Fraud Inquiries: The Influence of Question Phrasing and Rapport on Client Reporting

• In Event: Audit-related Insight from Novice Judgments

Abstract

Auditors currently conduct management inquiries during the planning phase of the audit with the goal of modifying the audit plan to address any risks identified, including those pertaining to fraud. The audit standard, AS 2110, describing the fraud inquiries currently includes the word fraud. However, the Center for Audit Quality (CAQ) warns that using the word fraud during discussions with management may hinder conversation. This study aims to explore whether avoiding or mentioning the word fraud impacts the likelihood of an employee to report fraud to an inquiring auditor. The study also examines whether the question type (open-ended or closed) and rapport between the auditor and client influence reporting behavior. Results from an experiment using Amazon Mechanical Turk participants indicate that avoiding the word fraud increases the likelihood of reporting when closed type questions are used and the auditor lacks rapport with the client. Practically, this suggests that auditors lacking rapport with the client and using the inquiries from the standards (closed type questions that mention the word fraud), may be able to increase the likelihood of reporting by simply avoiding the word fraud. Results also indicate that in this same setting mentioning the word fraud does not appear to reduce the likelihood of reporting as long as the auditor has built rapport with the client. As tips are the most common form of fraud detection, it is critical that inquiring auditors are conducting interviews using the most effective method.

Author

• Megan Marie Jones, Xavier University