How could external auditors assess the rationalization of fraud?
| DOI | https://doi.org/10.1108/JFC-08-2021-0184 |
| Published date | 20 October 2021 |
| Date | 20 October 2021 |
| Pages | 1458-1467 |
| Subject Matter | Accounting & finance,Financial risk/company failure,Financial crime |
| Author | Rasha Kassem |
How could external auditors assess
the rationalization of fraud?
Rasha Kassem
School of Business and Law, The Open University, Milton Keynes, UK
Abstract
Purpose –This studyaims to explore methods that external auditorscan use to assess the rationalization of
fraud in fraudrisk assessment in auditing.
Design/methodology/approach –An online questionnaire was used to collect data from 150 Big 4 auditors.
Findings –The results reveal a total of 18 methodsthat auditors can use to assess the rationalization of
fraud. However, some methods were recommended more than others by the auditors in this study. These
methods include incorporatingthe assessment of rationalization into the assessmentof motives for fraud and
integrity, understanding the client’s business and regulatory environment, inquiring management and the
board of directors about past fraud cases and observing management responses and reactions during
auditors’inquiryabout fraud-related matters.
Practical implications –The guidance provided by this study could help enhance auditors’skills in
assessing fraud risks, which,in turn, may increase the likelihood of detecting fraud. The guide could also be
helpful for auditfirms in their fraud training programs.
Originality/value –This study is the first to exploremethods for assessing the rationalization of fraud by
drawing on the experienceand insights of Big 4 auditors.
Keywords Fraud risk assessment, Rationalization of fraud, Audit quality, External auditors, Fraud
Paper type Research paper
1. Introduction
Every year, at least one highly publicized accountingscandal has been reported somewhere
in the world and often these accounting scandals are associated with audit failures. A
common question that follows any such scandal is, “who is to blame?”andoften the blame
for accounting scandals has been placed on the auditors (Marriott et al., 2011). Although
auditors are not responsible for detecting fraud, they are required to assess fraud risk (ISA
240; SAS 99), which could at least help spot fraud at its earliest stages. Further, the
effectiveness of audits in detecting fraudulent misstatements in financial statements is of
Funding: This research did not receive any specific grant from funding agencies in the public,
commercial or not-for-profit sectors.
Data availability statement: The data that support the findings of this study are available on
request from the corresponding author. The data are not publicly available due to privacy or ethical
restrictions.
Ethics approval statement: All ethical approvals were obtained prior to conducting this research.
The participants were fully informed about the nature of this research, the data that will be collected,
how their personal data will be protected and the nature of their participation through the
participant’s information sheet. A consent form was also sent to participants to seek their permission
to take part in the current study. The participant’s information sheet and consent form are available
upon request.
Declaration of interest: None.
ORCID ID: https://orcid.org/0000–0001-5384–3800.
JFC
29,4
1458
Journalof Financial Crime
Vol.29 No. 4, 2022
pp. 1458-1467
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-08-2021-0184
The current issue and full text archive of this journal is available on Emerald Insight at:
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