Effects of the fraud triangle on students’ risk assessments

This study is motivated by Bailey’s [Bailey, C. D. (2004). An unusual cash control procedure. Journal of Accounting Education, 22, 119–129]. A disappointing 89% of Bailey’s 502 students appear to have overestimated the risk of an asset misappropriation. This study presents the results of two quasi-experiments that test whether students’ risk assessments are affected by the type of model presented to them immediately preceding their risk assessments. One group was provided an overview of the widely used Committee of Sponsoring Organizations (COSO), Internal Control—Integrated Framework and the second group was provided a briefing on the Fraud Triangle, a model originally developed by criminologist, Donald R. Cressey (1973). As predicted, students who were provided an overview of the fraud triangle committed fewer Type I and Type II errors than students who were provided an overview of COSO. The results from this study contribute to the literature on risk assessment by demonstrating how the fraud triangle could, in some situations, lead to better risk assessments.     

Marriage and other risky assets: A portfolio approach

We study the joint impact of gender and marital status on financial investments by testing the hypothesis that marriage represents – in a portfolio framework – a sort of safe asset and that this attribute may change over time. We show that married individuals have a higher propensity to invest in risky assets than single ones, that this marital status gap is stronger for women and that, for women only, it evolves and declines at the end of the sample period. Next we explore a number of possible explanations of the observed gender differences by controlling for background factors that capture the evolution of family and society. We find that both the higher female marital status gap and its time variability vanish for those women who are employed. Our empirical investigation is based on a dataset drawn from the 1993–2006 Bank of Italy Survey of Household Income and Wealth.     

筑欺诈风险防火墙，护客户资金安全——工商银行企业级反欺诈管理平台建设成果

<正>作为当前给银行业造成损失最为严重的风险之一,外部欺诈风险的涵盖范围广,防控难度大。据国外研究机构统计,欺诈风险每年导致银行损失金额高达735亿美元,国内银行每年欺诈风险损失金额也达上百亿元。为了应对严峻复杂的外部欺诈风险形势,工商银行不断探索建立新型风险管控体系,自2008年起,陆续在信     

Consumer durables and risky borrowing: The effects of bankruptcy protection

There exist substantial differences in the generosity of bankruptcy protection across U.S. states. This paper exploits cross-state variation in exemption levels to assess the dual role of durable goods as informal collateral for unsecured debt and self-insurance against bad shocks to earnings. The generosity of bankruptcy protection is found to change both the incentives and the ability of households to accumulate durable wealth. The gains from a high level of insurance are reduced by the effect of tighter credit constraints, so that the net effects of a change in exemption are very small. A more generous bankruptcy regulation reduces net durable wealth in the first half of the life cycle. In addition, the optimal level of exemption is positive but low.     

Corporate fraud and the audit expectations gap: A study among business managers

This paper presents the findings of an empirical study on the audit expectations gap concerning the role of the auditor in corporate fraud cases. The purpose of the study is to assess the significance of a reasonableness gap, a deficient performance gap and a deficient standards gap in the specific context of corporate fraud. In order to distinguish all three elements of the expectations gap, respondents need a certain level of expertise on fraud. Therefore, in this research the audit expectations gap is studied primarily from the perspective of three groups of business managers, based on the fact that they typically have a special responsibility in fraud cases. Bankers are used as a control group to assess the potential differences between the views of business managers and ‘society in general’. This study provides clear evidence of a substantial audit expectations gap in the context of fraud, both with respect to the auditor's performance as well as the auditor's formal obligations as laid down in existing standards. However, compared to bankers, business managers are less inclined to judge auditors’ performance of existing duties as inadequate, and see fewer points where auditing standards should be amended.     

The effects of experience and explicit fraud risk assessment in detecting fraud with analytical procedures

This paper reports the results of an experiment that examined the effects of audit experience and explicit fraud risk assessment instructions on the effectiveness of analytical procedures in detecting financial statement fraud. The results of this study suggest that audit managers are more effective than audit seniors in assessing the risk of fraud with analytical procedures. Additionally, explicit fraud risk assessment instructions resulted in more effective assessments of the presence of fraud. These results have implications for the assignment of auditors to tasks and the structuring of these tasks.     

