How Have Changes in Technology Impacted the Ability to Commit and Detect Fraud, and How Should the Accounting World Respond.

Abstract

Fraud is not a new topic. However, with the inclusion of technology into the workplace, criminals have a new means of engaging in fraudulent activity. Currently, the accounting world has two fraud detection mechanisms: the financial audit and the fraud audit. The fraud audit is specifically designed to catch fraud and ignores materiality thresholds. Despite being the most successful detection mechanism, it is currently not required for publicly traded companies. Though the accounting world could simply mandate the performance of a fraud audit, the added costs associated with performing the audit could cause smaller businesses to suffer and would likely be met with significant pushback from the business community as a whole. Therefore, it is highly unlikely that the fraud audit will be mandated in the near future. Thus, the financial audit will remain the primary method of fraud detection. Currently, the financial audit focuses on material misstatements, which may or may not be related to fraud. With a significant portion of frauds going undetected, the financial audit's ability to detect fraud must be improved. One method to improve the financial audit's fraud detection rate is to improve the ability the auditors, to detect fraud. This paper discusses how technology has impacted the ability to commit fraud and in turn how these changes have impacted the ability to detect fraud. As well as discusses improving the ability of the financial auditor to detect fraud via improvements in their training, specifically accounting curricula, can help compensate for the impacts technology has had. Changes to accounting curricula would consist of incorporating forensic accounting and deception detection courses in order to enable students to better understand the various elements of fraud, improve their ability to recognize fraud, and improve their professional skepticism. Such improvements will increase the ability of the financial auditor to detect fraud, and by extension improve the ability of the financial audit to detect fraudulent activity.