Do fine feathers make a fine bird? The influence of attractiveness on fraud‐risk judgments by internal auditors

• Date: 01 November 2018
• Author: Marc Eulerich,Jochen C. Theis,Junpeng Lao,Meike Ramon
• Published date: 01 November 2018
• DOI: http://doi.org/10.1111/ijau.12137

SPECIAL ISSUE ARTICLES

Do fine feathers make a fine bird? The influence of

attractiveness on fraud‐risk judgments by internal auditors

Marc Eulerich

1

|Jochen C. Theis

1

|Junpeng Lao

2

|Meike Ramon

2

1

Mercator School of Management, University

of Duisburg–Essen, Duisburg, Germany

2

Department of Psychology, University of

Fribourg, Fribourg, Switzerland

Correspondence

Marc Eulerich, University of Duisburg–Essen,

Mercator School of Management, Chair for

Internal Auditing, Lotharstraße 65, 47057

Duisburg, Germany.

Email: marc.eulerich@uni‐due.de

Independence and objectivity are key principles assumed to underlie internal auditors'

fraud‐risk judgments. However, a substantial body of evidence suggests that physical

attractiveness of suspects may influence internal auditors' fraud‐risk judgments. In

this experimental study we investigated whether internal auditors are susceptible to

appearance‐related biases, or whether they correct for them due to their expertise

and motivation. A total of 193 internal auditors were presented a misappropriation‐

of‐assets scenario in which the attractiveness of a suspect was manipulated. To

determine whether professional expertise is associated with increased resilience to

appearance‐related biases, their fraud‐risk judgments were contrasted with those

acquired from 240 subjects without auditing experience (“naive subjects”). In line with

our predictions, attractiveness modulated naive subjects' fraud‐risk judgments,

whereas internal auditors did not show any indication for appearance‐related biases.

Our findings suggest that internal auditors' experience and motivation may immunize

them to the phenomena of physical attractiveness stereotyping and the attractiveness

halo effect.

KEYWORDS

audit failure, ethics, fraud, internalaudit, professionalism

1|INTRODUCTION

A perpetual problem for the management of all types of companies is

the misappropriation of assets and fraud. According to a study of the

Association of Certified Fraud Examiners (ACFE), organizations lose

5% of their annual revenue due to asset misappropriation, corruption,

and financial statement fraud, with more than one‐fifth of the cases

causing losses of at least $1 million for each respective company

(ACFE, 2012); for comparable statistics, see also Beasley, Carcello,

Hermanson, and Neal (2010) and Beasley, Carcello, Hermanson, and

Lapides (2000). Consequently, fraud detection and prevention have

recently become significant concerns, especially for the top manage-

ment and internal auditors (IAs)—top management's support unit

(Abbott, Park, & Parker, 2000; Cooper, Dacin, & Palmer, 2013; Kaplan,

Pope, & Samuels, 2010; Moeller, 2004; Norman, Rose, & Rose, 2010;

Prawitt, Sharp, & Wood, 2012). Typically, internal auditing acts as a

direct agent of the chief executive officer (CEO) and the audit

committee. One can define internal auditing as follows (Institute of

Internal Auditors [IIA], 2013):

Internal auditing is an independent, objective assurance

and consulting activity designed to add value and

improve an organization's operations. It helps an

organization accomplish its objectives by bringing a

systematic, disciplined approach to evaluate and

improve the effectiveness of risk management, control,

and governance processes.

There is a growing literature showing the value of internal

auditing for management, especially in fraud‐risk judgments

1

and

detection (ACFE, 2012; Norman et al., 2010).

According to the IIA Standards, the paramount principles of IAs'

work are independence and objectivity (IIA, 2013). Hence, in a poten-

tial fraud case an IA should be objective in his or her fraud‐risk judg-

ments (AICPA, 2002; IIA/AICPA, 2008) and should not consider any

Received: 21 September 2017 Revised: 26 June 2018 Accepted: 27 June 2018

DOI: 10.1111/ijau.12137

332 © 2018 John Wiley & Sons Ltd Int J Audit. 2018;22:332–344.wileyonlinelibrary.com/journal/ijau