Applying of ISA 240 for Fraud Detection and Resolution: Evidence from Indonesia and Ghana

Prior studies in developed countries investigate the auditor’s fraud detection process. However, it is unclear whether the results from developed countries apply in developing countries because no fraud detection research has been performed in this setting. The current study examines how auditors in two developing countries, Indonesia and Ghana, apply ISA 240 for fraud detection, including how auditors identify, investigate, and resolve potential fraud issues. We find that: (1) senior managers originate most asset misappropriation frauds; (2) auditors in Indonesia and Ghana do not use information technology or internal control assessment for fraud investigation; (3) auditors modify the audit program once potential fraud is detected; and (4) auditors use a more contending than conceding negotiation strategy when resolving potential fraud issues, which often stop short of requiring audit clients to record all audit adjustments.