Fraud Detection: The Impact of CFE Designation on Professional Skepticism and Brainstorming

SAS No. 99. - Consideration of Fraud in a Financial Statement Audit, to supersede SAS No. 82 (AICPA 2002), requires auditors to conduct fraud brainstorming sessions on every audit. Brainstorming aims to improve auditors' professional skepticism and reduce their cognitive dissonance. So they can more effectively evaluate the potential of fraud when investigating financial statements. Despite SAS No 99., Auditors continue to fail at modifying their standard audit procedures in response to fraud risk. The Public Company Accounting Oversight Board (PCAOB) cited a lack of professional skepticism as the primary cause of inconsistent brainstorming sessions. Our experiment advances Carpenter's (2007) study by investigating whether the Certified Fraud Examiner’s designation enhances fraud risk detection by improving professional skepticism and brainstorming quality in audit teams. The results should inform regulators, academic researchers, and audit practitioners. It can shift how accounting educators and industry professionals prepare auditors to effectively evaluate unstructured fraud cues to lessen the impact of fraud losses and save investors hundreds of millions of dollars in economic value.