Assessing Fraud Risk, Trustworthiness, Reliability, and Truthfulness: Integrating Audit Evidence from Multiple Sources
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Sixty-four experienced auditors electronically completed one of four randomly assigned cases and, within each case, assessed the fraud risk, truthfulness, trustworthiness, and reliability of financial personnel at multiple points for a fictitious client. I manipulated the presence (absence) of fraud and the level of experience of the source of corroborating evidence (operating personnel). I hypothesized that auditors would not be able to differentially evaluate fraud risk and truthfulness judgments of financial personnel between the fraud and no fraud conditions when exposed to workpaper documentation and deceptive client inquiry evidence by management (financial personnel). However, I expected to find that auditorsâ would update their fraud risk and truthfulness judgments as they reviewed audit evidence from nonfinancial (operating) personnel.
The results indicate that auditors in this study are not able to appropriately assess fraud risk and the truthfulness of financial personnel following the review of workpaper and client inquiry evidence. While the client was deceptive in the fraud condition only, auditors did not differentially assess the fraud risk and truthfulness of financial personnel between the fraud and no fraud conditions. After auditors reviewed evidence from nonfinancial personnel, in the presence of fraud, auditors increased their fraud risk and decreased their truthfulness judgments of financial personnel as inconsistent evidence was presented from a corroborating source. Therefore, in the presence of fraud, auditors improved the effectiveness of the audit process by appropriately increasing their fraud risk assessments in light of inconsistent audit evidence from nonfinancial (operating) personnel. Of equal importance, in the absence of fraud, auditors decreased their fraud risk assessments as consistent evidence was presented from a corroborating source. Therefore, auditors increased the efficiency of the audit process by appropriately decreasing their fraud risk assessments after integrating consistent audit evidence from nonfinancial personnel into their judgments. Further, I observed that these auditors revised their fraud risk assessments to a greater extent when audit evidence was provided by a source with a higher level of experience.
Though prior research has found auditors to be poor at detecting deception, the results of this study indicate that auditors will increase or decrease their fraud risk assessments and truthfulness judgments based on the consistency of audit evidence gathered from a corroborating source. Therefore, in practice, auditors may be able to detect deception as the audit progresses.
- Doctoral Dissertations