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Evidence of Auditing as a Deterrent to Financial Reporting Irregularities

Evidence of Auditing as a Deterrent to Financial Reporting Irregularities This article investigates the impact of auditing on the commission of financial reporting irregularities by managers. We also examine whether the deterrent effect of auditing is affected by individual demographics. An experiment, using three case scenarios, was employed. Our findings indicated that auditing had a strong deterrent effect when the following conditions were present: material dollar amounts, irregularities involving asset overstatements, unambiguous violations of accounting principles, and low incentive for misstating income. While age, experience, and contact with auditors did not influence the deterrent effect of auditing, we found evidence that respondents with accounting and finance specializations perceived auditing as a greater deterrent than other respondents. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Journal of Business Emerald Publishing

Evidence of Auditing as a Deterrent to Financial Reporting Irregularities

Arnold Schneider; Neil Wilner
American Journal of Business , Volume 7 (1): 5 – Jan 1, 1992
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Publisher
Emerald Publishing
Copyright
Copyright © 1992 MCB UP Ltd. All rights reserved.
ISSN
1935-5181
DOI
10.1108/19355181199200004
Publisher site
See Article on Publisher Site

Abstract

This article investigates the impact of auditing on the commission of financial reporting irregularities by managers. We also examine whether the deterrent effect of auditing is affected by individual demographics. An experiment, using three case scenarios, was employed. Our findings indicated that auditing had a strong deterrent effect when the following conditions were present: material dollar amounts, irregularities involving asset overstatements, unambiguous violations of accounting principles, and low incentive for misstating income. While age, experience, and contact with auditors did not influence the deterrent effect of auditing, we found evidence that respondents with accounting and finance specializations perceived auditing as a greater deterrent than other respondents.

Journal

American Journal of Business – Emerald Publishing

Published: Jan 1, 1992

Keywords: Financial reporting irregularities; Auditing; Deterrent effect of auditing

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