Preventing Fraud: Users and Preparers Speak

By Lander, Gerald; Reinstein, Alan | Akron Business and Economic Review, Spring 1989 | Go to article overview

Preventing Fraud: Users and Preparers Speak


Lander, Gerald, Reinstein, Alan, Akron Business and Economic Review


Preventing Fraud: Users and Preparers Speak

A nationwide survey of the four groups most affected by new auditing standards to detect and prevent fraud shows a negative consensus on many of the crucial assumptions behind the standards and a pervasive skepticism toward both the means and ends of Congressional and professional reform.

THE SURVEY

To discover how financial statement users and independent auditors view the CPAs' responsibilities for detecting fraud, in early 1987 we randomly surveyed 1600 professionals nationwide: 400 chartered financial analysts chosen from the nationwide list of Chartered Financial Analysts (CFA); 400 bank credit evaluators from the nationwide list of Robert Morris Associates (RMA); 400 financial executives from the nationwide list of the Financial Executives Institute (FEI); and 400 CPAs from the nationwide list of members of the American Institute of Certified Public Accountants (AICPA). The equal sample size was large enough to allow significant conclusions, achieving equal levels of precision from each of the four groups. Finite population correction factors (FPCF) were computed to ascertain if using identical samples on varying populations was affected because we sampled without replacement. The four FCPFs varied from .981 to .993, which exceeded Bailey's level of .95, the point at which we can ignore the potential problem [1, p. 32]. Our purpose was to solicit opinions on how the financial reporting process should be changed in order to prevent, detect, and report fraud.

The questionnaire was pre-tested with ten members from each of the four groups. We sent out two waves of questionnaires and received 453 valid responses (106 CFA responses, 121 RMA responses, 93 FEI responses, and 133 AICPA responses), a 28.3% response rate. Tests were made for non-response bias using Oppenheim's early-late hypothesis[9]. The results indicate no significant ([is less than] .05) differences between early and late respondents. Tests for non-response bias and the high response rate strongly suggest that there is no significant non-response bias associated with the study.

BACKGROUND

The impetus for our survey was, first, that in 1982 fraud amounted to $55 billion and has been rising since [3, p. 2]; and, second, recent Congressional hearings concerned with the bankruptcy of several companies (e.g., ESM, Drysdale Securities, and Penn Central) after they received unqualified audit opinions. Hearings by the House Energy and Commerce Subcommittee on Oversight and Investigations, beginning in June 1986, and subsequent legislation recently introduced by Congressman Wyden (D-Oregon) have led the AICPA to propose nine new standards as a potential substitute for Congressional or Securities and Exchange Commission (SEC) action. Congressman Dingell (D-Michigan), who heads the oversight committee, was quoted in September by The New York Times as saying that the accounting profession has one year to improve its performance before the government steps in[5].

It is not a new pattern. Over the past ten years, the AICPA has issued, under Congressional pressure, five standards to combat fraud:

1. Statement on Auditing Standard (SAS) No. 16, The Independent Auditor's

Responsibilities for the Detection of Errors or Irregularities,

2. SAS No. 17, Illegal Acts by Clients,

3. SAS No. 19, Client Representation,

4. SAS No. 20, Required Communication of Material Weaknesses in Internal

Accounting Control, and

5. SAS No. 45, Related Parties.

However, by 1986 numerous shortcomings in these standards and their application had been noted. Users were unclear about the general nature of the auditor's responsibilities as well as those regarding error and fraud. "Subject to" opinions confused users. Auditors lacked formal steps by which they could address "going concern" questions. In addition, they were required to search only for "material" errors and irregularities--without strong guidance. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Preventing Fraud: Users and Preparers Speak
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.