Implications of Regulatory Prescriptions & Audit Standards on the Evolution of Forensic Accounting in the Audit Process

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Electronic copy available at: http://ssrn.com/abstract=1505783

Implications of Regulatory Prescriptions

& Audit Standards on the Evolution of Forensic

Accounting in the Audit Process

James A. DiGabriele

Assistant Accounting Professor Department of Accounting, Law & Taxation

School of Business Montclair State University

One Normal Avenue Montclair, NJ 07042 Phone (973) 655-7288 Fax (973) 243-2646 [email protected] [email protected] June 9, 2008 Abstract

The arrival of the Sarbanes-Oxley Act of 2002 (Sarbox), the subsequent formation of the Public Company Accounting Oversight Board (PCAOB) and the implementation of the

Statement on Auditing Standards No. 99 (SAS 99) has presented the current auditing

environment with a new paradigm that makes finding fraud a priority. A nationwide survey was conducted for a random sample of accounting academics, forensic accounting practitioners, and auditors regarding the addition of forensic accounting skills to the audit process. The results indicate that overall levels of agreement with the survey statements existed for all three groups, and whatever differences were found fell within the range of agreement.

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Electronic copy available at: http://ssrn.com/abstract=1505783

I. Introduction

The arrival of the Sarbanes-Oxley Act of 2002 (Sarbox), the subsequent formation of the Public Company Accounting Oversight Board (PCAOB) and the implementation of the

Statement on Auditing Standards No. 99 (SAS 99) has presented the current auditing

environment with a new paradigm that makes finding fraud a priority. The adaptation of auditors to these new surroundings has been met with some uncertainty. For example, auditors have been required to assess the risk of financial statement fraud but may be ill equipped to do so with their current skill set (Arens & Elder 2006, Coenen 2006). The American Institute of Certified Public Accountants (AICPA) and education leaders has called for more forensic education for auditors (Arens & Elder 2006, AICPA, 2004). In addition, the PCAOB has emphasizing that the detection of fraud should be an important objective of an audit (Carpenter 2007). In this study, a survey instrument is presented to three major stakeholders of the accounting profession, auditors, forensic accountants, and accounting academics to ascertain if they agree with the call for more forensic accounting proficiency in the audit process. These groups are significant because they are exceptionally positioned to incrementally advance the accounting profession based upon agreement.

This study is important for several reasons. Some have argued that the “future demand” for auditing services will be dependent upon the auditors’ capability to “detect and deter fraud” (Carpenter 2007, Wilks & Zimbleman 2004, Elliot 2002). Thus implying an incremental addition to the current auditor skill set. The AICPA (2004) issued a discussion memo emphasizing the use of forensic accounting procedures to detect financial statement fraud. The memo goes further by

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calling for audit teams to be trained in forensic accounting procedures in order to perform successful audits in the future.

Others believe that adding forensic skills to the audit process assists in fulfilling the expectation gap because clients and shareholders believe these procedures are already being performed (Zikmund & O’Reilly-Allen, 2007, Coenen 2006). This study provides evidence that stakeholders of the accounting profession understand the need for future adaptation in the new audit environment.

Finally, educational leaders have stressed the need for better forensic accounting skills for auditors as a result of the “implications of the changed regulatory and audit standard setting environment (Arens & Elder 2006).” The role of the auditor in the detection of fraud has a long history of controversy and confusion (Zikmund & O’Reilly-Allen 2007). Historically, the response from the accounting profession over the past twenty years has been the issuance of three fraud standards; Statement on Auditing Standards No. 53 (1988), Statement on Auditing Standards no. 82 (1997) which was replaced by Statement on Auditing Standards No. 99 (2002). Currently, the PCAOB (2007) issued a Release emphasizing that an important focus of the Board is the auditor’s responsibility for the detection of a material misstatement caused by fraud.

Auditor adaptation to this new environment appears to be essential and necessary to advance the audit franchise of the accounting profession. This study provides the likelihood of a basis for agreement and acknowledgement among auditors, forensic accountants, and accounting

academics that the new regulatory prescriptions and audit standards have created. In addition, the forensic mindset may indeed represent an incremental shift in job skill requirements for the accounting profession further answering the general research theme of this study; do forensic accounting skills have a place in the current auditor skill set?

