prof. dr. A. Schatt (FAR Conference editorial)
Prof. dr. Alain Schatt
Conference Proceedings
19-10-2020
Details
 

During the FAR International Conference on 22 June 2020, professor Alain Schatt (University of Lausanne) presented a literature review on the use of joint audits in France. Schatt elaborated on the potential economic consequences of the joint audit in terms of market concentration, audit costs and audit quality. As also concluded in the AFM report, the current approach to the joint audit in France is not working as desired. In practice, the joint auditors simply divide the audit work and the smaller parties perform the easiest part.

Authors

Prof. dr. Alain Schatt

Alain Schatt is Full Professor of Financial Accounting at HEC Lausanne, University of Lausanne.

Before joining HEC Lausanne, he has held different positions in academia. His research focuses on financial reporting, corporate governance and the audit market. In particular, he is interested in the consequences of specific regulations on audit quality and on the value of public firms.

PhD Dissertation - The ins and outs of professional skepticism
Dr. Sanne Janssen
PhD Dissertations
25-09-2020
Details
 

The objective of an external audit is to provide assurance to the users of financial statements on the quality of the reported information. A quality audit is therefore essential for the functioning of capital markets. The exercise of professional skepticism is often described as a key attribute for a quality audit. However, despite its alleged importance, the concept of professional skepticism is not well understood. This dissertation advances our understanding of professional skepticism by investigating professional skepticism traits as input factors, and as drivers of process and output factors of the audit. Results of this dissertation show that professional skepticism traits of auditors are significantly affected by personality traits and other individual differences, and differ significantly across ranks. Further, it shows that professional skepticism ultimately affects audit quality as professional skepticism traits are significant drivers of certain audit process and output factors. The holistic approach used in this dissertation allows me to provide recommendations for practitioners to enhance the exercise of professional skepticism.

Authors

Dr. Sanne Janssen

PhD Researcher at University of Antwerp & Maastricht University

FAR Literature Review - Internal Control Quality and Audit Quality
Prof. dr. C. Hofmann Dr. J. van Raak Dr. N. Schwaiger Sebastian Kuhn PhD student
Literature Reviews
21-09-2020
Details
 

This literature review highlights the role of internal controls in the audit process. We find that internal controls are of high economic importance for both the auditor and the client firm, as audit failure has severe consequences on both sides. In general, auditors can reduce the negative effects of weak internal controls on corporate financial reporting quality through increasing audit effort, which is associated with an increase in audit fees. However, increased effort does not fully preclude financial misstatements, i.e., a substantial risk of financial misstatement remains. While the reasons for this are not fully clear, the audit of internal controls is an extremely complex matter. In addition, auditors are subject to significant time and personnel constraints during the audit. This leads us to believe that the use of additional sources of private information on internal control quality could have strong positive consequences for both the auditor and, subsequently, the client firm. We suggest that financial analysts, their discussions during earnings conference calls and the information provided in their reports may be a valuable source of information for auditors. In particular, financial analysts’ assessment of fraud risk may help auditors to more efficiently and accurately assess internal control quality.

Authors

Prof. dr. C. Hofmann
Dr. J. van Raak
Dr. N. Schwaiger
Sebastian Kuhn PhD student