Expectation Gap and Corporate Fraud
Expectation Gap and Corporate Fraud: Is Public Opinion Reconcilable with Auditors’ Duties?
Jeffrey Cohena, Yuan Dingb, Cédric Lesagec,* and Hervé Stolowyc b Carroll School of Management at Boston College, USA China-Europe International Business School (CEIBS), Shanghai, China c HEC Paris, France
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This draft – October 28, 2010 – Please do not cite or circulate without permission – Comments welcome Acknowledgments. Cédric Lesage and Hervé Stolowy acknowledge the financial support of the HEC Foundation (Project F0802). They are members of the GREGHEC, CNRS Unit, UMR 2959. Yuan Ding acknowledges support from the CEIBS Research Funding and from Jiangsu Jinsheng Industry Co., Ltd. They also acknowledge Claire O’Hana for her able research assistance. *Corresponding author: e-mail address: lesage@hec.fr
Expectation Gap and Corporate Fraud: Is Public Opinion Reconcilable with Auditors’ Duties?
ABSTRACT. Based on evidence from press articles covering 39 corporate fraud cases that went public during the period 1998-2005, the objective of this paper is to examine whether the expectation gap between public opinion and auditing profession still exists and what are the elements that illustrate the existence of such a gap. Results suggest that the expectation gap still persists even after continuous efforts made by auditing profession to attenuate it. The most salient elements demonstrating the gap are related to managers’ personality traits. It appears that professional standards are reluctant to enumerate subjective personality traits as these elements are difficult to audit in an objective way. Implications for practice and research are discussed.
KEY WORDS: Expectation Gap; Corporate fraud, Personality traits, Fraud-related professional standards
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Expectation Gap and Corporate Fraud: Is Public Opinion Reconcilable with Auditors’ Duties?
Introduction First conceptualized by Liggio (1974), the “expectation gap” (EG) could be defined as “the
Jeffrey Cohena, Yuan Dingb, Cédric Lesagec,* and Hervé Stolowyc b Carroll School of Management at Boston College, USA China-Europe International Business School (CEIBS), Shanghai, China c HEC Paris, France
a
This draft – October 28, 2010 – Please do not cite or circulate without permission – Comments welcome Acknowledgments. Cédric Lesage and Hervé Stolowy acknowledge the financial support of the HEC Foundation (Project F0802). They are members of the GREGHEC, CNRS Unit, UMR 2959. Yuan Ding acknowledges support from the CEIBS Research Funding and from Jiangsu Jinsheng Industry Co., Ltd. They also acknowledge Claire O’Hana for her able research assistance. *Corresponding author: e-mail address: lesage@hec.fr
Expectation Gap and Corporate Fraud: Is Public Opinion Reconcilable with Auditors’ Duties?
ABSTRACT. Based on evidence from press articles covering 39 corporate fraud cases that went public during the period 1998-2005, the objective of this paper is to examine whether the expectation gap between public opinion and auditing profession still exists and what are the elements that illustrate the existence of such a gap. Results suggest that the expectation gap still persists even after continuous efforts made by auditing profession to attenuate it. The most salient elements demonstrating the gap are related to managers’ personality traits. It appears that professional standards are reluctant to enumerate subjective personality traits as these elements are difficult to audit in an objective way. Implications for practice and research are discussed.
KEY WORDS: Expectation Gap; Corporate fraud, Personality traits, Fraud-related professional standards
1
Expectation Gap and Corporate Fraud: Is Public Opinion Reconcilable with Auditors’ Duties?
Introduction First conceptualized by Liggio (1974), the “expectation gap” (EG) could be defined as “the
References: Public opinion (through the press) Adapted and developed from Porter (1993)