Internal Auditors' Fraud Risk Assessments: The Benefits of Brainstorming in Groups

Recent financial reporting scandals have prompted actions directed at improving corporate governance, especially as it relates to fraud prevention and detection. Internal auditors are now perceived as an important part of the solution to this breakdown in financial reporting and ethical behavior. We investigate whether the group interaction commonly associated with brainstorming is necessary to reap the benefits of brainstorming for auditors’ fraud judgments. We also investigate whether this group interaction can reduce a response mode bias that auditors have been shown to exhibit when assessing risk qualitatively or quantitatively. Results from our experiment suggest that internal auditors who brainstorm in groups provide higher fraud risk assessments than individual auditors who brainstorm alone, and the brainstorming groups also identify more quality fraud risks than individual auditors who brainstorm alone. Consistent with prior research, we find that auditors who assess risk qualitatively generally provide higher fraud risk assessments than those auditors who assess risk quantitatively. However, group brainstorming appears to significantly reduce this bias. We conclude that group brainstorming could provide benefits for internal auditors when making fraud judgments.