Embed Size (px)
Citation preview
acumen
insight
ideas
attention
reach
expertise
depth
agility
talent
Finding Fraud & Deception
Presented by:Don Wengler, CPA/CFF, CFE, CVA
Wichita State University Accounting & Audit Conference May, 18, 2011
acumen
insight
ideas
attention
reach
expertise
depth
agility
talent
acumen
insight
ideas
attention
reach
expertise
depth
agility
talent
Lunch, Murthy, Engle 2009
acumen
insight
ideas
attention
reach
expertise
depth
agility
talent
Useful Research
“Useful research reflects results that are belief changing”
Uday Murthy lecture, March 4, 2011
acumen
insight
ideas
attention
reach
expertise
depth
agility
talent
Fraud Brainstorming
SAS 99: Consideration of Fraud in a Financial Statement (AICPA 2002)
Usually face-to-face audit team discussion
Part of audit planning process
Outcome affects audit procedures performed
acumen
insight
ideas
attention
reach
expertise
depth
agility
talent
Our Experiment
1. Team Nominal
2. Team Face-to-Face
3. Team Content Facilitation
acumen
insight
ideas
attention
reach
expertise
depth
agility
talent
Fraud Brainstorming
FraudIdea
Generation
Relevant toClient
Not RelevantTo Client
acumen
insight
ideas
attention
reach
expertise
depth
agility
talent
Face-to-Face Brainstorming- Coordinate Schedules- Wait- Attend- Remember- Avoid Cog. Inertia
acumen
insight
ideas
attention
reach
expertise
depth
agility
talent
Computer-Mediated Advantages
Members can input ideas simultaneously
However, fraud brainstorming is more complex than simple idea generation
Relevant fraud risks must be identified through the interaction regarding: Specialized auditing knowledge Industry-specific factors Client-specific factors
acumen
insight
ideas
attention
reach
expertise
depth
agility
talent
Florida Study
Objectives--Relative effectiveness of:
1. Electronic v. face-to-face
2. Interactive v. Nominal
3. With v. without content facilitation
Whether participating in a fraud brainstorming session heightened auditor awareness of fraud risks when present
acumen
insight
ideas
attention
reach
expertise
depth
agility
talent
Florida Study
188 SAS 99 auditing students, teams of 4
Studied a company case study
5 question test assured case facts known
108 electronically/80 face-to-face
Electronic interactive; electronic nominal; face-to-face, with/without facilitation.
acumen
insight
ideas
attention
reach
expertise
depth
agility
talent
Florida Study
1. Reviewed case again
2. Made initial fraud risk assessment alone
3. 20 minutes of fraud brainstorming (1221)
4. 5 prompts: Opportunity, pressure, rationalization, revenue recognition, management override of internal controls
5. Face-to-face 2nd interaction
acumen
insight
ideas
attention
reach
expertise
depth
agility
talent
Florida Study: Measurement
The number of relevant fraud factors identified from the case
Change from the pre-brainstorming to post-brainstorming fraud risk assessment from 1% to 100% of estimated probability of material misstatement
acumen
insight
ideas
attention
reach
expertise
depth
agility
talent
Florida Study: Results
Average Number of Relevant Fraud Risks Identified Per Team
0
2
4
6
8
10
12
14
16
Face-to-Face Electronic Nominal Electronic Interactive
No Facilitation Facilitation
acumen
insight
ideas
attention
reach
expertise
depth
agility
talent
Florida Study: Conclusions
Electronic fraud brainstorming is significantly more effective than face-to-face fraud brainstorming
Interactive brainstorming is no more effective than “nominal” brainstorming
Brainstorming effectiveness is significantly higher with content facilitation, than without
acumen
insight
ideas
attention
reach
expertise
depth
agility
talent
Is Abe Lincoln Honest?
acumen
insight
ideas
attention
reach
expertise
depth
agility
talent
Larcker & Zakolyukina 2010
acumen
insight
ideas
attention
reach
expertise
depth
agility
talent
Stanford Study
Objective: Construct and test a linguistic model for detecting deceptive CEO and CFO communications in quarterly earnings call communications.
acumen
insight
ideas
attention
reach
expertise
depth
agility
talent
Stanford Study
1. Reviewed prior psychological and linguistic research related to deception
2. Identified words and uses of language that are believed to signal deception
3. Built a statistical model designed to measure/predict deception in CEO/CFO Q&A communications, based on the words/usage
acumen
insight
ideas
attention
reach
expertise
depth
agility
talent
Stanford Study
4. Defined deceptive CEO and CFO communications in quarterly earnings call Q&A sessions
5. Analyzed 16,577 full text Q&A sessions to test the success of the statistical model for predicting deception CEO and CFO communications
6. Generalized conclusions
acumen
insight
ideas
attention
reach
expertise
depth
agility
talent
Prior Psychological/Linguistics
Emotions perspective
Cognitive effort perspective
Control perspective
Lack of embracement perspective
acumen
insight
ideas
attention
reach
expertise
depth
agility
talent
Reference Language
Larcker & Zakolyukina 2010
acumen
insight
ideas
attention
reach
expertise
depth
agility
talent
Illustrative Data Table1 A B C
2
4
5 How
6 many How
7 times is deceptive
8 a word is the
9 used? communication?
