Investigating the black box of external audit practice: the paradox of auditors' failure in detecting and reporting fraud

Kassem, Rasha

doi:10.1108/jal-05-2022-0057

Cited by 3 publications

(2 citation statements)

References 42 publications

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“…Additionally, an auditor's unaltered opinion on an annual report that is later found to be materially misstated is a type of audit error that investors can no longer tolerate. This is especially true in cases of fraudulent accounting (Kassem, 2023). If enforcement and oversight of financial reporting is inadequate, it can slow down fraud detection, reducing investor confidence in capital markets and their supervisory function.…”

Section: Introductionmentioning

confidence: 99%

Detection Accounting Fraud: Role Internal Auditor and Whistleblowing Data System in Study Literature

Prasetiyo,

Riyani,

Novita Nugraheni

2024

IJBA

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This research was conducted with the aim of finding out and analyzing the role and influence of the independence of internal auditors and whistleblowing data systems in detecting accounting fraud in private, public sector organizations or non-governmental organizations. This research is qualitative research with descriptive analysis methods based on literature studies with secondary data through scientific articles, news, books, previous research and the internet over the last five years, namely 2019-2023. The results of this research are that the independent attitude of internal auditors and the whistleblowing data system is very good and has a significant effect on detecting accounting fraud. Although there are several factors that influence the effectiveness of implementing an independence attitude and whistleblowing system, such as the control environment, relationships with clients, incentives for whistleblowers, and binding regulations and other related factors.

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Section: Introductionmentioning

confidence: 99%

Detection Accounting Fraud: Role Internal Auditor and Whistleblowing Data System in Study Literature

Prasetiyo,

Riyani,

Novita Nugraheni

2024

IJBA

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“…Although fraud prevention and detection are not the primary focus of accounting enforcers and auditors, their oversight role in ensuring the quality of financial reporting and regulatory compliance requires meticulous attention to fraud risks and warning signals (Wilks and Zimbelman, 2004;Carpenter, 2007;Brasel et al, 2019;Kassem, 2023). Auditing standards mandate different audit responses when misstatements are likely due to intentional act by management (e.g.…”

Section: Introductionmentioning

confidence: 99%

The roles and interplay of enforcers and auditors in the context of accounting fraud: a review of the accounting literature

Campa,

Quagli,

Ramassa

2023

JAL

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PurposeThis study reviews and discusses the accounting literature that analyzes the role of auditors and enforcers in the context of fraud.Design/methodology/approachThis literature review includes both qualitative and quantitative studies, based on the idea that the findings from different research paradigms can shed light on the complex interactions between different financial reporting controls. The authors use a mixed-methods research synthesis and select 64 accounting journal articles to analyze the main proxies for fraud, the stages of the fraud process under investigation and the roles played by auditors and enforcers.FindingsThe study highlights heterogeneity with respect to the terms and concepts used to capture the fraud phenomenon, a fragmentation in terms of the measures used in quantitative studies and a low level of detail in the fraud analysis. The review also shows a limited number of case studies and a lack of focus on the interaction and interplay between enforcers and auditors.Research limitations/implicationsThis study outlines directions for future accounting research on fraud.Practical implicationsThe analysis underscores the need for the academic community, policymakers and practitioners to work together to prevent the destructive economic and social consequences of fraud in an increasingly complex and interconnected environment.Originality/valueThis study differs from previous literature reviews that focus on a single monitoring mechanism or deal with fraud in a broadly manner by discussing how the accounting literature addresses the roles and the complex interplay between enforcers and auditors in the context of accounting fraud.

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Beyond the numbers: assessing the risk of management motives for fraud in external audits

Kassem

2024

JAL

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PurposeThe purpose of this study is to explore how the risk of management motives for fraud can be assessed in external audits.Design/methodology/approachSemi-structured interviews were conducted with 26 experienced external auditors to explore their perspectives on the methods they employ to assess the risk of management motives for fraud.FindingsThe study identifies six methods external auditors can use to assess management motives for fraud. It emphasises that assessing management motives requires auditors to go beyond understanding these motives and necessitates a sceptical and analytical mindset. Auditors need to identify the accounts most vulnerable to management manipulations, observe management attitudes and assess the credibility of management assertions. The auditors in this study highlight specific accounts frequently manipulated by management. Still, manual year-end journal entries are the most vulnerable to management manipulations as they are subject to fewer controls. They recommend increasing the sample size to 100% and assigning more experienced staff, particularly, those with qualifications in fraud examination or anti-fraud training, to audit these vulnerable accounts thoroughly. They also provided examples of how auditors can identify management motives for fraud, observe management attitudes and assess the credibility of management assertions.Practical implicationsAudit standards (e.g. ISA 240, SAS99) lack explicit guidance on assessing management motives for fraud, but auditors are required to consider it in fraud risk assessment. This study proposes guidance recommendations to improve auditors' ability to assess this risk, which could be integrated into professional audit standards and training materials to improve auditors' professional scepticism, ability to challenge management and skills in fraud risk assessment.Originality/valueAssessing the risk of management motives for fraud in external audits has received limited attention in the literature. To the best of the authors’ knowledge, this study is the first to address this knowledge gap.

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Investigating the black box of external audit practice: the paradox of auditors' failure in detecting and reporting fraud

Cited by 3 publications

References 42 publications

Detection Accounting Fraud: Role Internal Auditor and Whistleblowing Data System in Study Literature

Detection Accounting Fraud: Role Internal Auditor and Whistleblowing Data System in Study Literature

The roles and interplay of enforcers and auditors in the context of accounting fraud: a review of the accounting literature

Beyond the numbers: assessing the risk of management motives for fraud in external audits

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