• auditing;
  • audit planning;
  • fraud risk assessment;
  • fraud risk factors

This paper describes fraud risk factors identified by practicing auditors relative to their own clients, and the relationship of those factors to fraud risk assessments and audit planning decisions. When the U.S. Auditing Standards Board (ASB) developed SAS No. 82, a major concern was whether and how to incorporate specific fraud risk factors into the standard. This issue remains important, as the ASB and the International Auditing and Assurance Standards Board (IAASB) continue to examine auditor's responsibilities for fraud detection. This paper contributes to the literature by providing evidence on the prevalence of certain types of fraud risk factors in audit practice and their impact on audit planning. To address these issues, we asked practicing Big 5 auditors to identify specific fraud risk factors of an actual client, assess the client's level of fraud risk, and plan audit tests to address fraud. We find that a high proportion of clients exhibit one or more fraud risk factors, most frequently related to industry/competitive position, management integrity, internal control system quality, financial condition, and pressure to meet financial targets. While fraud risk factors are often documented, fraud risk assessments are not well related to the number of those factors, overall or by individual type. All types of fraud risk factors are statistically associated with some form of audit testing response, but the nature of the audit test planned varies by risk factor type. Results of the study also show that the effect of fraud risk assessments on audit test planning varies according to the nature of the audit test planned.