A Reseacrh On The Influence To The Fraud Auditing Resources Allocation From The Fraud Risk Overestimation

Modern auditing practice has developed to the risk-oriented auditing approachthrough the phases of the accounting number-based approach and the system-basedauditing approach. And the fraud auditing has become a hot topic both in theory andpractice because of the disclosure of a series of fraud scandals like Enron Corporation.In this case, the audit profession has focused on referencing the risk-oriented auditingapproach and its’ skills in fraud auditing practice to improve the efficiency and effectof fraud auditing practice. As a result, the research about the application of therisk-oriented auditing approach in the fraud auditing field has become a hot topic inaudit theory.If the implicit principles and hypotheses of risk-oriented auditing approach stillappropriate or not in fraud auditing field is a kind of important topic in the researchfield above. And the hypothesis of ‘The risk impact and risk probability isindependent of each other’ is a relative base of these principles and hypotheses. Webelieve this hypothesis have a broad effect to the appropriateness of the referencing ofthe risk-oriented auditing approach in fraud auditing.This paper found out that the related researches are still too weak to support thehypothesis which we’ve mentioned above relatively, and the audit profession hasreferenced the hypothesis directly without any necessary examination already byliterature review. So, we believe it is necessary to discuss more about this topic. Theresult may build a base for the future research, and have a chance to guide the fraudauditing and fraud risk evaluation practice of Chinese mainland.We started from the problem above, built hypotheses by analyzing therisk-oriented auditing approach and the prospect theory as a base of futurediscussions.Then we collected data about the auditors’ fraud probability evaluations and theauditees’ fraud probability decisions by experiment. We found out that there are someimproper tendencies in the fraud auditing practice of Chinese mainland by statisticalanalysis and further discussions:(1) Auditors have a tendency to overestimate thefraud probability in general, this tendency cause the fraud auditing practice occupytoo much auditing resources and reduce the efficiency of fraud auditing practice as aresult;(2) Auditors expect auditees will make fraud decisions in the pattern of theprospect theory, but the auditees make these decisions in the pattern of the riskassessment formula actually, this difference lead to an imbalance in the general overestimation which we’ve mentioned above. As a result, lower impact fraud willoccupy the auditing resources which belong to higher impact fraud originally, thenfinally cause a deviation of both the key point and the direction of fraud auditingpractice.At last, this paper proved the rationality of the conclusions which we’vementioned above in the auditing practice field by analyzing some classic auditingcases from Chinese mainland and abroad. These conclusions may help auditors toassessment the status of fraud risk evaluation practice and fraud auditing resourcesallocation, these conclusions also will have a chance to guide auditors to correct theimproper tendencies which we’ve mentioned above.