The study examines how an individual's level of fraud detection proficiency (an individual possessing formal fraud education or training, informal fraud training, fraud task-specific experience, and /or fraud-related certifications) impacts their performance on fraud risk assessments and modification of audit plans. Further, it explores which of the fraud detection proficiency dimensions are valuable for auditors in situations of high and low levels of fraud risk and how these characteristics interact with professional skepticism. This, as well as the effectiveness and efficiency of the procedures selected, are addressed using a survey-based scenario where one case is embedded with a financial statement fraud and the other is not. Tobit and ordered logit regression models are used to evaluate a sample of 40 auditors and 10 forensic professionals with varying levels of fraud-related experiences, education, training, and certifications against a benchmark panel. Results demonstrate fraud certifications are effective in fraud risk assessments, are not effective in audit plan modifications, and on average those individuals tend to over-audit. In addition, fraud-related task-specific experience improves audit plan modification effectiveness. Third, including professional skepticism as an interaction is more reflective of the variable's nature, with results supporting interactions with fraud certifications and informal fraud training in the fraud risk assessment model and formal fraud training in the audit plan modifications model. Finally, individuals of higher rank, in addition to those with fraud certifications, are more likely to over-audit, while individuals in the no fraud scenario are more likely to under-audit. This study contributes to the academic literature with regard to a subset of the FJDM proposed by Hammersley (2011) validating professional skepticism as an integral variable in the model, particularly as an interaction variable and with regard to the impacts of fraud certifications and fraud-related task-specific experience. The study also contributes by providing evidence, which indicate lower fraud risk situations are prone to assessing fraud risk less effectively and under-auditing. Finally, this study also contributes a new measure for direct fraud-related experience, which captures more details regarding applicable task-specific experiences. / Ph. D.

證期會於民國九十一年十一月十四日公布「公開發行公司公開財務預測資訊處理準則」，該準則中規定已公開財務預測之公開發行公司，於年度終了後一個月內須公告申報預計損益表之達成情形並說明差異原因。而且若與嗣後經會計師查核之稅前損益間之差異超過一定門檻時，亦須一併公告差異金額及原因。 本研究預期，公司為了聲譽、股價、融資受阻及溝通成本等原因，可能不希望自結損益與查核損益差異過大。另外，公司管理當局為了避免上述差異超過門檻，在公告自結損益前可能洽請審計人員進行財務報表初查或過目自結損益表；而審計人員也可能為了避免查核時調整事項過多，造成與客戶間的衝突，亦可能希望客戶在公告自結損益前能先洽請審計人員進行初查或過目自結損益表。因此，實施自結損益規定可能造成審計人員先前涉入公司之自結損益。 本研究以四大會計師事務所之合夥會計師九名及資深審計經理六十六名為對象，採取實驗的方式，探討實施自結損益規定對審計人員審計判斷的影響。並進一步探討審計人員先前涉入公司自結損益的普遍程度，及此一情形對審計人員審計判斷的影響 實驗結果顯示實施自結損益的規定的確會使得審計人員普遍先前涉入公司自結損益；審計人員調整應計損失的幅度比實施前小，尤其在其有先前涉入公司自結損益的情形下，更為明顯；且發現因設有重大差異標準而造成的門檻效果。換言之，依本研究結果推論，實施公告自結損益規定會影響審計人員的專業判斷，壓縮審計人員調整損益的空間。 / This thesis experimentally examines the effects of a regulation on audit judgments. In November 2002, the Securities and Futures Commission announced a new measure requiring listed companies that have made their financial forecast to the public to release within a month after the year end their income statements (hereafter called “pre-announced earnings”) and explain the discrepancy from the forecasted earnings. This new measure requires that the above listed companies release their earnings information earlier than the deadline for filing audited financial statements (hereafter called “audited earnings”) by three months, aiming to ask the listed companies to provide more timely information to investors. It also sets some threshold beyond which the companies and auditors are required to explain the discrepancy. The threshold dictates, among others, that the differences between the pre-announced earnings and audited earnings cannot exceed 20 percent of pre-announced earnings. The current study predicts that due to the consideration of reputation, communication costs, and stock price reaction, companies will have incentives to keep the difference, if any, between the pre-announced earnings and audited earnings within the limit. The auditors will also have similar incentives to do so to avoid the loss of clients, and communication costs. In doing so, the companies will ask auditors to involve in the process prior to pre-announcing earnings (hereafter called “pre-announcement process”), which will help narrow down the difference between pre-announced earnings and audited earnings. This study recruits 66 senior managers and nine partners from Big 4 firms to participate in an experiment in which they make audit judgment as to the adjustment required for a client’s allowance for bad debts. They are also required to generalize the client’s case to the listed companies as a whole and make