The Effect of Ethical Climate at the Top of the Organization and Professional Skepticism on the Judgment of Fraud Risk Among Internal Auditors
Subject Areas : Ethics and accountingGhazale Seifi 1 , Roya Darabi 2 , Ahmad Heshmati 3
1 - PhD Student, Accounting Department, South Tehran Branch, Islamic Azad University, Tehran, Iran.
2 - Associate Professor, South Tehran Branch, Islamic Azad University, Tehran, Iran
3 - PhD Student, Accounting Department, South Tehran Branch, Islamic Azad University, Tehran, Iran.
Keywords: Ethical Climate, Organization, Professional Skepticism, Judgment, Fraud Risk, Internal Auditors.,
Abstract :
Purpose: This research examines the impact of the ethical environment at the top of the organization and professional skepticism on auditors' judgment of fraud risk. Initially, the components of the ethical environment were identified, followed by an introduction to the concept of risk. The incorrect judgment by internal auditors regarding the risk of fraud is a significant factor in failing to detect fraud before it escalates into a major scandal. Consequently, the judgment of fraud risk by internal auditors, along with its influencing factors, has emerged as a crucial issue for researchers seeking to enhance internal audit fraud risk assessment.
Method: In this research, the influence of the moral climate at the head of the organization and professional doubt on the judgment of fraud risk among internal auditors was investigated based on information collected from questionnaires distributed among 124 internal auditors who are members of the Iranian Internal Auditors Association. This research is practical in terms of its purpose, and the research method is a descriptive survey. A questionnaire was used to collect information.
Findings: The results of the research hypotheses test showed that the ethical atmosphere at the top has an effect on the internal auditor's fraud risk judgment. Additionally, the auditor's professional skepticism has a positive and significant effect on the internal auditor's fraud risk judgment. As the ethical climate at the top improves, the internal auditor's fraud risk judgment also increases. Consequently, the first research hypothesis is confirmed. Moreover, based on the coefficient of the path of the auditor's professional skepticism on the auditor's judgment of fraud risk, the resulting significance level for this path is 0.038, which is lower than 0.05. In other words, the internal auditor's fraud risk judgment increases with the auditor's professional skepticism, thereby confirming the second hypothesis of the research.
Conclusion: Increasing the moral environment within the organization, particularly at the leadership level, such as in auditing institutes, leads to improved risk assessment. While some studies suggest that senior management may be involved in fraudulent activities and create conflicts with internal audit teams, this research demonstrates that leaders play a crucial role in determining the organization's integrity. When leaders denounce corruption, it positively influences internal auditors, motivating them to enhance their efforts in detecting fraud risks aligned with management's expectations. The study's second hypothesis also indicates that as internal auditors' skepticism grows, their ability to judge fraud risks improves. These findings suggest that internal auditors with a high level of professional skepticism are more likely to detect errors and anticipate fraud early on.
بشیری خصال، لیلا؛ حسینی، سید حسین (1402). بررسی نقش میانجی تعهد سازمانی و فرسودگی شغلی در رابطه میان بدگمانی سازمانی و تردید حرفه‌ای حسابرس. دانش حسابداری و حسابرسی مدیریت، 12(1)، ص231-250.
بیرجندی، حمید؛ خدامی‌پور، احمد؛ پورحیدری، امید (1398). بررسی تأثیر اخلاق حرفه‌ای بر تردید حرفه‌ای حسابرس. حسابداری مدیریت، 12(42)، ص15-26.
حسینی، سیدحسین؛ بنی‌مهد، بهمن؛ صفری، زهرا (1399). بررسی تأثیر دیدگاه‌های تردید حرفه‌ای حسابرس بر ارزیابی ریسک تقلب، با توجه به اثر مداخله‌کنندگی مهارت ارتباطی و تضعیف اجتماعی. دانش حسابداری، 11(2)،
ص71-105.
رضایی، مرضیه؛ فلاح، رضا؛ مران جوری، مهدی؛ رستمی مازوئی، نعمت (1402). ارزیابی کیفیت حسابرسی در چارچوب تحلیل فرهنگ سازمانی و اخلاق حرفه‌ای. دانش حسابداری و حسابرسی مدیریت، 12(48)، ص191-210.
