Preventing fraudulent financial reporting with reputational signals of strategic auditors

IF 3.2 3区 管理学 Q1 BUSINESS, FINANCE
Chezham (Chez) L. Sealy, Chad A. Simon
{"title":"Preventing fraudulent financial reporting with reputational signals of strategic auditors","authors":"Chezham (Chez) L. Sealy,&nbsp;Chad A. Simon","doi":"10.1111/1911-3846.13012","DOIUrl":null,"url":null,"abstract":"<p>Financial reporting fraud continues to cost companies millions of dollars annually and is a major source of concern for regulators, stakeholders, and auditors. While academic research has largely focused on external auditors' fraud detection efforts, we analyze whether auditors can help <i>prevent</i> occurrences of fraud through low-cost reputational signals of higher “strategic reasoning”; strategic reasoning refers to strategies that individuals take in light of the anticipated actions of others (see van der Hoek et al., 2005, A logic for strategic reasoning, AAMAS '05, 157−164). Specifically, we consider the potential impact on manager behavior of signaling whether audit professionals use zero-, first-, and second-order audit approaches. Zero-order audit approaches involve making decisions based mostly on the auditor's incentives, first-order approaches involve decisions based mostly on the client's incentives, and second- or higher-order audit approaches involve decisions based on the client's incentives while recognizing that the client will respond to the auditor's decisions (see Wilks &amp; Zimbelman, 2004, <i>Accounting Horizons</i>, <i>18</i>(3), 173–184). Using a context-rich experiment in which manager participants have no history of interacting with the auditor, we find that the likelihood of fraud occurring is lower when it is signaled that audit partners and their teams use a first- or second-order strategic audit approach compared to a zero-order approach, due to an increase in the perceived likelihood of the auditor detecting fraud. We also consider whether signaling an auditor's level of strategic reasoning influences the level of effort used to conceal fraud and find an increase in the expected level of fraud effort for managers in the first- and second-order audit conditions.</p>","PeriodicalId":10595,"journal":{"name":"Contemporary Accounting Research","volume":"42 1","pages":"649-672"},"PeriodicalIF":3.2000,"publicationDate":"2025-01-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Contemporary Accounting Research","FirstCategoryId":"91","ListUrlMain":"https://onlinelibrary.wiley.com/doi/10.1111/1911-3846.13012","RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 0

Abstract

Financial reporting fraud continues to cost companies millions of dollars annually and is a major source of concern for regulators, stakeholders, and auditors. While academic research has largely focused on external auditors' fraud detection efforts, we analyze whether auditors can help prevent occurrences of fraud through low-cost reputational signals of higher “strategic reasoning”; strategic reasoning refers to strategies that individuals take in light of the anticipated actions of others (see van der Hoek et al., 2005, A logic for strategic reasoning, AAMAS '05, 157−164). Specifically, we consider the potential impact on manager behavior of signaling whether audit professionals use zero-, first-, and second-order audit approaches. Zero-order audit approaches involve making decisions based mostly on the auditor's incentives, first-order approaches involve decisions based mostly on the client's incentives, and second- or higher-order audit approaches involve decisions based on the client's incentives while recognizing that the client will respond to the auditor's decisions (see Wilks & Zimbelman, 2004, Accounting Horizons, 18(3), 173–184). Using a context-rich experiment in which manager participants have no history of interacting with the auditor, we find that the likelihood of fraud occurring is lower when it is signaled that audit partners and their teams use a first- or second-order strategic audit approach compared to a zero-order approach, due to an increase in the perceived likelihood of the auditor detecting fraud. We also consider whether signaling an auditor's level of strategic reasoning influences the level of effort used to conceal fraud and find an increase in the expected level of fraud effort for managers in the first- and second-order audit conditions.

利用战略审计师的声誉信号防止虚假财务报告
财务报告欺诈每年给公司造成数百万美元的损失,是监管机构、利益相关者和审计人员关注的主要问题。虽然学术研究主要集中在外部审计师的欺诈检测工作上,但我们分析了审计师是否可以通过更高的“战略推理”的低成本声誉信号来帮助防止欺诈的发生;战略推理是指个体根据他人的预期行为而采取的策略(见van der Hoek et al., 2005, A logic for strategic reasoning, AAMAS '05, 157−164)。具体来说,我们考虑了审计专业人员是否使用零、一、二阶审计方法对管理者行为的潜在影响。零级审计方法主要基于审计师的动机做出决策,一级审计方法主要基于客户的动机做出决策,二级或高阶审计方法主要基于客户的动机做出决策,同时认识到客户会对审计师的决策做出反应(参见Wilks &;Zimbelman, 2004,会计学刊,18(3),173-184。在一个背景丰富的实验中,管理者参与者没有与审计师互动的历史,我们发现,当审计合作伙伴及其团队使用一级或二级战略审计方法时,与零级方法相比,舞弊发生的可能性更低,因为审计师发现舞弊的感知可能性增加。我们还考虑了表明审计师的战略推理水平是否会影响用于隐瞒欺诈的努力水平,并发现在一级和二级审计条件下,管理人员的预期欺诈努力水平有所增加。
本文章由计算机程序翻译,如有差异,请以英文原文为准。
求助全文
约1分钟内获得全文 求助全文
来源期刊
CiteScore
6.20
自引率
11.10%
发文量
97
期刊介绍: Contemporary Accounting Research (CAR) is the premiere research journal of the Canadian Academic Accounting Association, which publishes leading- edge research that contributes to our understanding of all aspects of accounting"s role within organizations, markets or society. Canadian based, increasingly global in scope, CAR seeks to reflect the geographical and intellectual diversity in accounting research. To accomplish this, CAR will continue to publish in its traditional areas of excellence, while seeking to more fully represent other research streams in its pages, so as to continue and expand its tradition of excellence.
×
引用
GB/T 7714-2015
复制
MLA
复制
APA
复制
导出至
BibTeX EndNote RefMan NoteFirst NoteExpress
×
提示
您的信息不完整,为了账户安全,请先补充。
现在去补充
×
提示
您因"违规操作"
具体请查看互助需知
我知道了
×
提示
确定
请完成安全验证×
copy
已复制链接
快去分享给好友吧!
我知道了
右上角分享
点击右上角分享
0
联系我们:info@booksci.cn Book学术提供免费学术资源搜索服务,方便国内外学者检索中英文文献。致力于提供最便捷和优质的服务体验。 Copyright © 2023 布克学术 All rights reserved.
京ICP备2023020795号-1
ghs 京公网安备 11010802042870号
Book学术文献互助
Book学术文献互助群
群 号:481959085
Book学术官方微信