similar judgments. Their perception on the extent to which auditors’ involvement in the pre-announcement process is also solicited. The data based on the experiment are used to examine the following hypotheses: H1: The adjustments required by auditors will be smaller after this new regulation than before the new regulation. H2: The degree to which auditors are involved in the pre-announcement process will be high. H3: The adjustment required by auditors will be smaller when auditors are involved in the pre-announcement process than when they are not. The results show that the adjustment required by auditors is smaller after the new regulation than before the new regulation. But the difference is not statistically significant (p = 0.133). When generalizing the client’s case to the listed companies as a whole, the difference becomes marginally significant (p = 0.074). Thus, H1 is not supported. The auditors perceive that the extent to which auditors will be involved in the process prior to pre-announcement is significantly higher than 7 on a 1-9 scale (p = 0.002), supporting H2. The results also indicate that auditor’s prior involvement in the pre-announcement process has a significant effect on the required adjustment no matter it is a specific or general case (p < 0.001). Thus H3 is supported. Combining these findings suggests that the new regulation has an effect on constraining auditors in requiring adjustments to their client’s accounting estimates to the extent that the threshold permits. This new regulation therefore poses a trade off between relevance (timeliness) and reliability (representational faithfulness) of accounting information. Meanwhile, the role of auditors in attesting financial statements may also be adversely affected.

The revaluation of non-current assets has become an accepted accounting practice in many countries including the United Kingdom, Australia and New Zealand. This practice has implications for the external auditor who must decide whether to accept a valuation as reasonable and how much evidence to collect to support the decision. This thesis represents the first study to examine audit decision making in this area. Because of the absence of prior research, a series of structured interviews was undertaken with audit partners to identify the main audit issues. The results of these interviews, together with the relevant literature, were used to identify some of the factors that may impact on audit judgments concerning revalued assets. Hypotheses were developed and two complementary experiments were designed to test them. These were based on the premise that client management may be motivated to revalue in order to improve the appearance of the balance sheet, thereby increasing the inherent risk of misstatement. A 2 x 2 between-subjects design was used for both experiments, and the dependent variables measured were estimates of the planned audit hours to be spent on the revalued assets and likelihood judgments that the valuations would be accepted as reasonable. Experiment One considered the situation where auditors are faced with two conflicting risks which are likely to exist simultaneously in the audit environment. These were the threat of litigation arising from the client's breach of a debt covenant and the risk of losing the client. The study examined auditors' responses to high and low levels of these risks on the audit of revalued owner-occupied property and an investment property. For the planned audit hours, results indicated a strong interaction effect between the two factors, with auditors planning to spend significantly more time on the audit of revalued assets when both the risk of breaching a debt covenant was high and the risk of losing the client was low. Similar results were found for the likelihood judgment that the valuations would be accepted as reasonable, except that for the investment property the results were only marginally significant. Experiment Two examined the impact of a proposal to issue shares to the public and the competence of the independent valuer on the audit of four classes of non-current assets. Results indicated that auditors would plan to spend longer on the audit of revalued assets when the client proposed to make a share issue and also when the competence of the valuer was lower. They were also less likely to accept the valuations as reasonable in these cases. However, an interaction effect between class of asset and competence of the valuer indicated that concern with some aspects of the evidence could override subjects' sensitivity to the competence of the valuer. An additional finding was a significant experience effect for the likelihood judgments, based on the number of audits, in which subjects had been involved, that had included asset revaluations. More experienced subjects were more likely than less experienced subjects to accept the valuations as reasonable.

