In the ever-evolving landscape of financial reporting, the interaction between client management and external auditors is pivotal. A recent study published in the journal Behavioral Research in Accounting delves into the murky waters of deception in these critical interactions. Authored by Mary P. Durkin, S. Jane Jollineau, and Sarah C. Lyon, the research uncovers the nuanced ways in which financial professionals, particularly CFOs, respond to auditor inquiries.
The study reveals that when faced with direct questions from auditors, over half of the financial reporting professionals opted for deceptive tactics. Notably, the most common method wasn’t an outright lie but rather a „fractional truth.“ This term refers to responses that are technically accurate yet strategically omit essential details or remain intentionally vague.
The findings suggest that many CFOs justify their choice of fractional truths by clinging to the literal interpretation of the question posed, avoiding any unsolicited information which could reveal more than desired. Interestingly, the preference for communication channels also correlated with the nature of the response: deceptive responders favored email, which allows for more controlled and less spontaneous answers, whereas truthful responders preferred the immediacy and transparency of face-to-face interactions.
This study not only sheds light on the tactics of deception in financial reporting but also prompts a reevaluation of audit practices. By understanding the subtleties of how truth can be manipulated, auditors can refine their approaches to extract more complete and honest information.
For further reading, the detailed study can be accessed through the Behavioral Research in Accounting journal here.