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There has been a growing demand of concern towards fraud, as it is one of the
forms of financial crime worldwide. A recent report by Association of Central Fraud
Examiners (ACFE) in 2016 showed that typical organization loses 5% of its annual
revenues to fraud. Two thousand four hundred and ten (2.410) cases of occupational fraud
occurred throughout the world have caused a total loss of more than $6.3 billion (ACFE,
2016). Loss of market capitalization resulting from the alleged financial statement fraud
committed by Enron, WorldCom, Qwest, Tyco, and Global Crossing is estimated to be
about $460 billion in USA (Rezaee and Riley, 2010). In Indonesia, financial statement fraud
allegedly did by management of Bank Lippo, revealed the decrease in capital adequacy
ratio (CAR) by 20.54% after submission of financial statement to BEJ in 2002. The
decreasing CAR resulted from the decreasing asset of Rp 1.2 Trillion was not disclosed to
public in the company’s audited financial statement submitted a month before (Sumantyo,
2003). It triggered so many questions and there was an indication that a concealment has
been done by management to cover such loss.
In March 1993, the Public Company and Accounting Oversight Board (PCAOB) of
the AICPA Division for CPA Firms SEC Practice Section made a number of
recommendations about fraud. Beforehand, Statements of Auditing Standards (SAS) no.
53 about Auditors Responsibility to Detect and Report Errors and Irregularities has been
issued as the call for auditors to exercise professional skepticism. However, Auditing
Standards Board (ASB) concluded that it was crucial to develop an SAS that focused
solely on financial statement fraud (Mancino, 1997). After thorough considerations, ASB
issued SAS No. 82 about Consideration ofFraud in a Financial Statement Audit (Mancino,
1997). The major objective of SAS No. 82 is to increase the sensitivity to the issue of fraud
that resulted auditors to probe more deeply to it, and raise the existing detection rate as a
consequence (Mancino, 1997; Fleming, 1997; DeZoort and Lee, 1998). This action proves
to be one of the growing concerns towards auditor’s role in fraud’s detection and
prevention. As a note, due to fact that Indonesian auditing standards are adopted from the
US Standards, hence SAS No. 82 can also be applied in Indonesia (Tirta and Sholihin,
2004).
According to International Standards of Auditing (ISA 240) regarding auditor’s
responsibilities on fraud in an financial statement audit, the objectives of auditors are to identify
and assess the risks of material misstatement on financial statement that may caused by fraud,
to obtain sufficient and appropriate audit evidence regarding the assessed risks of material
misstatement that may caused by fraud, and to give appropriate responses to fraud or
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suspected fraud identified during the audit (IAASB, 2013). Those objectives can be achieved by
planning and implementing appropriate responses towards fraud risks (IAASB, 2013). Auditors
are perceived as “gatekeepers” in protection of stakeholders. But in practice many auditors have
failed to honor such role by increasing risks passed on to stakeholders (Satava, Caldwell, and
Richards, 2006). A study conducted by KPMG (2003) and the Association of Fraud Examiner
(2008) found that external auditor is rarely discovering fraud (Ashari, 2013). Pincus (1989) did a
survey towards several hundred auditors and showed that 39.5% of auditors had some form of
fraud detection experience, and from that percentage, only 10% had personally discovered
fraud while working in an ordinary audit. Moreover, in 2016 most recent fraud survey by ACFE
has been revealed that only 3.8% of the frauds committed were detected by external auditors
(ACFE, 2016, as depicted on figure 1.1).