شمس، امیر (1401). نقش شک سازمانی در رابطه ریسک کشف تقلب و شک و تردید حرفه‌ای حسابرس. قضاوت و تصمیم‌گیری در حسابداری و حسابرسی، 1(2)، ص99-116.
فیل سرایی، مهدی (1401). تأثیر خودکفایی و شک و تردید حرفه‌ای بر ادراک اخلاقی حسابرسان. پژوهش‌های مالی و رفتاری در حسابداری، 2(4)، ص20-42.
میرزایی، جعفر؛ خدادادی، ولی؛ جرجرزاده، علیرضا؛ صالحی، اله‌کرم (1402). نقش کیفیت حسابرسی داخلی در مبارزه با فساد با تأکید بر مؤلفه‌های اقتصاد مقاومتی. دانش حسابداری و حسابرسی مدیریت، 12(2)، ص543-562.
نقش‌بندی، نادر؛ سادات غفاری، منصوره؛ یوسف‌پور، فاطمه (1399). بررسی رابطه استقلال، حرفه‌ای‌گرایی و شک و تردید حرفه‌ای با کیفیت حسابرسی. چشم‌انداز حسابداری و مدیریت، 3(23)، ص79-98.
Abri, A.F., Arumugam, D. & Balasingam, S. (2019). Impact of the corporate governance on the financial statement fraud: A study focused on companies in Tanzania. Int. J. Recent Technol. Eng. No.7, p. 336–341.
ACFE (Association of Certified Fraud Examiners). Report to the Nations on Occupational Fraud and Abuse, Global Fraud Study 2020. Available at: https://www.acfe.com/ (accessed on 10 November 2022).
Albrecht, C., Holland, D., Malagueño, R., Dolan, S. & Tzafrir, S. (2015). The Role of Power in Financial Statement Fraud Schemes. J. Bus. Ethics, No.131, p. 803–813.
Bagshaw, K. (2018). Professional Skepticism: The Heart of Audit | IFAC.
URL= https://www.ifac.org/global-knowledge-gateway/audit-assurance/discussion/professionalskepticism-heart-audit
Blix, L.H., Chui, L.C., Pike, B.J. & Robinson, S.N. (2021). Improving auditor performance evaluations: The impact on self-esteem, professional skepticism, and audit quality. Corporate Accounting & Finance,32(4). https://doi.org/10.1002/jcaf.22512
Broberg, P., Umans, T., Skog, P. & Theodorsson, E. (2018). Auditor’s professional and organizational identities and commercialization in audit firms. Accounting auditing and accountability journal, 31(2), p. 374-399.
Carpenter, T.D. & Reimers, J.L. (2013). Professional Skepticism: The Effects of a Partner’s Influence and The Level of Fraud Indicators on Auditors’ Fraud Judgments and Actions. Behavioral Research in Accounting, 25(2). https://doi.org/10.2308_bria-50468
Chambers, R. (2015). Lessons From Toshiba: When Corporate Scandals Implicate Internal Audit. URL= https://iaonline.theiia.org/blogs/chambers/2015/lessons-from-toshiba-whencorporate-scandals-implicate-internal-audi
Cohen, J. (1988). Statistical Power Analysis for the Behavioral Sciences (2nd ed.). Lawrence Erlbaum Associates.
Erbuga, G.S. (2019). Yes, but Was It a Real Audit? The Toshiba Case. Internal Auditing & Risk Management, 1(53), p. 89–102.
Fullerton, R. & Durtschi, C. (2004). The Effect of Professional Skepticism on the Fraud Detection Skills of Internal Auditors. Ssrn. https://doi.org/10.2139/ssrn.617062
Hambrick, D.C. (2007). Upper Echelons Theory: An Update. Academy of Management. The Academy of Management Review, 32(2), p. 334-343.
Hurtt, R.K., Brown-Liburd, H., Earley, C.E. & Krishnamoorthy, G. (2013). Research on auditor professional skepticism: Literature synthesis and opportunities for future research. Auditing: A Journal of Practice & Theory, 32(Supplement 1), p. 45-97.
