Fraud detection procedures in examining fraud within audit firms

Abstract

Purpose: This study aims to identify fraud detection procedures employed by audit firms, assess how and to what degree such procedures can assist audit firms in preventing and identifying fraud, and make recommendations for ways to improve fraud risk management and fraud detection procedures in audit companies. Design: The objectives of this study were achieved through structured interviews with two categories of respondents; namely, Big Four audit firms, and four CSPs. Findings: The study reveals that most audit companies have appropriate fraud detection techniques in place. Taxation and, audit and assurance are most prone to fraudulent misstatements, while asset misappropriation, and financial statement fraud are the most fraudulent practices audit firms are exposed to. It also transpires that due to the COVID-19 pandemic fraud occurrences have increased considerably. Moreover, overstating revenue and conflict of interest are the most significant risks faced by audit companies. The findings of this study also show how management’s approach to risk is generally risk neutral. Lastly, the fraud triangle resulted to be the most used fraud detection technique by audit companies. Conclusions: Much improvement has been done regarding the prevention, detection, and response to fraud. Nonetheless, more has to be done, particularly with regards to the implementation of regulations, since fraud is on the rise and fraudsters will always find new ways to commit fraudulent activities. Value: This study highlights the use of fraud detection procedures in audit firms to combat the risk of fraud. This study further identified the importance and benefits of fraud risk management and corporate governance in audit entities.