Usage of Forensic Professionals in the Audit Process at the Big 4: Evidence from the Field

• In Event: Auditors Use of Specialists

Abstract

The largest audit firms have been using forensic professionals on an increasing number of financial statement audits in recent years. However, little is known about the nature and extent of their involvement and there have been calls in the accounting literature and by the PCAOB’s Standing Advisory Group to better understand how audit firms employ these professionals in financial statement audits. Therefore, we conducted a survey aimed at understanding how forensic professionals are used in the audit process with particular emphasis on three key areas: factors that trigger involvement of forensic professionals, activities forensic professionals perform, and the challenges and success factors associated with utilizing these professionals on audits. Results indicate that each of the Big 4 is currently using forensic professionals on select riskier engagements (e.g., those involving restatements, IPOs, investigations by regulators or law enforcement agencies) and have been doing so for the last decade. The overwhelming majority of audit and forensic respondents believe the additional value of utilizing forensic professionals on audit engagements outweighs any additional costs. Furthermore, both audit and forensic respondents indicate forensic involvement has led to improved audit quality as evidenced by additional audit findings related to asset misappropriation, fraudulent financial reporting, and internal control deficiencies.

Authors

• James Greg Jenkins, Virginia Tech University

• Eric Negangard, Virginia Tech University

• Mitchell J Oler, Virginia Tech University