A General Framework for Assessing Fraud Risk

DOI: 10.5176/2251-1997_AF18.192

Authors: Lei Gao, Rajendra P. Srivastava, Theodore J. Mock, Elizabeth Fuerherm

Abstract:

This paper presents a general fraud risk assessment framework for a financial statement audit. Given that each fraud is unique, a framework that ties to the specific conditions of each client is necessary to properly assess fraud risk. The novel aspects of the approach include: (1) Providing a rigorous structured approach for connecting risk assessment, audit planning, and evaluation of audit results; (2) Integrating account and evidence schemes and evidence pertaining to the presence of the three fraud risk factors; (3) Incorporating fraud scheme frequency information into an evidential network and (4) Demonstrating how the focus on specific accounts can lead to more effective fraud risk assessment. An illustration demonstrates the value of the methodology in assessing fraud risk whether it exists in single or multiple accounts.

Keywords: design science, fraud risk assessment, fraud schemes, evidential reasoning, belief functions