Fraud Detection, Redress and Reporting by Auditors

H.F.D. Hassink, R.H.G. Meuwissen, L.H.H. Bollen

Research output: Contribution to journalArticleAcademicpeer-review


Purpose – The primary research question of this study is to what extent auditors comply with
auditing standards once they encounter fraud and whether compliance is associated with particular
fraud characteristics (i.e. material versus immaterial fraud, management versus employee fraud,
statutory versus voluntary audit and external versus internal fraud) as well as with auditor (experience)
and audit firm characteristics (Big Four versus non-Big Four). The study also aims to provide evidence
on the role of auditors in redressing fraud. Redress refers to the auditee taking measures to nullify the
consequences of the fraud, insofar as possible, and to prevent any recurrence of such fraud.
Design/methodology/approach – To gather data on the role of auditors in fraud cases, a survey
was conducted among all audit partners of the top 30 Dutch audit firms. In total, 1,218 audit partners
were selected and received a postal questionnaire. In total, 326 questionnaires were returned (27 per cent),
of which 296 (24 per cent) were usable.
Findings – The results reveal that auditors fail to comply with some important elements of fraud
standards. There are substantial differences among audit firms regarding compliance with the
relevant auditing standards. Furthermore, auditors appear to encounter corporate fraud only
incidentally. About half of the auditors believe they have a “significant” impact on redressing fraud.
Research limitations/implications – One of the main research findings is that it is difficult for
individual auditors to build up expertise in fraud detection. There appears to be a need for specific
training programs for auditors to help them to detect fraud, emphasizing the need for mandatory
consultation with the technical department of the audit firm once “red flags” indicating fraud are
found. Indeed, this need for change has been addressed by the Dutch professional accountancy body
NIVRA as a direct result of the findings of this study.
Originality/value – This study extends existing research by investigating the compliance of
auditors with fraud standards and it sheds light on the actual redress experiences of auditors. It
focuses on the actions taken by auditors – or the lack thereof – in situations where auditors encounter
fraud signals. The study indicates that in the absence of good oversight, auditors have mixed
incentives when they are confronted with signals for fraud, resulting in actions that are not always in
line with existing regulatory requirements.
Original languageEnglish
Pages (from-to)861-881
Number of pages21
JournalManagerial Auditing Journal
Issue number9
Publication statusPublished - 12 Oct 2010
Externally publishedYes


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