Helping auditors identify deception
Rebecca Nicolaides,Richard Trafford and Russell Craig
University of Portsmouth, Portsmouth Business School, Portsmouth, UK
Purpose –This paper reviews an array of psycholinguistictechniques that auditors can deploy to explore
written and oral language for signs of deception. The review is drawn upon to propose someelements of a
Design/methodology/approach –Relevant literature across several disciplines is identiﬁed through
keyword searchesof major bibliographic databases.
Findings –The techniques highlighted have considerable potential for use by auditors to identify audit
contexts which merit closer audit investigation. However, the techniques need further contextualempirical
investigationin audit contexts. Seven speciﬁc propositionsare presented for empirical testing.
Originality/value –This paper assembles literature on deceptive communication from a wide range of
disciplines and relates it to the auditcontext. Auditors’attention is directed to potential linguisticsignals of
fraud risk, and opportunities for future research are suggested. The paper is consciousness-raising, has
pedagogicpurpose and suggests critical elements for a future researchagenda.
Keywords Language, Fraud, Audit, Deception, Oral, Words
Paper type Conceptual paper
Fraud imposes considerable costs on the global economy (Gee et al., 2010), prompting
calls for new and more effective methods to assist auditors detect fraudulent activity
(Bierstaker et al.,2006;Hogan et al., 2008;Center for Audit Quality, 2010;Lokanan,
2015). There is a strong case that a critical focus of auditors’methods to detect fraud
and deception should be on examining what senior executives say and do. Such a focus
seems desirable in view of ﬁndings that senior executives are involved in 89 per cent of
corporate fraud cases (Beasley et al., 2010).
The need for a wider, holistic approach to evaluating fraud risk in ﬁnancial
statements is established in the Statement on Auditing Standards No. 99: Consideration
of Fraud in a Financial Statement Audit (AICPA, 2002) [hereafter SAS 99] and
International Standard on Auditing 240: The Auditor’s Responsibilities Relating to
Fraud in an Audit of Financial Statements (IFAC, 2012) [hereafter ISA 240]. SAS 99 and
ISA 240 require auditors to explore beyond ﬁnancial reports. SAS 99 (para 31) requires
them to conduct interviews with management and to consider management’s
“attitudes/rationalizations”. These standards oblige auditors to consider the risk of
fraud or misrepresentation in terms of the “fraudrisktriangle”of motivation,
opportunity and rationalisation (ISA 240, paras 3, A1).
Thus, auditors are obliged to consider the wide sphereof linguistic data available to help
them undertake their audit. Those data reside in formal narratives, such as management
discussion and analysis (MD&A)reports, directors’reports and CEO letters; and in informal
narratives, such as press interviews and conference calls with ﬁnancial analysts.
Consequently, considerablebeneﬁts seem likely to accrue if auditors understand the psyche
Journalof Financial Crime
Vol.25 No. 4, 2018
© Emerald Publishing Limited
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