Title: Auditors’ Use of Brainstorming in the Consideration of Fraud: Reports from the Field (Subscription or fee required.)
Authors: Joseph F. Brazel (North Carolina State University), Tina D. Carpenter (University of Georgia), and J. Gregory Jenkins (Virginia Polytechnic Institute and State University)
Publisher: The Accounting Review, vol. 85, no. 4
Date Published: July 2010
This paper provides confirmation that better brainstorming really does result in improved productivity. The authors focused on the real-world brainstorming sessions of audit teams, in an effort to determine how different processes for group decision making affected the auditors’ ability to detect fraud. Brainstorming is a required step in the planning process for accounting firms charged with uncovering fraudulent corporate behavior — whether misappropriating retail merchandise or falsifying financial statements. The researchers wanted to explore variations in the brainstorming sessions and the impact of different procedures on the quality of the auditors’ final judgments. The study identified 21 best practices for brainstorming and reported that high-quality teamwork resulted when at least 10 of these elements were present.
The researchers secured the cooperation of the Big Four accounting firms and a fifth international auditor, and surveyed 179 partners, directors, senior executives, and office managers. The group was asked to describe in detail the brainstorming sessions of a recent audit; in the sample, 24 percent of the audits detected fraud. Using the results of the surveys and an analysis of prior literature, the authors proposed three criteria for measuring brainstorming quality: the diversity of those who attend the sessions and the openness of their communication; the structure and timing of the sessions; and the level of engagement of the team. When the surveys were matched to the resulting fraud judgments, the researchers developed their list of 21 best practices. These included the participation of specialists in fraud, tax law, IT, and other areas; a willingness to receive input from all team members; the allocation of enough time to prepare for the audit session; and the use of agendas and checklists to keep the meeting on track.
The analysis proved that the quality of brainstorming does indeed vary even within the most prestigious accounting firms, and that a team leader’s ability to set the proper tone has a significant impact on the outcome. For instance, the study found that when a partner or specialist did not lead the brainstorming session, which happened about 40 percent of the time, the discussion tended to be unfocused. The attendance of specialists varied widely, and the authors reported that the level of the participants’ contribution increased with the level of their seniority. The authors also found that the most effective sessions occurred early in the audit planning process.
The study offers several lessons for auditors and policymakers. High-quality brainstorming improves an audit team’s consideration of possible fraud by establishing a broader set of identified risks; under-auditing tends to result when the brainstorming sessions are poor. But the authors also point to a broader lesson for other industries and businesses. Team leaders who can drive brainstorming sessions without bringing in their own preconceived notions will keep the group decision-making process flowing, they say. Managerial bias, on the other hand, will cut sessions short and keep ideas small no matter how many best practices are present.
Effective brainstorming has a positive impact on group performance, and a focused and open-minded leader is the best candidate to drive productive sessions.