Estimating the Potential Detection Rate for Fraud

Journal of Applied Accounting Research, Vol. 4, No. 3, pp. 47-71, 1997

Posted: 19 Feb 2008 Last revised: 5 Mar 2008

See all articles by Richard A. Bernardi

Richard A. Bernardi

Roger Williams University - Gabelli School of Business; Roger Williams University

Abstract

The research uses the term fraud to include material irregularities as defined in SAS No. 53. This research studied differences in fraud detection between different levels of experience and client integrity and competence ratings. The case study used in the research (Pincus, 1990) involved a restaurant client that materially overstated ending inventory. The sample included 152 managers and 342 seniors. Each auditor reviewed a complete set of work papers and was asked to determine whether the inventory account was stated fairly. In addition to the current data, the research uses data from Pincus (1990) and Wright and Ashton (1989) as the basis for determining the detection rate for an audit team reviewing the data on an inventory account. The data in this research indicates that an audit team composed of two juniors, one senior, a manager, and partner has a 97.7 percent probability of detecting a material irregularity in an inventory account.

Suggested Citation

Bernardi, Richard A., Estimating the Potential Detection Rate for Fraud. Journal of Applied Accounting Research, Vol. 4, No. 3, pp. 47-71, 1997, Available at SSRN: https://ssrn.com/abstract=1095011

Richard A. Bernardi (Contact Author)

Roger Williams University - Gabelli School of Business ( email )

Bristol, RI 02809
United States

Roger Williams University ( email )

Bristol, RI 02809
United States

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