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Three major stakeholders in the accounting profession, auditors, forensic accountants, and accounting academics participated in a survey that consisted of a survey instrument

regarding the infusion of forensic accounting skills into the current auditing process. A One-Way ANOVA was used to evaluate the participant responses and interpreted accordingly. Results suggest that there is a level of agreement among the groups that forensic accounting skills do have a place in the contemporary audit setting.

In summary, the results directly contribute to research intending to improve the evolution and adaptation of future auditors in these progressive surroundings. Additionally, this study provides much needed information for accounting organizations to avoid structural inertia in constraining adjustment to the new regulatory and standard setting environment by identifying a unified level of agreement among three major stakeholders in the profession that would be the driving forces behind such a change in the accounting profession (Betton and Dess 1985).

This paper is organized as follows; Section II provides the motivating literature for the study. Section III describes the methodology. Section IV provides the results. Section V presents the conclusion with recommendations for future research.

II. Motivation for Study

Forensic accounting engages two general areas; investigative accounting and litigation support. Investigative accounting utilizes accounting, auditing, and investigative skills to either conduct an examination into a company's financial statements or resolve financial issues suitable for court. Litigation support recognizes the role of the Certified Public Accountant (CPA) as an expert or consultant in financial litigation that may include the valuation of economic damages, and closely held companies. Both roles may ultimately lead to court testimony (Crumbley,

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Heitzger, and Smith 2007). Although fraud is not explicitly mentioned in the definition of forensic accounting, examining for fraud is part of forensic accounting (Hopwood, Young and Leiner 2008).

The interconnection between forensic accounting and auditing is “dynamic,” and has changed over time due to regulatory, social, political and standard setting events (NIJ 2005). However, the auditor’s role in detecting fraud has a lengthy saga of debate. Dating back to the Lawrence Dicksee 1892 textbook “Auditing; A Practical Manual for Auditors” (the authorized American Edition was published in 1905) which lists the objective of an audit is “threefold:”

1. The detection of fraud

2. The detection of technical errors. 3. The detection of errors in principle.

Dicksee (1905) goes on to emphasize that fraud detection is the most important

component of the Auditor’s job. In addition, the author proclaims that the auditor who is able to find fraud is a better man that the auditor who does not find fraud (Dicksee 1905). However, in 1895 English Court ruled in the London and General Bank case that auditors are not expected to detect all fraud present in an audit but should perform their audits with reasonable care

(Zikemund & O’Reilly-Allen, 2007). Considering for the past one hundred or so years auditing practice has been operating under the reasonable care standard, a good question is why does the public misguidedly believe auditors “can, must and will find fraud” if it exists in the company they are auditing (Coenen 2006)?

The most likely explanation is that the public believes external auditors currently possess skills similar to forensic accountants and are responsible for finding fraud in audits (Cheney

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2005). The historical response from accounting profession is that the public does not understand “the nature and limitations of an audit” (Coenen, 2006). The profession further responded by codifying additional auditing standards with the innuendo of finding fraud (Zhang 2007, Arens & Elder 2006, Coenen 2006). Regardless of all the attempts to ease public concerns there remains “a substantial gap” between the public perception and auditing practice (Zhang 2007, Frank, Lowe, and Smith 2001, Latham and Linville, 1998). In November 2006 the CEOs of the six largest audit firms prepared a report title; “Global Capital Markets & the Global Economy.” The CEOs emphasized that there is no single issue that is the subject of more confusion, “yet is more important, than the nature of the obligation of auditors to detect fraud.” “There is a significant expectation gap between what various stakeholders believe auditors do, or should do, in detecting fraud and what auditors are capable of doing at prices companies or investors are willing to pay." The report goes on to highlight that there are limits to what an auditor can find in the way of fraud unless investors are willing to “pay auditors to police all of the company’s transactions.” Currently auditors are limited by using “indirect means” when this process is limited by inherent “cost constraints” that are not in line with current audit standards. The report ultimately puts the blame on the cost of a detailed audit that prohibits the modern day auditor from finding fraud. The compromise between cost and the expectation gap may indeed be fulfilled by supplementing current audit programs with foundational forensic accounting skills aimed at providing further assurances of detecting fraud.

