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Qualitative Analysis of External Auditors’ Perceptions and Practices Related to Fraud Risk Assessment
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Research Context
This study aims to understand how external auditors perceive and apply various fraud factors in assessing fraudulent financial reporting (FFRR) risk. The research focuses on the qualitative analysis of external auditors’ perceptions and practices related to fraud risk assessment.
Methodology
The study employed a qualitative research approach, involving semi-structured interviews with 24 external auditors from different firms. This method allowed for in-depth exploration of the auditors’ perspectives and experiences.
Data Analysis
Thematic analysis was used to examine the data, which involved coding transcripts into themes and sub-categories based on inductive content analysis. This approach enabled the researchers to identify patterns and meanings within the data.
Findings
The study found that:
- Top management’s motives: Were universally perceived as an essential or critical factor in assessing FFRR risk (n = 24; 100%).
- Top management’s integrity level: Was seen as an essential or critical factor by most external auditors (n = 20; 83%).
- Opportunity and fraud perpetrators’ capabilities: Were viewed as important but non-essential factors (n = 23; 96%, and n = 22; 92%, respectively).
- Rationalization: Was perceived as the least important fraud factor in assessing FFRR risk.
Themes
Several themes emerged from analyzing external auditors’ rationale for the significance and use of fraud factors in audit practice, including:
Audit Standards Requirements
External auditors considered audit standards requirements when evaluating fraud factors. They believed that adhering to these standards was essential for ensuring the reliability of financial statements.
Availability or Lack of Know-How
Auditors noted that their ability to assess fraud factors was influenced by their knowledge and experience in this area. Those with more expertise were better equipped to identify potential risks.
Impact on Accounts
The impact of fraud factors on financial accounts was a key consideration for auditors. They sought to understand how these factors could affect the accuracy of financial statements.
Impact on Top Management Behavior
Auditors believed that top management’s behavior and integrity level had a significant impact on the likelihood of fraudulent activities.
Relevance to Audit Context
Finally, auditors considered the relevance of fraud factors in their specific audit context. They recognized that the importance of these factors varied depending on the company and industry being audited.
Conclusion
This study provides valuable insights into external auditors’ perceptions and practices related to fraud risk assessment. The findings suggest that top management’s motives, integrity level, and behavior are critical factors in assessing FFRR risk. However, opportunity and fraud perpetrators’ capabilities were seen as important but non-essential factors. Rationalization was perceived as the least important fraud factor.
The study highlights the importance of considering audit standards requirements, availability or lack of know-how, impact on accounts, impact on top management behavior, and relevance to the audit context when evaluating fraud factors.
Limitations
While this study provides valuable insights into external auditors’ perceptions and practices related to fraud risk assessment, it has some limitations. The sample size was relatively small, and the results may not be generalizable to all external auditors. Future research could explore these issues in greater depth.
Future Research Directions
Future studies could investigate:
- The role of technology: In enhancing or hindering fraud detection and prevention.
- The impact of globalization: On fraud risk assessment and management.
- The importance of soft skills: In audit practice, such as communication and problem-solving.