Profiting from destruction: The Iraq reconstruction,auditing and the management of fraud

While several US corporations have benefited tremendously from the Iraq reconstruction, the Iraqis and US taxpayers have not done as well. This paper argues that the Bush Administration's neoliberal agenda in Iraq created a corrupt, lawless environment in which corporations could reap huge profits through what would normally be called malfeasance. It further demonstrates how the audit reports produced by the Office of the Special Inspector General for Iraq Reconstruction helped to manage the impact of this massive fraud by giving the perception that the laissez-faire policies of the Bush administration were innocent mistakes, making the failures appear to be independent of one another, reconstructing corporate malfeasance as waste while criminalizing low level employees, and blaming the government agencies, the war and the Iraqis for the fraud.     

The pricing of risky assets on the Belgian stock market

This paper presents the first empirical examination of the relationship between the average return and the risk of a comprehensive sample of 200 securities which traded continuously from 1966 to 1980 on the Brussels Stock Exchange, a relatively thin equity market. Based on our empirical findings, we cannot reject the hypothesis that the pricing of common stocks on the Brussels Stock Exchange conforms to the Capital Asset Pricing Model.     

Moral intensity,moral awareness and ethical predispositions: The case of insurance fraud

The issue of insurance fraud by consumers continues to perplex insurance firms, costing billions of dollars per year in the United States alone. Some analysts report that 10 per cent or more of property/casualty insurance claims are fraudulent, while less than 20 per cent of fraudulent claims being detected. Consumer attitudes are becoming more tolerant of insurance fraud in recent years. Recognizing that not all insurance fraud situations are created equal, we investigate variability in perceptions of moral intensity in dissimilar insurance padding situations in a 2 (to help others versus to profit self) × 2 (a small credit union versus a large online insurer) model and compared the results between two independent samples (college students/Millennials and an older adult population). We also investigated the impact of ethical predispositions (formalism and utilitarianism) on moral awareness and moral judgment using these four scenarios. The results suggest that the Millennials may exhibit more situationalism and more lenient judgments of collaborative versus unilateral ethical violations. In particular, ‘for self’ versus ‘for others’ comparisons show striking differences between the two age groups. The results add to the growing literature in explaining intra-personal variability in moral decision making.     

The interplay of external punishment and internal rewards: An exploratory study of insurance fraud

Economic theories related to ethical consumer behaviour have for the most part examined the role of external incentives and deterrents, and relatively less focus has been given to the role of internal incentives. This study explores the independent and joint effects of internal rewards and external punishment mechanisms on the likelihood of consumers exhibiting unethical behaviour in insurance fraud (IF) contexts. By utilizing a data set consisting of survey data on over 43?000 consumers across 26 European countries, this study examines the interaction of internal moral values and external deterrents, affecting unethical consumer behaviour. Ordinal regression analysis and binary logistic regression were used to assess the role of internal rewards and external punishment mechanisms in the occurrence of IF. Attitudinal differences towards IF and perceptions of the probability of being caught were used to classify customers and to predict the incidence of IF. Demographic variables were also found to be correlated with IF. Perceptions of ineffectiveness of fraud investigation and detection systems by fraudulent customers significantly influences their likelihood to commit IF.     

The real effects of corporate fraud: evidence from class action lawsuits

Using a sample of lawsuit firms from 1996 to 2009, this study examines whether fraud revelation through shareholder class action affects corporate financing and investment policies. We predict that revelation of fraud damages defendant firms' reputation and undermines credibility of their financial disclosure. As a result, such firms experience difficulty in financing and reduce investment accordingly. Consistent with our prediction, we find that fraud‐committing firms experience a decline in total financing (total investment) by 1.5 per cent (0.8 per cent) of total assets after fraud revelation. Difference‐in‐differences analyses reinforce our main findings. The impact is more pronounced for firms with lower inherent fraud incidence.     

The inefficiency of refinancing: Why prepayment penalties are good for risky borrowers

This paper provides a theoretical analysis of the efficiency of prepayment penalties in a dynamic competitive lending model with risky borrowers and costly default. When considering improvements in the borrower's creditworthiness as one of the reasons for refinancing mortgages, we show that refinancing penalties can be welfare improving and that they can be particularly beneficial to riskier borrowers in the form of lower mortgage rates, reduced defaults, and increased availability of credit. Thus, a high concentration of prepayment penalties among the riskiest borrowers can be an outcome of efficient equilibrium in a mortgage market. We also provide empirical evidence that is consistent with the key predictions of our model.     