The AICPA believes that auditors need to learn forensic accounting skills in order to “perform successful audits in the future (AICPA, 2004).” Education leaders have indicated that current audit education needs to include more forensic accounting skills in the changing audit market (Arens & Elder 2006). Providing better forensic accounting training will help auditors

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identify fraud risks and how to properly respond to those risks (Arens & Elder 2006, AICPA 2004). Auditors are also feeling the pressure of this changing paradigm and are asking to be educated themselves (Cheney 2005).

The environmental framework currently created by regulatory and standard setting bodies appears to require a merger of common ground between forensic accounting and auditing. For this bridge to be built there is a pending need for a level of agreement among specific groups within the accounting profession that are the best positioned to move forward. Accounting academics are responsible for educating the future of the accounting. It is important for this group to have an expression of agreement that forensic accounting skills will add value to the future of auditing practice. Auditors are on the front line of this changing paradigm and have the most at stake. A consensus of acknowledgement among auditors would be necessary for an incremental addition to the current skill set and to progress forward. Forensic accountants are significant in this process because their knowledge, guidance, and future participation in the audit process are essential to necessitate change.

In summary, it is unrealistic to believe that a detailed audit is needed to replace the current manner that audits are performed. However, professions evolve by way of regulatory, political, and social responses. Accounting is not immune to further progression. Although there are some distinct differences between forensic accountants and auditors, there is enough common ground to answer the call for auditors to be more mindful for finding fraud. This research intends to draw attention to the fact that a new skill set may need to be part of foundational training for current auditors and future auditors in order to fill the “expectation gap” and successfully advance the franchise of the accounting profession, auditing.

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III. Methodology and Research Design

A nationwide survey was conducted for a random sample of 1,500 accounting academics, forensic accounting practitioners, and auditors. The sample was compiled as follows; 500

random e-mail addresses were retrieved for faculty members from accounting departments of various universities across the nation. For forensic accounting practitioners, 500 random e-mail addresses were retrieved from several membership databases such as the National Association of Certified Valuation Analyst (NACVA), American Board of Forensic Accounting (ABFA), Association of Certified Fraud Examiners (ACFE) and, the American Institute of Certified Public Accountants (AICPA) business valuation and forensic & litigation services section (BVFLS) in addition to a specific search for accounting firms that perform forensic accounting services. Finally, 500 random e-mail addresses were retrieved from a Google search of

accounting firms practicing auditing.

The survey instrument employed was prepared, pre-tested and e-mailed. A reliability test, Cronbach’s α was performed to indicate the overall reliability of the survey instrument. The overall α was .86 indicating good reliability. The instrument is contained in Appendix A. Participants were e-mailed using www.surveymonkey.com, and were asked the extent to which they agreed with each of the 9 statements. The agreement ratings were measured on a five-point Likert scale ranging from “strongly disagree” to “strongly agree.” For the nine Likert-scale survey items, numeric values were assigned to each response option as follows: 0 = strongly disagree, 1 = disagree, 2 = neither agree nor disagree, 3 = agree, and 4 = strongly agree.

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Two-tailed tests and an α level of .05 were used for all inferential analyses. The main set of analyses consisted of a series of oneway ANOVAs comparing, accounting academics, forensic accountants and auditors in terms of their agreement with the nine questions.

IV. Results

Descriptive Statistics

A total of 253 participants completed the survey. Of these, 102 (40.3%) were accounting academics, 73 (28.9%) were auditors, and 78 (30.8%) were forensic accountants.

Table 1 shows the level of agreement to each of the nine survey statements for the combined sample and Table 2 illustrates the level of agreement as a function of the group. As can be seen in both tables, the respondents in general showed a high level of agreement with eight of the nine survey statements (all except Statement 6). Given the scale points defined above, the means for these eight statements, ranging from 2.91 to 3.26, are close to the “agree” point on the scale.

The only item with a mean indicating disagreement was Item 6 which asked, if brainstorming as required by SAS 99 sufficiently addresses the potential for the discovery of fraud. Considering the call for more forensic knowledge and education, the overall sentiment of disagreement was not a surprise.