Hyer, M.M. & et al. (2021). Chronic adolescent stress causes sustained impairment of cognitive flexibility and hippocampal synaptic strength in female rats. Neurobiology of Stress, No. 14.
https://doi.org/10.1016/j.ynstr.2021.100303
Johari, R.J., Sayed Hussin, S.A.H. & Razali, A. (2019). Professional Skepticism and Internal Auditior in Malaysia. In: Article of Merit Awards on PAIB 2018 (pp. 19–36). Malaysian Institute of Accountants
Juliana, L., Johari, R.J., Said, J. & Wondabio, L.S. (2021). The Effects of Tone at the Top and Professional Skepticism on Fraud Risk Judgment Among Internal Auditors in Indonesia. Management & accounting, review, 20(1). https://doi.org/10.24191/MAR.V20i01-07
Kusumawati, A. & Syamsuddin, S. (2019). The effect of auditor quality to professional skepticsm
and its relationship to audit quality. International Journal of Law and Management, 60(4),
p. 998-1008. https://doi.org/10.1108/IJLMA-03-2017-0062
Law, P. (2011). Corporate governance and no fraud occurrence in organizations. Manag. Audit. J. No. 26, p. 501-518.
Lukmanjaya, B. (2019). The role of corporate culture as a contributor to fraud and corruption in australia: perceptions of forensic accountants and industry professionals, School of Accountancy QUT Business School, Queensland University of Technology. Submitted in fulfilment of the requirements for the degree of Master of Philosophy (Accountancy).
Moeller, R.R. (2014). Executive’s Guide to COSO Internal Controls Understanding and Implementing the New Framework. John Wiley & Sons. Hoboken, New Jersey.
Noviyanti, S. & Lanita, W. (2015). The Role of "Tone at The Top" and Knowledge of Fraud on Auditors’ Professional Skeptical Behavior. Contemporary Management Research, 11(1), p.55-74. https://doi.org/10.7903/cmr.12239
Onesti, G. & Palumbo, R. (2023). Tone at the Top for Sustainable Corporate Governance to Prevent Fraud. Sustainability, 15(3). https://doi.org/10.3390/su15032198
Popova, V. (2012). Exploration of skepticism, client-specifc experiences, and audit judgments. Managerial Auditing Journal, 28(2), p.140–160.
https://doi.org/doi.org/10.1108/02686901311284540
Robinson, S.N., Curtis, M.B. & Robertson, J.C. (2018). Disentangle in the trait and state components of professional skepticism: Specifying a process for state scale development. Auditing: A Journal of Practice & Theory, 37(1), p. 215-235. https://doi.org/10.2308/ajpt-51738
Schafer, B.A. & Schafer, J.K. (2019). Interpersonal Affect, Accountability and Experience in Auditor Fraud Risk Judgments and the Processing of Fraud Cues. Advances in Accounting Behavioral Research, No. 22, p. 43-65. https://doi.org/10.1108/s1475-148820190000022004
Siew, C.-S., Zen, C.-C., Tazilah-Mohd Afq, K., Hui, L.-Z., Ying, T.-P. & Mary, V.-S. (2018). A Study on the Relationship Between Professional Skepticism Characteristics and Auditors’ Fraud Detection in Malaysian Context. In: International Conference on Business, Accounting, Finance and Economics. Kampar, Perak, Malaysia
Simon, C.A., Smith, J.L. & Zimbelman, M.F. (2018). The Influence of Judgment Decomposition on Auditors’ Fraud Risk Assessments: Some Trade-Offs. Accounting Review, 93(5), p. 273-291.
https://doi. org/10.2308/accr-52024
Vance, C.E. (2017). The Effects of the Presence of Fraud and Auditor Certifcation Considering Professional Skepticism on Fraud Risk Assessment Performance. Northcentral University, San Diego, California.
Wang, I.Z. & Fargher, N. (2015). The Effects of Tone at the Top and Coordination with External Auditors on Internal Auditors’ Fraud Risk Assessments. Accounting and Finance.
https://doi.org/10.1111/ acfi.12191