10 22 100%
11 16 75%
12 12 50%
13 3 25%
14 0 0%
15
acumen
insight
ideas
attention
reach
expertise
depth
agility
talent
Illustration of Positive Association22, 100%
16, 75%
12, 50%
3, 25%
0, 0%0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0 5 10 15 20 25
Number of Times Word Used
Measu
re o
f D
ecep
tio
n
acumen
insight
ideas
attention
reach
expertise
depth
agility
talent
Illustration of Positive Associationy = 0.043x + 0.0439
R2 = 0.981
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0 5 10 15 20 25
Number of Times Word Used
Measu
re o
f D
ecep
tio
n
acumen
insight
ideas
attention
reach
expertise
depth
agility
talent
Illustration of Negative Association
5, 100%
12, 75%
14, 50%
18, 25%
25, 0%0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0 5 10 15 20 25 30
Number of Times Word Used
Measu
re o
f D
ecep
tio
n
acumen
insight
ideas
attention
reach
expertise
depth
agility
talent
Illustration of Negative Association
y = -0.0526x + 1.2779R2 = 0.9671
-20%
0%
20%
40%
60%
80%
100%
0 5 10 15 20 25 30
Number of Times Word Used
Measu
re o
f D
ecep
tio
n
acumen
insight
ideas
attention
reach
expertise
depth
agility
talent
Illustration of No Association8, 100%
16, 75%
12, 50%
3, 25%
12, 0%0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0 5 10 15 20
Number of Times Word Used
Mea
sure
of
Dec
epti
on
acumen
insight
ideas
attention
reach
expertise
depth
agility
talent
Illustration of No Association8, 100%
16, 75%
12, 50%
3, 25%
12, 0%
y = 0.0129x + 0.3683R2 = 0.0258
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0 5 10 15 20
Number of Times Word Used
Mea
sure
of
Dec
epti
on
acumen
insight
ideas
attention
reach
expertise
depth
agility
talent
Reference Language
Larcker & Zakolyukina 2010
acumen
insight
ideas
attention
reach
expertise
depth
agility
talent
Positive/Negative Words
Larcker & Zakolyukina 2010
acumen
insight
ideas
attention
reach
expertise
depth
agility
talent
Positive/Negative Words
Larcker & Zakolyukina 2010
acumen
insight
ideas
attention
reach
expertise
depth
agility
talent
Cognitive Process
Larcker & Zakolyukina 2010
acumen
insight
ideas
attention
reach
expertise
depth
agility
talent
Other Cues
Larcker & Zakolyukina 2010
acumen
insight
ideas
attention
reach
expertise
depth
agility
talent
Self-constructed word categories
Reference to general knowledge
Shareholder value
Value creation
Hesitation expressions
Extreme negative emotions
Extreme positive emotions
acumen
insight
ideas
attention
reach
expertise
depth
agility
talent
Stanford Study: How Was Deception Measured?Subsequent:
Form 8-K filings reflecting restatements of earnings (significant in size)
Filings reflecting “material weaknesses”
Auditor changes
Late financial statement filings
acumen
insight
ideas
attention
reach
expertise
depth
agility
talent
Stanford Study: How Was Size of the Answer Uniformly Scaled?
Median CEO answer: 1,811 words
Median CFO answer: 987 words
Typical CFO: (10/1,000) X 1,000 = 10
Talkative CFO: (10/3,000) x 1,000 = 3.3
acumen
insight
ideas
attention
reach
expertise
depth
agility
talent
Stan-ford Study: Model Output
Larcker & Zakolyukina 2010
acumen
insight
ideas
attention
reach
expertise
depth
agility
talent
Stanford Study: Model Output
Larcker & Zakolyukina 2010
acumen
insight
ideas
attention
reach
expertise
depth
agility
talent
Conclusions: Deceptive Executives
More general knowledge references
Fewer non-extreme positive emotions
Fewer references to shareholder value and value creation
acumen
insight
ideas
attention
reach
expertise
depth
agility
talent
Conclusions: Deceptive CEOs
Fewer self-references
More 3rd person plural & impersonal pronouns
More extreme positive emotions
Fewer extreme negative emotions
Fewer certainty & hesitation words
acumen
insight
ideas
attention
reach
expertise
depth
agility
talent
Our Survey
acumen
insight
ideas
attention
reach
expertise
depth
agility
talent
Budgeting: An Experimental Investigation of the Effects
of Negotiation
Joseph F. FisherIndiana University
James R. FredericksonHong Kong University
Sean A. PefferUniversity of Kentucky
acumen
insight
ideas
attention
reach
expertise
depth
agility
talent
Budget Setting
Negotiation Process
Unilateral Process
acumen
insight
ideas
attention
reach
expertise
depth
agility
talent
Negotiation Matrix
Makes Initial
Budget Proposal
Has Final
Budget Authority
Superior
Subordinate
acumen
insight
ideas
attention
reach
expertise
depth
agility
talent
Budget Setting Consequences
Budgetary Slack/Planning
Subordinate Performance/Motivational
acumen
insight
ideas
attention
reach
expertise
depth
agility
talent
Conclusions
Budgets set through a negotiation process where superiors have final authority are lower than budgets set unilaterally by superiors.
Budgets set through a negotiation process where subordinates have final authority are not significantly different from budgets set unilaterally by subordinates.
acumen
insight
ideas
attention
reach
expertise
depth
agility
talent
Conclusions
Budgets set through a negotiating process ending in agreement contain significantly less slack.
A failed negotiation followed by superiors imposing a budget has a significant detrimental effect on subordinate performance.
acumen
insight
ideas
attention
reach
expertise
depth
agility
talent
Contact Information
BKD, LLPKansas City, MO 64105
816-701-0257
BKD, LLPWichita, Kansas
316-265-2811