The highest level of agreement for the combined sample was to the statement “The current regulatory environment, The Sarbanes Oxley Act of 2002 (Sarbox), Statement on Auditing Standards No. 99 (SAS 99), The Public Company Accounting Oversight Board (PCAOB) and the augmented responsibility for detecting management or employee fraud has

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increased the need for auditors to possess foundational forensic accounting skills” (M = 3.26, SD

= .77). The next highest levels of agreement were to statement 3. “If the future demand for audits

will depend on the auditor’s ability to detect & deter fraud, forensic auditing procedures (focusing on exceptions, oddities, accounting irregularities and patterns of conduct) should be added to current audit programs (sampling for material misstatements and focusing on errors, omissions,) in a cost efficient manner” (M = 3.10, SD = .88), and statement 2, “the forensic accounting mindset represents an incremental shift in job skill requirements of the accounting profession” (M = 3.09, SD = .86). The lowest level of agreement (and the only statement to which the respondents disagreed) was to statement 6 “Prior research has indicated that auditors have had difficulty identifying fraud; SAS 99 has required brainstorming as a tool in the

potential discovery of fraud. Brainstorming addresses the difficulty sufficiently” (M = 1.19, SD

= 1.01).

When the means for each of the three groups were examined separately, the same general trend was found. That is, individuals in each of the three groups, accounting academics, forensic accountants, and auditors, tended to agree with survey statements (again, with the exception of statement 6 as discussed above). For accounting academics, mean levels of agreement for the eight items ranged from 2.69 to 3.15. For auditors, mean levels of agreement ranged from 3.05 to 3.22. For forensic accountants, mean levels of agreement ranged from 3.06 to 3.45. Thus,

regardless of group membership, the respondents tended to agree with these eight survey statements.

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In order to determine if respondents in the three groups differed in terms of their levels of agreement, they were compared on their mean responses to each of the nine survey items. Table 3 shows the results of the nine oneway ANOVAs performed to compare the groups. Statistically significant ANOVAs were followed by Tukey HSD tests to determine which groups differed from which others. In addition, for each ANOVA an η2 effect size measure was computed. η2 has a possible range from .00 (indicating no variance due to the group difference) to 1.00 (indicating that all of the variance is due to the group difference).

For statement 1, the group difference was statistically significant, F(2, 250) = 3.58, p = .028, η2 = .03. Tukey HSD follow up tests indicated that forensic accountants (M = 3.45, SD = .60) agreed more strongly with this item than accounting academics (M = 3.15, SD = .79), p = .025. For statement 2, the group difference was statistically significant, F(2, 250) = 3.21, p = .042, η2 = .03, and Tukey HSD follow up tests again indicated that forensic accountants (M = 3.24, SD = .81) agreed more strongly with this item than accounting academics (M = 2.93, SD = .88), p = .042. Means for statement 3 were also statistically different, F(2, 250) = 7.78, p = .001, η2 = .06, with Tukey HSD follow up tests indicating that accounting academics (M = 2.85, SD = 1.00) having lower levels of agreement than either auditors (M = 3.19, SD = .84), p = .029, or forensic accountants (M = 3.35, SD = .66), p = .001. Responses to statement 4 also differed significantly, F(2, 250) = 4.41, p = .013, η2 = .03. Follow up tests indicated that accounting academics (M = 2.69, SD = .98) had lower levels of agreement than either auditors (M = 3.05,

SD = .94), p = .030, or forensic accountants (M = 3.06, SD = 1.01), p = .039. Responses to

statement 5, F(2, 250) = 2.92, p = .056, η2_{= .02, and statement 6, F(2, 250) = 1.77, p = .173, η}2

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Table 3 shows that the three groups differed with respect to statement 7, F(2, 250) = 4.19,

p = .016, η2 = .03. Tukey HSD tests indicated that accounting academics agreed less with this item (M = 2.82, SD = .81) than forensic accountants (M = 3.18, SD = .86), p = .017. Responses to statement 8 also differed between the three groups, F(2, 250) = 7.07, p = .001, η2 = .05. Follow up tests indicated that accounting academics (M = 2.70, SD = .98) had lower levels of agreement than either auditors (M = 3.14, SD = .87), p = .005, or forensic accountants (M = 3.13, SD = .83), p = .005. Finally, responses to statement 9 differed between the three groups,

F(2, 250) = 3.67, p = .027, η2 = .03. However, Tukey HSD follow up tests indicated that none of the pairwise differences between the three groups reached the level of statistical significance. In addition to the oneway ANOVAs, Kruskal-Wallis nonparametric tests were performed to

examine group differences on the nine items and produced identical results except that responses to statement 5 were statistically significant (where they had been non-significant in the

ANOVA). Table 3 shows the accounting academics (M = 2.83, SD = .97) had the lowest levels of agreement with this item.

