Wichita State University Accounting & Audit Conference
May, 18, 2011
acumen
insight
ideas
Finding Fraud & Deception
attention
reach
expertise
Presented by:
depth
Don Wengler, CPA/CFF, CFE, CVA
agility
talent
acumen
insight
ideas
attention
reach
expertise
depth
agility
talent
acumen
insight
ideas
attention
reach
expertise
depth
agility
talent
Lunch, Murthy, Engle 2009
acumen
Useful Research
insight
ideas
attention
“Useful research reflects results
that are belief changing”
reach
expertise
depth
agility
talent
Uday Murthy lecture, March 4, 2011
acumen
Fraud Brainstorming
insight
 SAS 99: Consideration of Fraud in a ideas
Financial Statement (AICPA 2002) attention
 Usually face-to-face audit team discussion
reach
 Part of audit planning process
 Outcome affects audit procedures
performed
expertise
depth
agility
talent
acumen
Our Experiment
1. Team Nominal
2. Team Face-to-Face
3. Team Content Facilitation
insight
ideas
attention
reach
expertise
depth
agility
talent
acumen
Fraud Brainstorming
insight
ideas
attention
Fraud
Idea
Generation
reach
expertise
Relevant to
Client
Not Relevant
To Client
depth
agility
talent
acumen
Face-to-Face Brainstorminginsight
- Coordinate Schedules
- Wait
- Attend
- Remember
- Avoid Cog. Inertia
ideas
attention
reach
expertise
depth
agility
talent
acumen
Computer-Mediated Advantages
insight
 Members can input ideas simultaneouslyideas
 However, fraud brainstorming is moreattention
complex than simple idea generation reach
 Relevant fraud risks must be identified
expertise
through the interaction regarding:
depth

Specialized auditing knowledge

Industry-specific factors
agility

Client-specific factors
talent
acumen
Florida Study
Objectives--Relative effectiveness of:
1. Electronic v. face-to-face
2. Interactive v. Nominal
3. With v. without content facilitation
insight
ideas
attention
reach
expertise
depth
 Whether participating in a fraud
agility
brainstorming session heightened auditor
awareness of fraud risks when presenttalent
acumen
Florida Study
insight
 188 SAS 99 auditing students, teams of ideas
4
 Studied a company case study

