Fraud Risk Factors that Affect the Audit Program Plan: The Case of Kurdistan Region, Iraq
This paper aims to identify the most frequent fraud risk factors that affect the nature, timing, and extent of planned audit procedures. The perceptions of both international and local external auditors in the Kurdistan Region, Iraq, were investigated. In general, it was found that the respondents were more interested in assessing fraud risk factors related to misappropriation of assets (84.61%) compared with those related to fraudulent financial reporting (75.43%). Stepwise regression analysis indicates a positive and significant effect of each fraud risk factor related to fraudulent financial reporting that resulted from incentives or pressures and attitudes or rationalization, and the fraud risk factors related to the misappropriation of assets that resulted from attitudes or rationalization on the nature, timing, and extent of the planned audit procedures. However, other fraud risk factors in the study model did not show a significant effect on the audit program plan. The findings of this paper contribute to the existing literature in the area of fraud risk assessment and its effect on planning audit programs in eastern developing countries such as the Kurdistan Region, Iraq.
Al-Khaddash, H., Al Nawas, R., & Ramadan, A. (2013). Factors affecting the quality of auditing: The case of Jordanian commercial banks. International Journal of Business and Social Science, 4(11), 206-222.
Allen, R. D., Hermanson, D. R., Kozloski, T. M., & Ramsay, R. J. (2006). Auditor risk assessment: Insights from the academic literature. Accounting Horizons, 20(2), 157-177.
Alssabagh, S. H. (2016). The Effect of Quantification Risks of Material Misstatements in Improving the Accuracy of Audit Risk Assessment: An Applied Study. (Unpublished PhD Dissertation of Accounting), Syria: Damascus University.
Alssabagh, S. H. & Dahdoh, H. A. (2016). The Extent of Auditors' Commitment by Assessment Factors of Material Misstatements Risks Due to Fraud: Field Study at Syrian Commission on Financial Markets and Securities. Jordan Journal of Business Administration, 12 (2), 377-399.
Arens, A. A., Elder, R. J., & Mark, B. (2014). Auditing and assurance services: an integrated approach.USA, NY, Pearson Education, Inc.
Asare, S. K., & Wright, A. M. (2004). The effectiveness of alternative risk assessment and program planning tools in a fraud setting. Contemporary Accounting Research, 21(2), 325-352.
Brasel, K. R., Hatfield, R. C., Nickell, E. B., & Parsons, L. M. (2019). The Effect of Fraud Risk Assessment Frequency and Fraud Inquiry Timing on Auditors' Skeptical Judgments and Actions. Accounting Horizons, 33(1), 1-15.
Bedard, J. C., & Graham, L. E. (2002). The effects of decision aid orientation on risk factor identification and audit test planning. Auditing: A Journal of Practice & Theory, 21(2), 39-56.
Bedard, J. C., Mock, T. J., & Wright, A. M. (1999). Evidential planning in auditing: A review of the empirical research. Journal of Accounting Literature, 18, 96.
Bell, T. B., Peecher, M. E., & Solomon, I. (2005). The 21st century public company audit. New York, NY: KPMG LLP.
Blay, A. D., Sneathen Jr, L. D., & Kizirian, T. (2007). The effects of fraud and going‐concern risk on auditors' assessments of the risk of material misstatement and resulting audit procedures. International Journal of Auditing, 11(3), 149-163.
Blay, A., Kizirian, T., & Dwight, S. (2008). Evidential effort and risk assessment in auditing. Journal of Business & Economics Research, 6(9), 39-52.
Brazel, J. F., Carpenter, T. D., & Jenkins, J. G. (2010). Auditors’ use of brainstorming in the consideration of fraud: Reports from the field. The Accounting Review, 85(4), 1273-1301.
Brazel, J. F., Jones, K. L., & Prawitt, D. F. (2013). Auditors' reactions to inconsistencies between financial and nonfinancial measures: The interactive effects of fraud risk assessment and a decision prompt. Behavioral Research in Accounting, 26(1), 131-156.
Carpenter, T. D. (2007). Audit team brainstorming, fraud risk identification, and fraud risk assessment: Implications of SAS No. 99. The Accounting Review, 82(5), 1119-1140.
Chang, S. I., Tsai, C. F., Shih, D. H., & Hwang, C. L. (2008). The development of audit detection risk assessment system: Using the fuzzy theory and audit risk model. Expert Systems with Applications, 35(3), 1053-1067.
