AN INQUIRY INTO THE CAUSES OF AUDIT FAILURE (FRAUD, CPAS)

This research effort explores the causes of substandard audit work and outright audit failure, with the focus of financial auditing as performed in the United States by certified public accountants (CPAs). Data was obtained primarily from the responses by 644 CPAs to a 44 item questionnaire sent in late December 1992 to all 2,427 CPAs in Santa Clara County, California.; The original research hypothesis was that management fraud and insufficient professional skepticism were the two leading causes of substandard audit work among the eight listed on the questionnaire. Questionnaire responses showed the hypothesis to be false.; Instead, the causes are--in order--lack of technical competence, auditor error, lack of due diligence, insufficient skepticism, impaired independence, management fraud, gross negligence, and other factors. Though the relative ranking of auditor error, lack of diligence and insufficient skepticism could be due to chance, statistical tests provide over 90 percent confidence that the other rankings are correct.; The validity of the rankings was further confirmed by statistically significant differences in the affirmative response rate of those who have detected fraud, who are aware of substandard audit work, who agree it is a problem, and who are older (in terms of age, years of experience, or years certified). Those individuals were also more likely to affirm a factor as a cause of substandard work and (except for those who have detected fraud) apt to view audit report quality more negatively.; The questionnaire responses shed light on other areas, too. For instance, though too few in numbers to provide statistically meaningful results, CPAs in government and in education who responded to the questionnaire had strikingly different views on many key issues (e.g. the quality of audit reports and audit independence).; Also, many differences noted between men and women can be explained by the relative youth of women as the profession opens its doors to them, but not all differences. Why women are less likely to audit and why women tend to have less confidence in the quality of audit reports are two differences which remain unexplained. These unexplained differences warrant further research.