“Previous research has laid out best practices that are conducive to brainstorming, or group decision making, and we wanted to see whether using those practices makes a difference in the real world,” says Dr. Joe Brazel, associate professor of accounting at NC State and co-author of a paper describing the research.
“We found that, when tackling complex issues, the use of best practices to produce high-quality brainstorming did result in better decision making,” Brazel says. For example, if an accounting firm has a client with a high fraud risk, what procedures do you need to employ in order to detect fraud? “When an audit team had taken steps to ensure high-quality brainstorming, we found them employing fraud detection techniques, such as surprise inventory checks, sales verifications, et cetera. When an audit team wasn’t using the brainstorming best practices, we saw them identify risk and then take no pursuant action.”
Brainstorming is a required component of the planning process for firms that are responsible for detecting corporate fraud. In this study, the researchers wanted to see if there was variation in how these firms conducted their brainstorming sessions, and whether those variations affected the quality of their work. The study found that there are 21 specific best practices that contributed to successful brainstorming efforts, and that the benefits of high quality brainstorming could be attained when at least 10 to 11 of those practices are put into place – such as the inclusion of subject-matter specialists and an openness to input from all team members.
While this research is certainly applicable to fraud detection, Brazel says that its findings are broadly applicable throughout the business world. “When facing a complex problem in any field of business, this research tells us that it is important to incorporate high-quality brainstorming techniques in order to improve your ability to successfully resolve the problem.”
The researchers also found one variable that can negate any potential benefits of high quality brainstorming: managerial bias. If a team leader comes into the brainstorming process with well-known preconceived notions, that effectively short-circuits the brainstorming effort – and using best practices will not help.
NC State’s Department of Accounting is part of the university’s College of Management.
Note to Editors: The presentation abstract follows.
“Auditors’ Use of Brainstorming in the Consideration of Fraud: Reports from the Field”
Authors: Joseph F. Brazel, North Carolina State University; Tina D. Carpenter, University of Georgia; J. Gregory Jenkins, Virginia Polytechnic Institute and State University
Published: July 2010, The Accounting Review
Abstract: Audit standards require auditors to conduct fraud brainstorming sessions on every audit. The Public Company Accounting Oversight Board has raised concerns about auditors’ fraud judgments and the quality of their brainstorming sessions. We develop a measure of brainstorming quality to examine how it affects auditors’ fraud decision-making processes. We test our measure using field survey data of auditors’ actual brainstorming sessions for 179 audit engagements. Respondents report considerable variation in the quality of brainstorming in practice. We find some evidence that high-quality brainstorming improves the relations between fraud risk factors and fraud risk assessments. We also determine that brainstorming quality positively moderates the relations between fraud risk assessments and fraud-related testing. Our results suggest that the benefits of brainstorming do not apply uniformly, because low-quality sessions likely incur the costs of such interactions without receiving the attendant benefits. By documenting best practices from high-quality brainstorming sessions, our findings can inform auditors on how to improve their consideration of fraud.
Matt Shipman | EurekAlert!
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