Can Identifying and Investigating Fraud Risks Increase Auditors' Liability
Reffett, Andrew
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https://hdl.handle.net/2142/87163
Description
Title
Can Identifying and Investigating Fraud Risks Increase Auditors' Liability
Author(s)
Reffett, Andrew
Issue Date
2007
Doctoral Committee Chair(s)
Clifton Brown
Department of Study
Accountancy
Discipline
Accountancy
Degree Granting Institution
University of Illinois at Urbana-Champaign
Degree Name
Ph.D.
Degree Level
Dissertation
Keyword(s)
Business Administration, Accounting
Language
eng
Abstract
In this dissertation, I rely on attribution theory and norm theory to predict that in cases of undetected fraud jurors will be more likely to hold auditors liable for losses when the auditors did, versus did not, identify the perpetrated fraud as fraud risk during the audit. In addition, I rely on the aforementioned theories to predict that in cases of undetected fraud, given that the auditors identified the perpetrated fraud as a fraud risk, jurors will be more likely to hold auditors liable for losses when the auditors did, versus did not, perform audit procedures to investigate for the perpetrated fraud. To test my predictions, I conducted two experiments in which participants, acting as individual jurors, decided whether an audit firm that failed to detect a material fraud is liable for losses associated with the audit failure. In the experimental case, I manipulated whether the firm's auditors identified the perpetrated fraud as a fraud risk (during a SAS 99 fraud brainstorming session) and whether the auditors also performed procedures to investigate for (but failed to detect) the fraud. Consistent with expectations, I find that identifying and investigating fraud risks can, under certain conditions, increase the probability of jurors holding auditors liable for losses in the event that the auditors fail to detect perpetrated frauds that are related to the identified/investigated risks. Thus, my study provides theory consistent empirical evidence that suggests identifying and investigating fraud risks can, under certain conditions, effectively increase auditors' legal responsibility to detect frauds that are related to the identified/investigated fraud risks.
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