Figure 1.1

ACFE 2016 Fraud Detection Survey’s Result

Source: Report to the Nations ACFE 2016

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Based on figure 1.1, the ACFE 2016 survey’s result showed that tip, refers to ways of
discovering fraud through calls and hotlines by whistle-blowers (PriceWaterhouseCoopers,
2005) were placed on top (39.1%), while external auditors only placed on eighth position of
fraud detection method. The low rank of fraud detection by external auditors might be caused by
the perception of auditors towards fraud detection responsibility. DeZoort and Harrison (2008)
found that the perception of biggest responsibility of detecting fraud lay on the hands of
management, while external auditors only placed at fourth position with 10.36% from total
population. It indicated that external auditors are not prioritizing fraud detection over the course
of audit.
According to Theory of Planned Behavior, the way individuals perform a certain behavior
is driven by their intention, which are motivational factors that indicate how hard they are willing
to try, of how much of an effort they are planning to exert, in order to perform certain behavior
(Ajzen 1991). The intention itself is influenced by three factors which are attitude towards
behavior, subjective norms, and perceived behavioral control. Fraud detection is a behavior
which presumably driven by favorable degree of attitude towards fraud detection, in this
research is defined as professional skepticism. Subjective norm is defined as auditor’s ethical
perception, refers to the how auditor perceives Professional Codes of Ethics. Perceived
behavioral control is defined as auditor’s perceived ease and difficulties in performing fraud
detection during the audit, which obtained from audit experience.
When obtaining reasonable assurance, the auditor is responsible for maintaining
professional skepticism over the course of audit, considering that potential of control’s
management override and realizing the fact that audit procedures which are effective to detect
error may not be effective to detect fraud (IAASB, 2013). The requirements in this ISA designed
to assist auditor to identify and assess the risks of material misstatement that may caused by
fraud and to design procedures to detect any misstatement (IAASB, 2013). According to ISA
200, professional skepticism is an attitude that involves a questioning mind, being alert to
conditions which may indicate possible misstatement which may caused by fraud or error, and
performing a critical assessment of audit evidence (IAASB, 2013). Maintaining professional
skepticism over the course of audit is important for auditor to reduce the risks of overlooking
suspicious circumstances, over generalizing when drawing conclusions from audit observations,
and using inappropriate assumptions in determining the nature, timing and extent of the audit
procedures and evaluating its results (IAASB, 2013). AICPA (2016) emphasize the importance
for audit committee to exercise professional skepticism in order to assess fraud risk and risks of
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management override of internal control. AICPA (2016) also state that by exercising an
appropriate level of professional skepticism, audit committee will be alerted to potential fraud
risks factors.
The lack of professional skepticism mentioned as one of the “10 Audit Deficiencies” in
Beasley, Carcello, Hermanson, and Neal (2013). Beasley et al. (2013) found that insufficient
level of professional skepticism named as the third (60%) factor of audit deficiencies among the
81 cases of sanction against auditors by SecurityExchange and Commisions (SEC), as
revealed by Accounting and Auditing Enforcement Releases (AAERs). Messier, et al. (2010)
analyzed SEC reports regarding PCAOB’s sanction against partners who act as Engagement
Quality Reviewers (EQR), and found that among 28 cases of violation against Generally
Accepted Auditing Standard (GAAS) since 1993, 22 cases caused by the lack of professional
skepticism. As the complexity of transactions increases, the use of subjective estimates
expands and the use of fair value in accounting, a growing demand for reliability in financial
reporting by the stakeholders occurs, accompanied by large-scale accounting frauds found in
recent SEC reports. Therefore, the interest on professional skepticism’s application for auditor is
gaining (Glover and Prawitt, 2014).
According to Hurtt, Eining, and Plumlee (2008) professional skepticism is the tendency
of individuals to delay conclusion until evidence providing sufficient support for one’s alternative
or explanation for others. On their professional field, individual auditors bring their native or
innate level of skepticism to their professional environment and they focus it on the professional
issues found in audit engagements. Professional skepticism defined as a trait inherent in
individual auditors, also supported by Tesser (1993). He stated that some heritable or genetic
individual’s characteristics influence his/her attitude. Tesser (1993) also found that attitudes
higher in heritability are shown to be responded to more quickly, to be more resistant to change,
and to be more consequential in the attitude similarity attraction relationship than those which
are lower in heritability or genetic basis. Robinson and Curtis (2013) and Hurtt et al (2008)
confirm Tesser’s (1993) findings by also show that auditors who are more skeptical inherently
tend to show higher professional skepticism than those who are not inherently skeptical, despite
the situational factors.
This research adds personality types as the independent variable to define fraud
detection capability. In Indonesia, the work of Nasution and Fitriany (2012), Noviyanti (2008)
and also Larimbi (2013) shown that there is relationship between certain personality types,
professional skepticism, and fraud detection. Auditors who possess ST (Sening-Thinking) and
NT (iNtuitive-Thinking) personality types according to Myers Briggs Type of Indicators (MBTI)
would be having higher professional skepticism in detecting fraud than those who possess other
personality types (Noviyanti, 2008). Personality shapes both the likelihood of response to
situational features and the intensity of the response (Gallego and Pardos-Prado, 2013).
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Personality makes for an attractive explanation of social attitudes and behavior because it is
internal to the individual and, to a large extent, it has large heritability coefficients (Medland dan
Hatemi, 2009, in Gallego and Pardos-Prado, 2013). Based on explanations above, therefore it
could be pre-concluded that personality types, as part of heritable characteristics, influence
auditor’s professional skepticism as a form of attitude and fraud detection as a behavior.
Experience has also been linked to professional skepticism and fraud detection. Tubbs
(1992) stated that experience affiliated with audit knowledge, an increase in audit experience
will also increase auditor’s knowledge of audit errors. Choo dan Trotman (1991) also found that
experienced auditors more like to recall and having more knowledge of ‘atypical’ items in audit
that the inexperienced ones. The more experience, the more experience-based knowledge, for
example the numbers of audit errors stored in auditor’s memory along with accurate audit
explanations. At the end, experience will enable auditor in making more accurate audit
conclusions in a faster way (Libby and Frederick, 1990). The Auditing Practices Board state that
the reality and perception of the expression of professional skepticism define and underpin the
confidence that others place in the audit and in turn the confidence they place in the audited
financial statements (APB, 2012). Such confidence is obtained by the implementation of
knowledge acquired by numbers of experience auditors possess.
Preston, Cooper, Scarbrough and Chilton (1995) argued that ethical values of auditors
eroded nowadays, because, for some reasons, they have allowed their greed to override
professional objectivity. In the past, auditor independence was considered as an ethical issue,
but, nowadays, auditor’s independence has become the target of regulations, to be kept in
check by government reviews and inspections (Gendron, Sudabby, and Lam, 2006). That
shows how urgent it is for auditors to be aware of their ethical aspects to perform the audit.
Ponemon (1990) found that auditor’s ethical perspectives also play an important role in
determining their ethical judgment, as he found that higher positioned auditors tend to possess
lower ethical reasoning. Shaub and Lawrence (1996) found that auditors who are Certified
Public Accountant (CPA) are having low professional skepticism than those who are not CPAs.
Those findings show that it is important for auditors to have ethical perspective that favor the
Professional Codes of Ethics, no matter the professional certification or audit position in
hierarchy of the firm that they have. Accounting scandal, especially like what happened to
Enron, puts accounting profession in questions, about how such disgraceful accounting practice
could be overlooked and therefore caused the “largest bankruptcy in U.S History” (Fussaro and
Miller, 2002). In Indonesia, Okpianti (2016) found that auditor’s perception towards professional
ethics influences auditor’s fraud detection behavior, while Kusuma (2012) found that auditors’
perception towards professional ethics also influence their decided materiality level. Auditor’s
ethics, in this research, is defined by the auditors’ perception toward rules and standards, which
in turn, will define their capability in detecting fraud over the course of audit.
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Maupin and Lehmann (1994) state that women and men share the same basic
psychological needs, however, masculine-feminine stereotypes still arise as culturally
determined attributes. Contemporary accounting and auditing profession is identical to
‘masculine’ stereotype and has much more ‘masculine’ attributes than ‘feminine’ ones, which it
influences female and male auditor’s attitude in decision making. Mgbame, Izedonmi, and Enofe
(2012) found that female auditors in Nigeria are more risk-averse than male ones, since risk-
aversion is one of the feminine attributes therefore female auditors are gathering more
evidences and setting a lower audit risks than male ones are.
Auditor’s gender is presumable influence the way he/she gathers and processes
information regarding fraud detection. Selectivity Hypothesis by Meyers-Levy (1986, in Chung
and Monroe, 2001) stated that in processing information, men are likely to eliminate and women
integrate. Women are also considered to be more comprehensive in information processing who
process most of the available information cues. This also supported by Chung and Monroe
(2001) which in a complex audit task, women tend to differentiate between and integrate
decision cues in a deeper way than men do it with less decision cues. Significant interaction
between gender and information processing also found by O’Donnel and Johnson (1999) in
which female auditors are performing more efforts in analyzing facts over the course of
analytical procedure in audit. Fullerton and Durtschi (2004) even found that response to all
professional skepticism construct in detecting fraud are higher in younger, female internal
auditors who also have professional certification and have experiences regarding fraud along
her career.
This research tries to refer to the previous studies such as Nasution and Fitriany (2012),
Larimbi (2013), Shaub and Lawrence (1996), and Okpianti (2016). This research is using Hurtt
Eining Plumlee (HEP) model (Hurtt et al, 2003) to measure professional skepticism, Concern
towards Professional Ethics (Shaub and Lawrence, 1996) and Perceptions towards Professional
Ethics (Murtanto and Marini, 2003) to measure ethics, Fraud Symptoms (Fullerton and Durtschi,
2004) to measure fraud detection capability, and Myers Briggs Type Indicator (MBTI) to
measure personality types. This research also chooses auditors who work in Big 4 audit firm in
Indonesia as the research subject.
1.1 Research Motivations