In summary, there was a high level of agreement to eight of the nine survey statements. This was true for each of the three groups. The items most strongly agreed to were statement 1, “The current regulatory environment, The Sarbanes Oxley Act of 2002 (Sarbox), Statement on Auditing Standards No. 99 (SAS 99), The Public Company Accounting Oversight Board (PCAOB) and the augmented responsibility for detecting management or employee fraud has increased the need for auditors to possess foundational forensic accounting skills, statement 3, ” “If the future demand for audits will depend on the auditor’s ability to detect & deter fraud, forensic auditing procedures (focusing on exceptions, oddities, accounting irregularities and patterns of conduct) should be added to current audit programs (sampling for material

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misstatements and focusing on errors, omissions,) in a cost efficient manner,” and statement 2, “SAS 99 also calls for auditors to exercise ‘professional skepticism’ defined as being mindful of fraud; additionally, there has been a call for more forensic accounting education for accountants (per AICPA Discussion Memorandum on Forensic Services, 2004), the forensic accounting mindset represents an incremental shift in job skill requirements of the accounting profession.” The participants disagreed with statement 6, “Prior research has indicated that auditors have had difficulty identifying fraud; SAS 99 has required brainstorming as a tool in the potential

discovery of fraud. Brainstorming addresses the difficulty sufficiently.”

Overall, forensic accountants tended to agree strongly slightly more often to the survey items than accounting academics, with auditors’ level of agreement falling in the middle. The effect sizes (η2_{) computed for each ANOVA indicated that a relatively small proportion of}

variance in the survey items was explained by the group differences. Specifically, only 1% to 6% of the variance in item scores could be explained by the group differences, indicating that the three groups in general responded similarly to the survey items. Although the oneway ANOVAs were statistically significant in several cases, given the small effect size measures we can

conclude that the group differences were not particularly important. The overall levels of

agreement with the survey statements existed for all three groups, and whatever differences were found were within the range of agreement.

V. Conclusion

The changing landscape of the regulatory and standard setting environments has presented auditors with a priority of detecting fraud in financial statements. This study conducted a survey throughout the United States among accounting academics, forensic

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accountants, and auditors to determine if there is a level of agreement that forensic accounting skills may indeed have a place in the current audit paradigm. The results indicate that forensic accounting has a place in the audit process and that auditors may need to add some of these skills as the market for audits have changed. The results also indicate that although SAS 99 provides an initial framework by introducing a new audit procedure (brainstorming), the results of this study indicate that brainstorming may not go far enough in addressing the detection of fraud and further guidance is necessary.

Future research in this area should progress to experimental designs using foundational forensic procedures in a simulated audit setting to ascertain the success, and the proper

implementation of these skills in finding financial statement fraud.

The limitation of the current study as inherent with survey research is non-response bias. The only way to evaluate this was to test late responses to earlier results. There were no

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Appendix A

1. Directions & Defined Terms

Directions: Please read each statement thoroughly; please state how strongly you agree or disagree by selecting one of the three optional responses

Defined Terms - For the purpose of this study please regard the following as such:

FRAUD AUDITING/FORENSIC/INVESTIGATIVE ACCOUNTING SKILLS - focus is primarily on exceptions, oddities, accounting irregularities, and patterns of conduct.

FINANCIAL AUDITING/TRADITIONAL AUDITING SKILLS - Focus is primarily on errors,omissions and audit sampling to test for material misstatements.

SOX ACT OF 2002 - Act passed by U.S. Congress to protect investors from the possibility of fraudulent accounting activities by corporations.

SAS 99 – Issued by the Auditing Standards Board to address the gathering and consideration of a great deal of information to assess fraud risks; expands the information gathering phase beyond the work the auditor traditionally performed.

