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International Accounting
 

Scoring to estimate the financial statement fraud risk during the audit

Vol. 24, Iss. 11, NOVEMBER 2021

Received: 5 July 2021

Received in revised form: 20 July 2021

Accepted: 10 August 2021

Available online: 15 November 2021

Subject Heading: AUDIT ACTIVITY

JEL Classification: М42

Pages: 1262–1275

https://doi.org/10.24891/ia.24.11.1262

Sergei V. ARZHENOVSKII Rostov State University of Economics (RSUE), Rostov-on-Don, Russian Federation
sarzhenov@gmail.com

https://orcid.org/0000-0001-8692-7883

Tat'yana G. SINYAVSKAYA Rostov State University of Economics (RSUE), Rostov-on-Don, Russian Federation
sin-ta@yandex.ru

https://orcid.org/0000-0002-4120-9180

Andrei V. BAKHTEEV Rostov State University of Economics (RSUE), Rostov-on-Don, Russian Federation
a_bakhteev@mail.ru

https://orcid.org/0000-0002-7002-0846

Subject. This article assesses the propensity for material misstatement risk due to unfair actions of persons charged with the financial statements preparation, based on their behavioral traits.
Objectives. The article aims to develop a scoring type methodology for identifying the propensity for material misstatement risk due to unfair actions of persons charged with the financial statements preparation.
Methods. For the study, we used a multidimensional statistical method of discriminant analysis based on empirical data from an author-conducted survey of 515 employees charged with the financial statements preparation in companies.
Results. The article presents a two-stage methodology that helps estimate whether a person has traits associated with a hyperpropensity for financial statements fraud risk.
Conclusions and Relevance. The developed methodology for detecting the fraud risk is easy to use. It gives the result in binary form and does not violate the principles of audit ethics. The estimated material misstatement risk due to unfair actions makes it possible to justify the need for appropriate audit procedures when developing a strategy and audit plan.

Keywords: audit risk, scoring method, behavioral traits, discriminant analysis

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ISSN 2311-9381 (Online)
ISSN 2073-5081 (Print)

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