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Auditor Identification of Fraud Risk Factors and their Impact on Audit Programs

Auditor Identification of Fraud Risk Factors and their Impact on Audit Programs Using a sample of 202 audit clients obtained from three large audit firms, this study investigates actual fraud risk assessments and their effects on audit programs following the issuance of SAS No. 82, Consideration of Fraud in a Financial Statement Audit. Over two years of audits, we find that the number and type of fraud risk factors identified differs across clients, industries, and fraud risk categories. Additionally, for 20 percent of year one and 31 percent of year two audits examined, we find that auditors modified the nature, extent and/or timing of audit procedures, assigned more experienced audit team members to the audit, or added or deleted procedures. Both correlation analysis and a multivariate model show that the decision to modify the planned audit program in response to the fraud risk assessment was influenced significantly by the identification and documentation of fraud risk factors as required by SAS No. 82. Multivariate results indicate that the audit team's decisions concerning extent, staffing, adding or deleting procedures are statistically related to the number and type of documented fraud risks and to overall client risk. These results differ somewhat from prior research into overall audit program planning and provide evidence that subsequent to the issuance of SAS No. 82, audits are being fraud risk adjusted. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Auditing Wiley

Auditor Identification of Fraud Risk Factors and their Impact on Audit Programs

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Publisher
Wiley
Copyright
Copyright © 2005 Wiley Subscription Services, Inc., A Wiley Company
ISSN
1090-6738
eISSN
1099-1123
DOI
10.1111/j.1099-1123.2005.00102.x
Publisher site
See Article on Publisher Site

Abstract

Using a sample of 202 audit clients obtained from three large audit firms, this study investigates actual fraud risk assessments and their effects on audit programs following the issuance of SAS No. 82, Consideration of Fraud in a Financial Statement Audit. Over two years of audits, we find that the number and type of fraud risk factors identified differs across clients, industries, and fraud risk categories. Additionally, for 20 percent of year one and 31 percent of year two audits examined, we find that auditors modified the nature, extent and/or timing of audit procedures, assigned more experienced audit team members to the audit, or added or deleted procedures. Both correlation analysis and a multivariate model show that the decision to modify the planned audit program in response to the fraud risk assessment was influenced significantly by the identification and documentation of fraud risk factors as required by SAS No. 82. Multivariate results indicate that the audit team's decisions concerning extent, staffing, adding or deleting procedures are statistically related to the number and type of documented fraud risks and to overall client risk. These results differ somewhat from prior research into overall audit program planning and provide evidence that subsequent to the issuance of SAS No. 82, audits are being fraud risk adjusted.

Journal

International Journal of AuditingWiley

Published: Mar 1, 2005

References