How Trust Underpins Auditor Fraud Risk Assessments

This study investigates the nature and extent to which managerial attitudes influence fraud risk perceptions, observations and experiences of audit partners. Using a sample of 5,603 client acceptance and audit continuance assessments at a Big Four audit firm in the Netherlands, this study finds that: (1) manager integrity, honesty, and ethics are considered by audit partners to be of highest importance in fraud risk assessments; (2) the aggressiveness of an organization’s revenue recognition and accounting estimates appear to significantly influence auditor fraud risk perceptions; and (3) the quality of the audit-client relationship, and the level of senior management experience, provide important cues influencing auditor perceptions in “low risk” fraud situations, but neither are used to identify nor categorize high fraud risk clients. These empirical findings highlight the significant importance of senior management attitudes in influencing auditor perspectives, accounting for 82% of the variability in fraud risk assessments.