Assessing Fraud Risk, Trustworthiness, Reliability, and Truthfulness : Integrating Audit Evidence from Multiple Sources

As directed by SAS 99 (AICPA, 2002), fraud risk assessment is an iterative process that begins with the recognition of initial fraud risk factors and then involves interviewing senior financial personnel (e.g., CFO) to explain the financial results and nonfinancial operating personnel to corroborate information obtained from the financial personnel. Prior research has not examined if auditors can combine evidence from workpaper documentation with interviews with multiple entity personnel to appropriately update their truthfulness and fraud risk assessments in a situation where management seeks to conceal fraud. In this study, 67 auditors, across professional ranks, completed a case based on an actual fraud. The presence or absence of fraud was manipulated. Auditors received and evaluated audit evidence in three stages -- after receiving client background information, client inquiry evidence from senior financial personnel, and inquiry evidence from operating personnel. The results show that auditors were not able to appropriately differentiate between the fraud and no fraud conditions after the initial review of financial statements and fraud risk factors and after the review of the information provided by the senior financial personnel, even when the financial personnel were being deceptive. However, when auditors received inconsistent (consistent) audit evidence from operating personnel, they appropriately increased (decreased) their fraud risk assessments and decreased (increased) their trustworthiness, reliability, and truthfulness judgments of financial personnel. Further analysis indicates that auditors with prior experience with fraud had heightened awareness of fraud early in the process based only on fraud risk factors and client deception. We extend research on deception detection by demonstrating auditors' ability to appropriately detect fraud and assess client truthfulness when presented with evidence from a corroborating source. These findings also provide evidence on SAS 99's recommendation for the use of client inquiry, but only when integrated with other audit evidence