One hundred and fifty auditors participated in a study that examines whether auditors’ probabilistic judgments are closer to a Bayesian benchmark when auditors make judgments using a frequency response mode versus a probability response mode. We test a series of hypotheses that examine the effect of using a frequency response mode by professional auditors both within and outside their knowledge domain (fraud or medical case context) on assessing the likelihood of rare events. The results show that the auditors’ responses across the two case contexts (fraud and medical case) using a frequency response mode are closer to the Bayesian benchmark. In addition, we find that (1) the deviations in the auditors’ responses from the Bayesian benchmark across both response modes are significantly smaller for the fraud case in the low base rate condition only and (2) the deviations in the auditors’ responses from Bayesian benchmark for the fraud case using a frequency response mode relative to the probability response mode are smaller in the low base rate condition than the other two base rate conditions. These findings contribute to research on auditor judgment and decision-making, and demonstrate how the use of a frequency response mode can improve auditors’ assessment of fraud.

Previous studies indicate that auditors are able to identify fraud risk factors, but may not be able to translate this knowledge into an audit plan that effectively takes these factors into account to increase the likelihood of detecting fraud. Fraud specialists may be able to compensate for such limitations. This study investigates the relative merits of involving fraud specialists in assisting auditors by developing an audit plan that would effectively address fraud risk in a revenue cycle. Results show that fraud specialists did not differ from auditors in the number of procedures selected from a standard audit program; nor were these procedures cumulatively more effective than those selected by auditors. Fraud specialists generated a greater number of non-standard additional audit procedures, and those procedures were marginally more effective, but less efficient, than those of auditors, except for certain groups of procedures. Finally, although the fraud specialists proposed significantly more additional (non-standard) procedures than auditors, their proposed budget increase for this category of procedures was significantly smaller than the budget increase proposed by auditors. Adjustments to the overall time budget did not differ between fraud specialists and auditors. Data Availability: Data are available from the authors upon request.

As the audit environment becomes more demanding and complex, so does the set of analytical tools available to an auditor. The purpose of this paper is to examine the effect of two complex audit technologies commonly used by auditors, benchmarking of performance measures and strategic analysis, on the risk judgments of auditors carrying out the initial planning of an audit. We conduct an experiment that utilizes a Balanced Scorecard for organizing and evaluating analytical evidence about the performance of business units within a large client. Our first principal finding is that external benchmarking can cause an auditor to focus on performance measures that are unique to a business unit and disregard performance measures that are common to multiple business units but not benchmarked. However, our second finding is that an in-depth strategic analysis completed prior to assessing a client's business risk or risk of material misstatement allows an auditor to incorporate more information from performance measures in risk assessments regardless of whether the performance measures are benchmarked. Strategic analysis facilitates a more balanced and accurate assessment of the risks across the business units being evaluated. We also provide evidence that the latter result occurs because in-depth strategic analysis allows auditors to develop a more complete mental model of a client, which has been a long time belief of advocates of business risk audit methodologies and consistent with current and emerging auditing standards on risk assessment.