Busts, Booms, and U.S. Auditors' Interest in Fraud Detection: Evidence from the 20th Century

• In Event: Forensic & Investigative Accounting and Audit

Abstract

Content analysis of the 12 volumes of the 20th-century U.S. auditing reference series Montgomery’s Auditing yielded measures of the series’ focus on explicit fraud detection goals versus fraud detection techniques. Text on techniques declined (with high statistical significance) if a volume was written during an economic downturn, but not if the period was dominated by economic expansion. Text on fraud detection goals was not related to the business cycle. Assuming Montgomery’s Auditing fairly corresponds to U.S. audit practices, we conclude this is an example of the “neuroaccounting” phenomenon postulated by Dickhaut et al., that spontaneously developed and long-lived accounting practices spring from certain of the brain’s biological propensities that relate to exchange opportunities. As the model predicts, “rationally designed” formal standards do not respond to such deep biological needs.

Authors

• Stephanie D Moussalli, Rhodes College

• Gokhan Karahan, Delta State University