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2017B04 – Improving audit quality by enhancing auditor’s detection of markers of management deception
Project Number – 2017B04

2017B04 – Improving audit quality by enhancing auditor’s detection of markers of management deception

What?

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”).

New Academic Board Member: Mark Peecher

We are happy to announce that Mark Peecher will succeed Robert Knechel as an Academic Member of the FAR Board, as of March 27, 2026. Mark is Executive Associate Dean of Faculty and Research at Gies College of Business of the University of Illinois Urbana-Champaign, and the inaugural holder of Arthur R. Wyatt Endowed Chair in Accountancy. Previously, he served for many years as their Deloitte Professor of Accountancy. He holds a Ph.D. in accountancy and has a distinguished career and impressive track record in auditing research. Mark has contributed to FAR through his involvement in two of the research projects and he has demonstrated engagement with the organization’s mission and community. We are grateful that Mark has accepted this position and look forward to his contributions. As we welcome Mark, we also extend our deep appreciation to Robert Knechel, who will end his term after many years of dedicated service. We express our sincere gratitude to him for his longstanding commitment and valuable contributions to FAR.
Deception Detection in Auditing and Auditors’ Assessment of Risk of Material Misstatement Due to Fraud
The investing public has long looked to the independent financial-statement auditor to help prevent and detect instances of material financial-statement fraud. Yet, it has only been in recent decades that audit standards recognize explicitly that auditors are responsible for providing high assurance that the financial statements are not materially misstated due to fraud. Although once generally believed to be an exceedingly rare event, recent research suggests base rates of financial statement fraud may be as high or higher than ten percent of public companies. Cases of fraud that go undetected for years exacts a substantial toll on the confidence of the investing public in capital markets. At the same time, actually providing high assurance that a set of financial statements are not materially misstated due to fraud is difficult for individual auditors due to a combination of questionable economic incentives for individual audit teams to detect fraud as well as psychological preference to avoid believing that one’s own client – a socially close affiliate – has been engaging in deception of the investing public as well as the auditors themselves.
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Project info

Project Lead

Prof. Mark Peecher

Research team

Sebastian Stirnkorb
Devin Williams
Prof. Mark Peecher

Involved University

Rotterdam School of Management | University of Illinois

Theme(s)

Auditor judgment & decision making
Project Number – 2017B04

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