The impact of assessment procedures and need for cognition on fraud risk assessments

Due to the increasing awareness of fraudulent financial reporting, auditors' responsibility to conduct quality fraud risk assessments has been raised by a current audit standard, Statement on Auditing Standard No. 99: Consideration of Fraud in a Financial Statement Audit (SAS No. 99). The dissertation seeks to investigate the impact of fraud risk assessment requirements and recommendations under SAS No. 99 on the quality of fraud risk judgment. Specifically, the standard requires auditors to consider information gathered along fraud triangle components---opportunity, incentive, and attitude. Prior research argued that separate consideration of fraud triangle components increased auditors' sensitivity to the components (Wilks & Zimbelman, 2004a). SAS No. 99, additionally, recommends auditors consider the fraud risk attributes---significance, likelihood, and pervasiveness.;Two assessment procedures, categorization of fraud risk factors along the fraud triangle components and consideration of fraud risk attributes, are conjectured to induce systematic processing, which in turn improve the quality of overall fraud risk assessments. The assessment procedures are compared against the Wilks and Zimbelman (2004a) decomposition assessment (W&Z decomposition). Employing the procedure including both assessment procedures is posited to reduce the assessment variation among auditors low in need for cognition (NFC). To test the propositions, a 3 x 2 between-participants experimental design with three levels of assessments procedures and two levels of fraud risk (lower and higher) is employed.;Fifty audit seniors anonymously participated in the study. The analyses reveal that the categorization procedure coupled with W&Z decomposition does not significantly improve the quality of the assessments. The significant effect of using both requirement and recommendation under SAS No. 99 is conditional upon fraud risk levels. The combination of these procedures results in more accurate assessments and lower dispersion of assessments among low in NFC auditors. The findings suggest that the requirement and recommendation under SAS No. 99 can effectively increase the quality of fraud risk assessments when both are considered together and when the situation presents low fraud risk.