Fraudulent Financial Reporting Risk Assessment: External Auditors' Perceptions Versus the Traditional Fraud Triangle Theory

Research output: Contribution to conferenceAbstract

Abstract

Despite support from the literature and audit standards, the validity of the traditional fraud triangle theory has rarely been subjected to the scrutiny of the views and practices of external auditors. This study sets precepts of the traditional fraud triangle theory against external auditors’ actual perceptions, particularly in relation to the assessment of Fraudulent Financial Reporting Risk (FFRR). The findings reveal a significant mismatch, indicating that the traditional fraud triangle model is not suitable for the assessment of FFRR. Auditors should not only focus on which factors to consider in fraud risk assessment, but also on the relative importance of the factors. In the case of fraudulent financial reporting, the results suggest that without understanding managers’ motivations and levels of integrity, auditors are unlikely to detect fraud and bias in financial statements. Auditors also advised considering fraud perpetrators’ capabilities in the assessment of FFRR and viewing rationalisation as a red flag for low management integrity rather than a separate fraud factor. This study has important policy and practice implications, proposing a new practice-based model aimed at enhancing auditors’ skills in the assessment of FFRR.
Original languageEnglish
Publication statusUnpublished - 23 Jun 2020
Event9th Counter Fraud Conference and Forensic Accounting Conference - University of Portsmouth, Portsmouth, United Kingdom
Duration: 5 Jun 20196 Jun 2019
Conference number: 9
http://www2.port.ac.uk/centre-for-counter-fraud-studies/conference/

Conference

Conference9th Counter Fraud Conference and Forensic Accounting Conference
Abbreviated title9th CCFS/PBSAG annual conference
CountryUnited Kingdom
CityPortsmouth
Period5/06/196/06/19
Internet address

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    Kassem, R. (2020). Fraudulent Financial Reporting Risk Assessment: External Auditors' Perceptions Versus the Traditional Fraud Triangle Theory. Abstract from 9th Counter Fraud Conference and Forensic Accounting Conference, Portsmouth, United Kingdom.