Accounting for the horizontal organization: A review essay

There have been many approaches that have sought to identify the principles of best practice organizational management. The Horizontal Organization (HO) has been proposed as a method that draws on ideas from marketing, production, organizational behaviour and human resource management. It identifies specific value propositions with a customer-oriented focus and then develops process efficiency and continuous improvements, flattened structures with a team-based focus, human resource policies concerned with empowerment and a supportive and committed culture to help institutionalize change. The key distinguishing feature is to move away from traditional vertical, functional structures to lateral structures, processes and information to support the HO. This essay reviews three approaches, which when taken together, distil the key elements of the HO. These are Ostroff (1999). The horizontal organization, New York, Oxford University Press; Schonberger (1996). World class manufacturing: The Next decade, New York, The Free Press; and Galbraith (2005). Designing the customer-centric organization, a guide to strategy, structure, and process, San Francisco, Jossey-Bass. Of particular interest is how these authors envisage a role for management accounting in the design and application of the HO. The essay will review the essence of HO and critically examine the extent to which there have been complementary developments in management accounting, and how effective practice and research have been in developing a horizontal dimension to management accounting. It is concluded that innovations in management accounting, such as activity-based accounting and holistic performance measurement like balanced scorecards, have not had any significant affects on those developing ideas related to HO. Reasons why this is so are canvassed and areas where accounting innovations may provide valuable input to implementing the HO are discussed. Recent developments in management practices that elaborate on HO and implications for a horizontal dimension to accounting are examined.     

Budgeting, the individual and the capital market: A case of fiscal stress

Budgetary control is a major aspect of management control. It has undergone major shifts of emphasis in both the literature and practice in the later part of the 20th century. A significant influence on the changing practices of this aspect of control has been the growth of and increased influence of the capital market. This paper draws on a detailed field study focusing on the problematic nature of budgetary control in a changing operational environment that acknowledges both the importance, internally, of the organisation members and their contribution to continued growth—and externally the growing influence of shareholders on business operations. The focus of the paper is on the effects of the constant pressure of the share price on the case unit of analysis and how that changed the use of the budgetary control system. This change is illustrated both at a macro level of organisational accountability for predicted results and also as it is driven down the organisation to the level of the individual.     

A rule-based fuzzy reasoning system for assessing the risk of management fraud

Detecting management fraud and assessing the risk of management fraud are significant issues confronting the auditing profession. Considerable theoretical and empirical research (Loebbecke, Eining, and Willingham, 1989; Bell, Szykowny, and Willingham, 1993; Fanning, Cogger, and Srivastava, 1995; and Hansen, McDonald, Messier, and Bell, 1996) has been accomplished investigating these issues. Building on this research, we demonstrate the construction of a rule-based fuzzy reasoning system to assess the risk of management fraud. The paper illustrates how fuzzy sets can be used intuitively to measure red flags on a categorical or interval scale, how different red flags can be combined using fuzzy rules, and how a single measure of the risk of management fraud can be derived. The knowledge base for this fuzzy reasoning system is developed by using the causal model of management fraud developed by Loebbecke, Eining and Willingham (1989), the empirical investigation of this model by Bell, Szykowny, and Willingham (1993), other researchers’ efforts and the authors’ judgments, using XpertRule software. The fuzzy reasoning system is tested using the fraud data provided by KPMG Peat Marwick. We discuss methods to magnify the knowledge base of this fuzzy reasoning system to make it a viable auditing tool, the costs and benefits of building a fuzzy reasoning system, and further extensions of this research. Copyright © 1998 John Wiley & Sons, Ltd.     

The determinants of household risky asset holdings: Australian evidence on background risk and other factors

We study the portfolio allocation decisions of Australian households using the relatively new Household, Income and Labour Dynamics in Australia (HILDA) Survey. We focus on household allocations to risky financial assets. Our empirical analysis considers a range of hypothesised determinants of these allocations. We find background risk factors posed by labor income uncertainty and health risk are important. Credit constraints and observed risk preferences play the expected role. A positive age gradient is identified for risky asset holdings and home-ownership is associated with greater risky asset holdings. A unifying theme for many of our empirical findings is the important role played by financial awareness and knowledge in determining risky asset holdings. Many non-stockholding households appear to lack the experience and financial literacy that might enable them to benefit from direct investment in stocks.