Colbert, J. L. (1996). International and US Standards-audit risk and materiality. Managerial Auditing Journal, 11(8), 31-35.
De Martinis, M., Fukukawa, H., & Mock, T. J. (2007). Exploring audit planning responsiveness to client risk assessments for private and public sector audits. Working Paper, 2007 AFAANZ Conference.
Fukukawa, H., Mock, T. J., & Wright, A. (2006). Audit programs and audit risk: A study of Japanese practice. International Journal of Auditing, 10(1), 41-65.
Graham, L., & Bedard, J. C. (2003). Fraud risk and audit planning. International Journal of Auditing, 7(1), 55-70.
Hajiha, Z. (2012). Application of Delphi method for determining the affecting factors upon audit risk model. Management Science Letters, 2(1), 379-390.
Hammersley, J. S. (2011). A review and model of auditor judgments in fraud-related planning tasks. Auditing: A Journal of Practice & Theory, 30(4), 101-128.
Helliar, C., Lyon, B., Monroe, G. S., Ng, J., & Woodliff, D. R. (1996). UK Auditors’ Perceptions of Inherent Risk. The British Accounting Review, 28(1), 45-72.
IFAC [International Federation of Accountants]. (2016). Planning an Audit of Financial Statements. International Standard on Auditing No. 300. New York, NY: IFAC.
IFAC [International Federation of Accountants].(2016). The Auditor’s Responses to Assessed Risks. International Standard on Auditing No. 330. New York, NY: IFAC.
IFAC [International Federation of Accountants]. (2016). The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements. International Standard on Auditing No. 240. New York, NY: IFAC.
Jans, M., Lybaert, N., & Vanhoof, K. (2010). Internal fraud risk reduction: Results of a data mining case study. International Journal of Accounting Information Systems, 11(1), 17-41.
Low, K. Y. (2004). The effects of industry specialization on audit risk assessments and audit-planning decisions. The accounting review, 79(1), 201-219.
Mayes Jr, C. R., Landes, C. E., & Hasty, H. (2018). Taking the Risk out of Risk Assessment: Properly Considering a Client's Risks Is Essential to a Quality Audit. Journal of Accountancy, 226(2), 38.
McKee, T. E. (2014). Evaluating financial fraud risk during audit planning. The CPA Journal, 84(10), 28-31.
Mentz, M., Barac, K., & Odendaal, E. (2018). An audit evidence planning model for the public sector. Journal of Economic and Financial Sciences, 11(1), 14.
Mock, T. J., & Turner, J. L. (2005). Auditor identification of fraud risk factors and their impact on audit programs. International Journal of Auditing, 9(1), 59-77.
Montgomery, D. D., Beasley, M. S., Menelaides, S. L., & Palmrose, Z. V. (2002). Auditors' new procedures for detecting fraud. Journal of Accountancy, 193(5), 63.
Okoye, E. I., & Gbegi, D. O. (2013). An Evaluation of Forensic Accountants to Planning Management Fraud Risk Detection Procedures. Global Journal of Management and Business Research, 13(1), 75-90.
Okoye, E., Okafor, T., & Ijeoma, N. (2009). Impact of the fraud triangle on audit process: the Nigerian Accountant's view. The University Advanced Research Journal, 1, 130-145.
Popova, V. (2008). Integration of Fraud Risk in the Risk of Material Misstatement and the Effect on Auditors’ Planning Decisions. Working paper, Virginia Polytechnic Institute and State University.
Razak, L., Ramly, A., & Fe, H. (2018). Effect of Fraud Risk Assessment, Auditor Independence of Audit of the Quality of Financial Inspectorate Regional Authorities (Case Study in South Sulawesi Provincial Inspectorate).
Wilks, T. J., & Zimbelman, M. F. (2004a). Using game theory and strategic reasoning concepts to prevent and detect fraud. Accounting Horizons, 18(3), 173-184.
Wilks, T. J., & Zimbelman, M. F. (2004b). Decomposition of fraud‐risk assessments and auditors' sensitivity to fraud cues. Contemporary Accounting Research, 21(3), 71 9-745.
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
Authors who publish with this journal agree to the following terms:
1. Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution License [CC BY-NC-ND 4.0] that allows others to share the work with an acknowledgment of the work's authorship and initial publication in this journal.
2. Authors are able to enter into separate, additional contractual arrangements for the non-exclusive distribution of the journal's published version of the work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgment of its initial publication in this journal.
3. Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) prior to and during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work (See The Effect of Open Access).