An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

William F Wright
University of Illinois

Leslie A. Berger
University of Waterloo

Abstract: We test for the impact of a risk-based, causal versus a chronological presentation of strategic client evidence on auditor judgment performance when a management fraud has occurred. Also, we examine the impact of a false non-error management explanation on auditor judgment performance. Judgment performance is defined as (1) the ability to correctly estimate client sales given a fraudulent overstatement and (2) the likelihood of inferring the fraudulent cause of the overstatement. Based on a sample of 42 auditors, a risk-based, causal ordering of strategic and business process client information resulted in more valid estimates of non-fraudulent account balances. Also, the auditors supplied with the risk-based information ordering were better able to diagnose the fraud that had occurred and not be affected by the false non-error explanation from management. Differential auditing knowledge was a determinant of judgment performance.

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