Fraud has become costly to organizations who suffered from it. ACFE (2016) found that
the median loss from a single case of an occupational fraud was $150,000. Such fraud has also
caused a loss of public confidence in audited financial statements, and has mandated the need
to reconsider the procedures performed to uncover fraud in current and future financial
statement audits (Alleyne, Parsaud, Alleyne, Greenige, and Sealy, 2010). Unfortunately,
external auditors are not placed as having priority regarding fraud detection (DeZoort and
Harrison, 2008). Since ISA 240 put emphasize on the role of auditor in detecting and preventing
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fraud, and since auditors are responsible to maintain the stakeholders’ confidence placed in
audited financial statements, then it should be important to auditors to also prioritizing fraud
detection over the course of audit.
Professional skepticism is an embodiment of due professional care that should be practiced
over the course of audit (IAASB, 2013). The lack of professional skepticism would cause a
serious audit failure, one of them is overlooking situation that may indicate material
misstatement. SAS No. 99 AU Section 316 about “Consideration of Fraud in a Financial
Statement Audit” state the importance to always exercise professional skepticism when
considering risk of material misstatement due to fraud. Due professional care obligates all
auditors to perform professional skepticism during the audit with no exception.
This research is inspired by Nasution and Fitriany (2012), Larimbi (2013), and Okpianti
(2016). Nasution and Fitriany (2012) linked auditor’s personality types, experience, professional
skepticism, and fraud detection. Larimbi (2013) linked auditor’s personality types, experience,
gender, and professional skepticism. Meanwhile Okpianti (2016) correlated auditor’s
professional skepticism, ethics, experience, and fraud detection.
1.2 Problem Statements