PCAOB – Non-profit organization that regulates auditors of publicly traded companies; established by the SOX Act of 2002 to ensure that auditors of a company’_{s financial statements have followed a set of strict} guidelines.

Survey Instrument

1. The current regulatory environment, The Sarbanes Oxley Act of 2002 (Sarbox), Statement on Auditing Standards No. 99 (SAS 99), The Public Company Accounting Oversight Board (PCAOB) and the augmented responsibility for detecting management or employee fraud has increased the need for auditors to possess foundational forensic accounting skills.

⃞ STRONGLY AGREE ⃞ AGREE ⃞ NEITHER AGREE NOR DISAGREE ⃞ DISAGREE ⃞ STRONGLY DISAGREE

Comments / Optional

________________________________________________________________________________ ________________________________________________________________________________

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2. SAS 99 also calls for auditors to exercise “professional skepticism” defined as being mindful of fraud; additionally, there has been a call for more forensic accounting education for

accountants (per AICPA Discussion Memorandum on Forensic Services, 2004). The forensic accounting mindset represents an incremental shift in job skill requirements of the accounting profession.

Comments / Optional

________________________________________________________________________________ ________________________________________________________________________________

3. If the future demand for audits will depend on the auditor’s ability to detect & deter fraud, forensic auditing procedures (focusing on exceptions, oddities, accounting irregularities and patterns of conduct) should be added to current audit programs (sampling for material misstatements and focusing on errors, omissions,) in a cost efficient manner.

Comments / Optional

________________________________________________________________________________ ________________________________________________________________________________

4. Auditing firms that use forensic audit techniques in their audits of financial statements send market signals that would have a positive valuation impact on audit clients.

Comments / Optional

________________________________________________________________________________ ________________________________________________________________________________

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5. The addition of foundational forensic auditing procedures in the auditing process helps to fulfill the expectation gap of third party investors/creditors/stakeholders?

Comments / Optional

________________________________________________________________________________

6. Prior research has indicated that auditors have had difficulty identifying fraud; SAS 99 has required brainstorming as a tool in the potential discovery of fraud. Brainstorming addresses the difficulty sufficiently.

Comments / Optional

________________________________________________________________________________ ________________________________________________________________________________

7. SAS 99 increases the emphasis on inquiry as an audit procedure that raises the likelihood of fraud detection; in addition, SAS 99 stresses the consideration of “other” information (a requisite level of client scrutiny) during the information-gathering phase. Therefore, the auditor should possess forensic accounting skills to decipher client responses and behavior. ⃞ STRONGLY AGREE ⃞ AGREE ⃞ NEITHER AGREE NOR DISAGREE ⃞ DISAGREE ⃞ STRONGLY DISAGREE

Comments / Optional

________________________________________________________________________________ ________________________________________________________________________________

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8. SAS 99 is a noteworthy start toward a framework for detecting fraud in financial

statements. The addition of standards for forensic services in audits would be a more complete step in the detection of fraud in financial statements.

Comments / Optional

________________________________________________________________________________

9. The increased regulatory environment, SAS 99, Sarbox, PCAOB, has pushed toward a convergence of the financial auditing philosophy and the forensic accounting philosophy. ⃞ STRONGLY AGREE ⃞ AGREE ⃞ NEITHER AGREE NOR DISAGREE ⃞ DISAGREE ⃞ STRONGLY DISAGREE

Comments / Optional

________________________________________________________________________________ ________________________________________________________________________________ 10. Please identify yourself as one of the follow

⃞ ACCOUNTING ACADEMIC ⃞ AUDITOR ⃞ FORENSIC ACCOUNTANT Comments / Optional

________________________________________________________________________________ ________________________________________________________________________________

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Table 1

Descriptive Statistics for Survey Items (N = 253)

M SD

1 The current regulatory environment, The Sarbanes Oxley Act of 2002 (Sarbox), Statement on Auditing Standards No. 99 (SAS 99), The Public Company Accounting Oversight Board (PCAOB) and the augmented responsibility for detecting management or

employee fraud has increased the need for auditors to possess foundational forensic accounting skills.

