A conceptual framework and case studies on audit planning and evaluation given the potential for fraud

For several decades there has been increasing interest in the audit and assurance profession in developing audit methods and standards that improve our ability to address the possibility of detect significant financial statement fraud. In the standards arena, SAS No. 82, Consideration of Fraud in a Financial Statement Audit (AICPA 1997), was promulgated in 1997.1 This audit standard requires CPAs to assess and document the risk of fraud during audit planning and to document changes to audit programs resulting from that assessment. Unfortunately, both practice development and academic research have been handicapped by a lack of a rigorous framework to facilitate assessment of audits in contexts where the potential for fraud is significant.The purpose of this paper is to develop a framework to assist audit planning and evaluation given explicit consideration of the possibility of fraud. The model development is based on an evidential network that has two major sub-networks: one to capture risk and evidential relationships for a conventional financial statement audit and another to capture the risk and evidential relationships for SAS No. 82 fraud risk assessment.