The Role of Individual Professional Skepticism in Fraud Risk Brainstorming

• In Event: Fraud 2

Abstract

PCAOB AU Section 316 Consideration of Fraud in a Financial Statement Audit is designed to provide auditors with guidance on how to plan and perform the audit in order to obtain reasonable assurance about whether the financial statements are free of material misstatement due to fraud. Two key elements addressed in PCAOB AU Section 316 are the importance of exercising professional skepticism and the requirement of a fraud brainstorming session. Despite this requirement, little is known about how individual professional skepticism might affect the effectiveness and efficiency of responses to fraud risk indicators in group settings. The findings of this study demonstrate that individual differences in trait professional skepticism among group members in fraud risk brainstorming settings can significantly impact the quality of these sessions. Including members with high levels of trait professional skepticism in the group significantly increases the assessed level of the risk of fraud in high risk settings. However, including these individuals in lower risk settings also increases the assessed risk of fraud beyond a reasonable level. These results suggest there is an efficiency tradeoff associated with including more skeptical individuals in brainstorming groups when the risk of fraud is relatively low. This research contributes to the fraud brainstorming and professional skepticism streams of research by demonstrating that the mix of individual differences in professional skepticism among group members can significantly impact the outcomes of fraud risk brainstorming.

Authors

• Michelle McAllister, Florida State University

• Allen D. Blay, Florida State University

• Kathryn Kadous, Emory University