3.26 0.77

2 SAS 99 also calls for auditors to exercise “professional skepticism” defined as being mindful of fraud; additionally, there has been a call for more forensic accounting education for accountants (per AICPA Discussion Memorandum on Forensic Services, 2004). The forensic accounting mindset represents an incremental shift in job skill requirements of the accounting profession.

3.09 0.86

3 If the future demand for audits will depend on the auditor’s ability to detect & deter fraud, forensic auditing procedures (focusing on exceptions, oddities, accounting irregularities and patterns of conduct) should be added to current audit programs (sampling for material misstatements and focusing on errors, omissions,) in a cost efficient manner.

3.10 0.88

4 Auditing firms that use forensic audit techniques in their audits of financial statements send market signals that would have a positive valuation impact on audit clients.

2.91 0.99

5 The addition of foundational forensic auditing procedures in the auditing process helps to fulfill the expectation gap of third party investors/creditors/stakeholders?

3.01 0.95

6 Prior research has indicated that auditors have had difficulty identifying fraud; SAS 99 has required brainstorming as a tool in the potential discovery of fraud. Brainstorming addresses the difficulty sufficiently.

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Table 1 Continued

M SD

7 SAS 99 increases the emphasis on inquiry as an audit procedure that raises the likelihood of fraud detection; in addition, SAS 99 stresses the consideration of “other” information (a requisite level of client scrutiny) during the information-gathering phase.

Therefore, the auditor should possess forensic accounting skills to decipher client responses and behavior.

3.01 0.87

8 SAS 99 is a noteworthy start toward a framework for detecting fraud in financial statements. The addition of standards for forensic services in audits would be a more complete step in the detection of fraud in financial statements.

2.96 0.93

9 The increased regulatory environment, SAS 99, Sarbox, PCAOB, has pushed toward a convergence of the financial auditing

philosophy and the forensic accounting philosophy.

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Table 2

Mean Levels of Agreement as a Function of Group (N=253)

M SD M SD M SD Statement S1 3.15 0.79 3.22 0.89 3.45 0.60 S2 2.93 0.88 3.15 0.86 3.24 0.81 S3 2.85 1.00 3.19 0.84 3.35 0.66 S4 2.69 0.98 3.05 0.94 3.06 1.01 S5 2.83 0.97 3.12 0.90 3.13 0.96 S6 1.33 1.01 1.05 1.03 1.14 1.00 S7 2.82 0.81 3.08 0.91 3.18 0.86 S8 2.70 0.98 3.14 0.87 3.13 0.83 S9 2.78 0.86 3.08 0.81 3.09 0.93 Academic Accountants ( n = 102 ) Auditors ( n = 73 ) Auditors ( n = 78 )

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Table 3 Sum of Squares df Mean Squares F p η2 Statement S1 Between Groups 4.20 2.00 2.10 3.58 0.029 0.03 Within Groups 146.58 250.00 0.59 Total 150.78 252.00 S2 Between Groups 4.68 2.00 2.34 3.21 0.042 0.03 Within Groups 182.23 250.00 0.73 Total 186.91 252.00 S3 Between Groups 11.57 2.00 5.78 7.78 0.001 0.06 Within Groups 185.76 250.00 0.74 Total 197.33 252.00 S4 Between Groups 8.49 2.00 4.24 4.41 0.013 0.03 Within Groups 240.42 250.00 0.96 Total 248.91 252.00 S5 Between Groups 5.21 2.00 2.60 2.92 0.056 0.02 Within Groups 222.78 250.00 0.89 Total 227.99 252.00 S6 Between Groups 3.61 2.00 1.81 1.77 0.173 0.01 Within Groups 255.90 250.00 1.02 Total 259.51 252.00 S7 Between Groups 6.17 2.00 3.08 4.19 0.016 0.03 Within Groups 183.82 250.00 0.74 Total 189.99 252.00 S8 Between Groups 11.60 2.00 5.80 7.07 0.001 0.05 Within Groups 204.93 250.00 0.82 Total 216.53 252.00 S9 Between Groups 5.55 2.00 2.77 3.67 0.027 0.03 Within Groups 189.13 250.00 0.76 Total 194.68 252.00

Results of Oneway ANOVAs with Survey Items as Dependent Variables and Group Membership as the Independent Variable (N=253)