Based on the research background, the problem statements of this research are:

1. Do auditors with ST and NT personality types have higher fraud detection capability?

2. Do auditors with ST and NT personality types have higher fraud detection capability
through professional skepticism?
3. Does auditor’s experience positively influences auditor’s fraud detection capability?
4. Does auditor’s experience positively influences auditor’s fraud detection capability
through professional skepticism?
5. Does auditor’s ethics positively influences auditor’s fraud detection capability?
6. Does auditor’s ethics positively influences auditor’s fraud detection capability through
professional skepticism?
7. Do female auditors have higher fraud detection capability?
8. Do female auditors have higher fraud detection capability through professional
skepticism?
1.3 Research Objectives

1. To test if auditor’s with ST and NT personality types have higher fraud detection
capability.
2. To test if auditor’s with ST and NT personality types have higher fraud detection
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capability through professional skepticism.

3. To test if auditor’s experience positively influences auditor’s fraud detection capability.

4. To test if auditor’s experience positively influences auditor’s fraud detection capability
through professional skepticism.
5. To test if auditor’s ethics positively influences auditor’s fraud detection capability.
6. To test if auditor’s ethics positively influences auditor’s fraud detection capability through
professional skepticism.
7. To test if female auditors have higher fraud detection capability.

8. To test if female auditors have higher fraud detection capability through professional
skepticism.
1.4 Research Contributions

Research contributions consist of theoretical contributions and practical contributions.

Theoretical contribution refers to this research’s usefulness to accounting theory specifically
behavioral accounting or auditing, while practical contribution refers to this research’s
usefulness towards auditor in practice and the next researches.
1.5.1 Theoritical Contributions

Theoretical contributions of this research are as follow:

1. This research’s model is expected to enhance scientific discussion regarding concept of

fraud detection in audit

2. Give empirical evidence of the relationship between personality types, ethics,

experience, gender, professional skepticism and fraud detection capability
3. Test and confirm the consistency of previous findings and complete the previous

research’s gap specifically those related with research variables

1.5.2 Practical Contributions

Practical contributions of this research are as follow:

1. As suggestion to accounting public firm to implement the use of Myers-Briggs Type

Indicator (MBTI) as one of the efforts to gather information about personality
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characteristics of auditors regarding professional skepticism and fraud detection

capability
2. As suggestion to accounting public firm in audit staffing, coaching, training, and
supervising regarding experience and ethical aspects to optimize auditor’s fraud
detection capability
3. As suggestion to auditors regarding factors that can influence fraud detection capability
and therefore develop a method to maximize due professional care over the course of
audit.
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