attention
reach
5 question test assured case facts known
expertise
 108 electronically/80 face-to-face
depth
 Electronic interactive; electronic nominal;
face-to-face, with/without facilitation. agility
talent
acumen
Florida Study
1. Reviewed case again
insight
ideas
attention
2. Made initial fraud risk assessment alone
3.
reach
20 minutes of fraud brainstorming (1221)
expertise
4. 5 prompts: Opportunity, pressure,
rationalization, revenue recognition, depth
management override of internal controls
agility
5. Face-to-face 2nd interaction
talent
acumen
Florida Study: Measurementinsight
 The number of relevant fraud factors ideas
identified from the case
attention
 Change from the pre-brainstorming to reach
post-brainstorming fraud risk assessment
expertise
from 1% to 100% of estimated probability
depth
of material misstatement
agility
talent
acumen
Florida Study: Results
Average Number of Relevant Fraud Risks Identified Per Team
insight
ideas
attention
16
14
reach
12
10
8
expertise
6
4
depth
2
0
Face-to-Face
Electronic Nominal
No Facilitation
Facilitation
Electronic Interactive
agility
talent
acumen
Florida Study: Conclusions insight
ideas
 Electronic fraud brainstorming is
significantly more effective than face-toattention
face fraud brainstorming
reach
 Interactive brainstorming is no more expertise
effective than “nominal” brainstorming
depth
 Brainstorming effectiveness is significantly
agility
higher with content facilitation, than
talent
without
acumen
Is Abe Lincoln Honest?
insight
ideas
attention
reach
expertise
depth
agility
talent
acumen
insight
ideas
attention
reach
expertise
depth
agility
talent
Larcker & Zakolyukina 2010
acumen
Stanford Study
insight
 Objective: Construct and test a
linguistic model for detecting attention
reach
deceptive CEO and CFO
communications in quarterly expertise
earnings call communications. depth
ideas
agility
talent
acumen
Stanford Study
insight
ideas
1. Reviewed prior psychological and
linguistic research related to deception
attention
2. Identified words and uses of language reach
that are believed to signal deceptionexpertise
3. Built a statistical model designed to depth
measure/predict deception in CEO/CFO
agility
Q&A communications, based on the
talent
words/usage
acumen
Stanford Study
insight
ideas
4. Defined deceptive CEO and CFO
communications in quarterly earnings
attention
call Q&A sessions
reach
5. Analyzed 16,577 full text Q&A sessions
expertise
to test the success of the statistical
depth
model for predicting deception CEO and
CFO communications
agility
6. Generalized conclusions
talent
acumen
Prior Psychological/Linguisticsinsight
 Emotions perspective
 Cognitive effort perspective
 Control perspective
 Lack of embracement perspective
ideas
attention
reach
expertise
depth
agility
talent
acumen
Reference Language
insight
ideas
attention
reach
expertise
depth
agility
talent
Larcker & Zakolyukina 2010
acumen
Illustrative Data Table
1
A
B
C
insight
ideas
2
attention
4
5
How
6
many
How
7
times is
deceptive
8
a word
is the
9
used?
communication?
reach
expertise
10
22
100%
11
16
75%
12
12
50%
13
3
25%
14
0
0%
15
depth
agility
talent
acumen
Illustration of Positive Associationinsight
100%
22, 100%
Measure of Deception
90%
80%
16, 75%
70%
ideas
attention
60%
50%
reach
12, 50%
40%
30%
expertise
3, 25%
20%
depth
10%
0%
0, 0%
0
5
10
15
20
25
agility
Num ber of Tim es Word Used
talent
acumen
Illustration of Positive Associationinsight
y = 0.043x + 0.0439
R2 = 0.981
100%
ideas
Measure of Deception
90%
80%
attention
70%
60%
reach
50%
40%
expertise
30%
20%
depth
10%
0%
0
5
10
15
20
25
agility
Num ber of Tim es Word Used
talent
acumen
Illustration of Negative Association insight
100%
ideas
5, 100%
Measure of Deception
90%
80%
attention
12, 75%
70%
reach
60%
50%
14, 50%
expertise
40%
30%
18, 25%
20%
depth
10%
0%
0
5
10
15
20
Num ber of Tim es Word Used
25, 0%
25
30
agility
talent
acumen
Illustration of Negative Association insight
ideas
100%
attention
Measure of Deception
80%
y = -0.0526x + 1.2779
R2 = 0.9671
60%
reach
40%
expertise
20%
depth
0%
0
5
10
15
20
25
30
agility
-20%
Num ber of Tim es Word Used
talent
acumen
Illustration of No Association
insight
100%
ideas
8, 100%
Measure of Deception
90%
80%
attention
16, 75%
70%
60%
50%
reach
12, 50%
40%
expertise
30%
3, 25%
20%
depth
10%
0%
12, 0%
0
5
10
15
Num ber of Tim es Word Used
20
agility
talent
acumen
Illustration of No Association
insight
100%
8, 100%
ideas
Measure of Deception
90%
80%
attention
16, 75%
70%
y = 0.0129x + 0.3683
R2 = 0.0258
60%
50%
reach
12, 50%
40%
30%
expertise
3, 25%
20%
depth
10%
0%
0
5
10
12, 0%
15
20
agility
Num ber of Tim es Word Used
talent
acumen
Reference Language
insight
ideas
attention
reach
expertise
depth
agility
talent
Larcker & Zakolyukina 2010
acumen
Positive/Negative Words
insight
ideas
attention
reach
expertise
depth
agility
talent
Larcker & Zakolyukina 2010
acumen
Positive/Negative Words
insight
ideas
attention
reach
expertise
depth
agility
talent
Larcker & Zakolyukina 2010
acumen
Cognitive Process
insight
ideas
attention
reach
expertise
depth
agility
talent
Larcker & Zakolyukina 2010
acumen
Other Cues
insight
ideas
attention
reach
expertise
depth
agility
talent
Larcker & Zakolyukina 2010
acumen
Self-constructed word categories insight
 Reference to general knowledge
 Shareholder value
 Value creation
 Hesitation expressions
ideas
attention
reach
expertise
 Extreme negative emotions
depth
 Extreme positive emotions
agility
talent
Stanford Study: How Was
Deception Measured?
Subsequent:
acumen
insight
ideas
attention
 Form 8-K filings reflecting restatements
of
earnings (significant in size)
reach
expertise
 Filings reflecting “material weaknesses”
 Auditor changes
depth
 Late financial statement filings
agility
talent
acumen
Stanford Study: How Was Size
of
the Answer Uniformly Scaled?insight
ideas
 Median CEO answer: 1,811 words
 Median CFO answer: 987 words
attention
reach
expertise
Typical CFO: (10/1,000) X 1,000 = 10
depth
agility
Talkative CFO: (10/3,000) x 1,000 = 3.3talent
acumen
insight
Stanford
Study:
Model
Output
ideas
attention
reach
expertise
depth
agility
talent
Larcker & Zakolyukina 2010
acumen
Stanford Study: Model Output
insight
ideas
attention
reach
expertise
depth
agility
talent
Larcker & Zakolyukina 2010
acumen
Conclusions: Deceptive Executives
insight
 More general knowledge references
ideas
 Fewer non-extreme positive emotionsattention