Fraud risk assessment is an important audit process that has a direct impact on the effectiveness of auditors' fraud detection in an audit. However, prior literature has shown that auditors are generally poor at assessing fraud risk. The Public Company Accounting Oversight Board (PCAOB) suggests that auditors may improve their fraud risk assessment performance by adopting a fraud specialist mindset. A fraud specialist mindset is a special way of thinking about accounting records. While auditors think about the company's recorded transactions in terms of the availability of supporting documentations and the authenticity of the audit trail, fraud specialists think instead of accounting records in terms of the authenticity of the events and activities that are behind the reported transactions. Currently there is no study that has examined the effects of the fraud specialist mindset on auditors' fraud risk assessment performance. In addition, although recent studies have found that fraud specialists are more sensitive than auditors in discerning fraud risk factors in situation where a high level of fraud risk is present, it remains unclear whether the same can be said for situation where the risk of fraud is low. Thus, the purpose of my dissertation is to examine the effects of fraud specialist and audit mindsets on fraud risk assessment performance. In addition, I examined such effects on fraud risk assessment performance in both high and low fraud risk conditions. The contributions of my dissertation include being the first to experimentally examine how different mindsets impact fraud-related judgment. The results of my study have the potential to help address the PCAOB's desire to improve auditors' fraud risk assessment performance though the adoption of the fraud specialist mindset. In addition, my study contributes to the literature by exploring fraud-related problem representation as a possible mediator of mindset on fraud risk assessment performance. I executed my dissertation by conducting an experiment in which mindset (fraud specialist or audit) was induced prior to the completion of an audit case (high or low in fraud risk). A total of 85 senior-level accounting students enrolled in two separate auditing classes participated in my study. The results from my experimental provide empirical support that it is possible to improve auditors' fraud risk assessment through adapting the fraud specialist mindset. My study also provides preliminary evidence that individuals with the fraud specialist mindset developed different problem representations than those with the audit mindset.

Subordination of judgment is a fundamental threat to auditor objectivity. Subordination of judgment occurs when auditors agree with their superiors either in spite of or without forming their own independent judgments. Many audit procedures rely on independent, critical thinking at every level of the audit team; however, a number of studies suggest that auditors tend to agree with superiors even when a superior's views clearly run contrary to generally accepted accounting principles. While there is general agreement among scholars that subordination of judgment is "bad," very little attention has been given to moral biases that might influence an auditor's tendency to subordination of judgment, or to potential remedies that could mitigate an auditor's tendency to subordinate judgment. Moral Foundations Theory suggests that individuals tend to make intuitive, normative evaluations of situations based upon a set of personal moral biases or preferences called "moral foundations." Two specific moral foundations could influence subordination of judgment in divergent ways. The moral foundation of loyalty-respect may make agreement with a superior's views seem more acceptable than would disagreement. Meanwhile, the moral foundation of fairness may make an auditor more sensitive to the observance of rules, resulting in less subordination of judgment when a superior's views run contrary to professional rules. Social Identity Theory suggests that in-group favoritism may exacerbate subordination of judgment in general; however, strengthening an auditor's professional identity salience (PIS) could strengthen an auditor's objectivity. PIS is the temporary, heightened awareness of an auditor's identity as a professional and their role as guardian of professional rules. As a result, PIS may interact with an auditor's innate sense of fairness, resulting in less subordination of judgment than when professional identity is less salient. Results supported the hypothesis that auditors tend to subordinate their judgment to that of a superior, but not that PIS mitigates the effect of subordination of judgment. Results also supported the hypotheses that the moral foundations of loyalty-respect and fairness influence the tendency of auditors to subordinate their judgment to that of a superior. Specifically, auditors with higher levels of loyalty-respect were more likely to agree with a superior who suggested an incorrect accounting treatment than auditors with lower levels of loyalty-respect. Whereas, auditors with higher levels of fairness were less likely to agree with a superior who suggested an incorrect treatment than were auditors with lower levels of fairness. Therefore, this dissertation provides evidence that moral foundations bias professional judgment and decision making in auditing and calls for further research into the influence of moral heuristics.