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How Trust Underpins Auditor Fraud Risk Assessments
Jose Hernandez,
Vrije Universiteit Amsterdam
Tom Groot, Vrije Universiteit Amsterdam
ABSTRACT. This study investigates whether indications of mistrust, associated with an organization’s financial reporting culture, are related to auditor fraud risk perceptions, observations and experiences. Using a sample of 5,603 client acceptance and audit continuance assessments at a Big Four audit firm in the Netherlands, this study finds that: (1) manager integrity, honesty, and ethics are considered by audit partners to be of highest importance in fraud risk assessments; (2) the aggressiveness of an organization’s revenue recognition and accounting estimates appear to significantly influence auditor fraud risk perceptions; and (3) the quality of the audit-client relationship, and the level of senior management experience, provide important cues influencing auditor perceptions in “low risk” fraud situations, but neither are used to identify nor categorize high fraud risk clients. These empirical findings highlight the significant importance of senior management attitudes.
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