reach
Fewer references to shareholder value
expertise
and value creation
depth
agility
talent
acumen
Conclusions: Deceptive CEOs
 Fewer self-references
insight
ideas
 More 3rd person plural & impersonal attention
pronouns
reach
 More extreme positive emotions
expertise
 Fewer extreme negative emotions
depth
 Fewer certainty & hesitation words
agility
talent
acumen
Our Survey
insight
ideas
attention
reach
expertise
depth
agility
talent
acumen
insight
ideas
attention
reach
Budgeting: An Experimental
Investigation of the Effects
of Negotiation
Joseph F. Fisher
Indiana University
James R. Frederickson
Hong Kong University
Sean A. Peffer
University of Kentucky
expertise
depth
agility
talent
acumen
Budget Setting
insight
 Negotiation Process
ideas
 Unilateral Process
attention
reach
expertise
depth
agility
talent
acumen
Negotiation Matrix
insight
ideas
attention
Makes
Initial
Budget
Proposal
Superior
Has
Final
Budget
Authority
reach
expertise
depth
agility
Subordinate
talent
acumen
Budget Setting Consequencesinsight
 Budgetary Slack/Planning
ideas
attention
 Subordinate Performance/Motivational
reach
expertise
depth
agility
talent
acumen
Conclusions
insight
ideas
 Budgets set through a negotiation process
where superiors have final authority are
attention
lower than budgets set unilaterally by
reach
superiors.
expertise
 Budgets set through a negotiation process
where subordinates have final authority depth
are not significantly different from budgets
agility
set unilaterally by subordinates.
talent
acumen
Conclusions
insight
ideas
 Budgets set through a negotiating process
ending in agreement contain significantly
attention
less slack.
reach
 A failed negotiation followed by superiors
expertise
imposing a budget has a significant
depth
detrimental effect on subordinate
performance.
agility
talent
acumen
Contact Information
insight
ideas
Don Wengler
[email protected]
BKD, LLP
Kansas City, MO 64105
816-701-0257
attention
reach
expertise
depth
BKD, LLP
Wichita, Kansas
316-265-2811
agility
talent