Fraud Risk Assessment: A Story Based Approach Outperforms the Checklist

Bierstaker, Downey, Rose and Thibodeau (2018) investigate whether using a fraud story as compared to a traditional checklist improves fraud risk assessments in two separate experiments. This article summarizes their findings and discusses practical implications and actionable suggestions for audit practitioners. Specifically, the summary focuses on the capacity of fraud stories to help novice auditors develop knowledge structures that closely resemble the knowledge structures of experts and ultimately to improve experienced auditors’ risk assessments.  Importantly, one Big 4 firm that participated in this research has adopted new and innovative fraud training methods based upon the results of this study. This article will discuss these training implications, along with the potential for stories to help auditors improve their fraud-related judgments, and additional considerations for the design of decision aids and knowledge management systems.