Occupational fraud : auditors' perceptions of red flags and internal control
Abstract: The overall purpose of this thesis is to increase the understanding of auditors' perceptions of occupational fraud. The focus is limited to red flags and internal control, i.e. to the indications or symptoms of occupational fraud and the internal control systems which are implemented in order to detect and prevent such actions from being carried out.The thesis is based on 33 interviews with auditors and experts. In order to increase confidence, triangulation was applied which implied both a qualitative as well as a quantitative methodological approach. The collected data was in turn analysed through two models of analysis - an adjusted version of the so called fraud triangle and the so called COSO-model. The analysis was carried out on the group of auditors as a whole (including subgroups of auditors) as well as compared to a group of experts on fraud and occupational fraud.The results from the study indicate several aspects of interest regarding auditors' perceptions of occupational fraud. First, the results indicate a tendency among auditors to emphasise "harder" aspects stronger than "softer" aspects. Seen from the fraud triangle, this was manifested by an emphasis on opportunity; when concerning internal control of control activities in the COSO model, this was emphasised relatively stronger. Second, the results indicate a rather strong heterogeneity among auditors in their perceptions of occupational fraud. Third, all subparts of the applied models were seldom covered on an individual basis. Fourth, the interconnection between harder and softer sides, both concerning red flags and internal control, were not very strongly emphasised. The results were given additional strength from the comparison with the group of experts.The study also included a comparison among different subgroups of auditors. The subgroups were constructed based on accumulated working experience as well as whether the respondents primarily audit larger or smaller companies. The results that were based on years of experience indicate a tendency among older auditors with more accumulated working experience to emphasise softer aspects relatively stronger, than auditors with less working experience. This tendency was present for red flags as well as for internal control. More experienced auditors also demonstrated a tendency to emphasise a relatively larger part of the two applied models of analysis. The division based on size of audited companies indicated similar tendencies as were found for both more and less experienced auditors. Hence, auditors who mainly audit larger companies showed a tendency to emphasise softer aspects relatively stronger compared to auditors who mainly audit smaller companies.
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