（2002）Defrauding the public interest-A critical examination of reengineered audit processes and the likelihood of detecting fraud.pdfVIP

Critical Perspectives on Accounting (2002) 13, 297–310 doi:10.1006/cpac.2001.0527 Available online at on DEFRAUDING THE PUBLIC INTEREST: A CRITICAL EXAMINATION OF REENGINEERED AUDIT PROCESSES AND THE LIKELIHOOD OF DETECTING FRAUD CHARLES P. CULLINAN * AND STEVE G. SUTTON †‡ *Bryant College, Smithfield, RI 02917, USA and †University of Connecticut/University of Melbourne, School of Business (U-41A), University of Connecticut, Storrs, CT 06269-1041, USA In the past few years, most of the major international public accounting firms have reengineered their audit processes to improve the cost effectiveness of completing an audit and to focus on value-added services for clients. The reengineered audit processes generally focus on a client’s business processes and the information systems used by the client to generate financial information. In essence, the new audit approaches deemphasize direct testing of the underlying transactions and account balances. Such an approach emphasizes analytical procedures as the main source of substantive evidence. During this same time period, however, the profession (through the AICPA) explicitly acknowledged the profession’s responsibility for fraud detection. The main premise of this paper is that the increased emphasis on systems assessments is at odds with the profession’s position regarding fraud detection because most material frauds originate at the top levels of the organization, where controls and systems are least prevalent and effective. As such, the profession may be paying lip service to fraud detection, while at the same time changing the audit process in a manner that is less effective at detecting the most