728560

research-article2017
AUM0010.1177/0312896217728560Australian Journal of ManagementChen et al.

Article

Australian Journal of Management

1­–16
The effect of brainstorming © The Author(s) 2017
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DOI: 10.1177/0312896217728560
https://doi.org/10.1177/0312896217728560
identification of potential frauds journals.sagepub.com/home/aum

Wei Chen
School of Accounting, UNSW, Sydney, NSW, Australia

Amna Saeed Khalifa

Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH, Islamabad, Pakistan

Kate L Morgan and Ken T Trotman

School of Accounting, UNSW, Sydney, NSW, Australia

Abstract
Revised auditing standards and a focus by regulators on the detection of financial statement
fraud have resulted in calls for research to examine alternative forms of fraud brainstorming.
We examine the effect of using extended brainstorming guidelines, developed in the psychology
literature as part of facilitator training, on auditors’ individual brainstorming performance prior to
attending the team brainstorming meeting. We find that these additional brainstorming guidelines
help auditors identify a greater quantity and quality of potential frauds. Our findings suggest an
easy to implement approach to enhance auditors’ performance in fraud brainstorming.

JEL Classification: C91; C92; M42

Keywords
Audit planning, brainstorming guidelines, fraud identification, individual brainstorming

1. Introduction
Auditors are responsible for providing reasonable assurance that the financial statements are free
from material misstatements due to error or fraud (International Standard on Auditing 240 (ISA),

Corresponding author:
Ken T Trotman, School of Accounting, UNSW Business School, The University of New South Wales, Sydney, NSW
2052, Australia.
Email: k.trotman@unsw.edu.au

Final transcript accepted 30 July 2017 by Michael Bradbury (AE Accounting).

2 Australian Journal of Management 00(0)

2004; ASA 240). Auditors’ detection of financial statement fraud has been a key focus of regulators
and standard setters over the last decade (Australian Securities & Investments Commission (ASIC),
2015, 2017; Centre for Audit Quality (CAQ), 2010; Financial Reporting Council (FRC), 2013;
International Forum of Independent Audit Regulators (IFIAR), 2015; Public Company Accounting
Oversight Board (PCAOB), 2013). Internationally, inspectors have been critical of insufficient
levels of professional scepticism by auditors if fraud is later found or even if inspectors judge the
likelihood of fraud to be higher than the audit partner believes (Harding and Trotman, 2017;
Peecher et al., 2013).
International auditing standards (ISA 240, 2004; ISA 315, 2004) require discussion among audit
team members at the beginning of the audit on the susceptibility of the auditee’s financial state-
ments to material misstatement due to fraud. This discussion requires ‘particular emphasis on how
and where the entity’s financial statements may be susceptible to material misstatement due to
fraud including how fraud might occur’ (ISA 240.15). In US audit standards SAS No. 99
Consideration of Fraud in a Financial Statement Audit (American Institute of Certified Public
Accountants (AICPA), 2002), this discussion is referred to as ‘brainstorming’ with this term being
commonly used worldwide by audit firms and the research literature (Carpenter, 2007; Chen et al.,
2015a). These brainstorming sessions include identifying fraud risk factors, generating a list of
potential frauds that could occur (fraud hypothesis generation), fraud risk assessment and modify-
ing the audit program to address these risks (Hammersley, 2011).
Auditing standards do not specify how brainstorming sessions are to be conducted and while
there is substantial variation in practice, the most commonly used method is interacting group
brainstorming whereby auditors brainstorm in a face-to-face interacting team without additional
structuring (Brazel et al., 2010; Dennis and Johnstone, 2016).1 Previous research has included
comparing these interacting groups with nominal groups2 (Carpenter, 2007; Lynch et al., 2009),
interacting groups with additional structure (Trotman et al., 2009) and individuals’ strategic rea-
soning (Hoffman and Zimbelman, 2009). These studies have found that these alternative formats
generally outperform the interacting team brainstorming presently used in practice leading to the
conclusion that ‘… there is considerable potential for improvement in brainstorming by adding
alternative facilitation methods to the unstructured face-to-face interaction used in practice’
(Trotman et al., 2015: 65).
Most of the existing research on fraud brainstorming concentrates on the team brainstorming
meeting itself (for a review see Trotman et al., 2015). One important input to the team brainstorm-
ing meeting is the individual auditor’s idea generation stage in preparation for this meeting. This
is referred to as ‘individual brainstorming’ in both the audit literature (see Hoffman and
Zimbelman, 2009; Trotman et al., 2015) and the psychology literature (Nijstad et al., 2003).
Identification of fraud risks by individual auditors prior to team brainstorming is suggested in
guidance for SAS No. 99 (AICPA, 2003) and by practitioners (KPMG, 2011). It is also prevalent
in practice (Brazel et al., 2010; Dennis and Johnstone, 2016).3 The suggestion is that increased
numbers of potential frauds identified by individual auditors prior to the group discussion may
enhance idea stimulation and mitigate some of the process losses in the subsequent group brain-
storming sessions (Beasley and Jenkins, 2003; Chen et al., 2015a; Diehl and Stroebe, 1987;
KPMG, 2011). Thus, one important line of this research is to develop techniques that improve the
quantity and quality of individual contributions to the team brainstorming meeting. Chen et al.
(2015b) considered individual brainstorming where both their treatments were given the original
Osborn (1957) brainstorming guidelines and were asked to generate potential frauds related to
four different areas of an audit (revenue, inventory, non-current assets and management esti-
mates). They found that the sequential unpacking of the brainstorming task into fraud risk catego-
ries (potential frauds identified for each category individually) leads to a greater quantity and
Chen et al. 3

quality of potential frauds identified by auditors compared to the simultaneous unpacking (poten-
tial frauds identified for the categories together). However, they also found potential negative
consequences of sequential unpacking in that it reduced auditors’ fraud risk assessments, thus
potentially reducing the level of professional scepticism.
We examine the effect of using extended brainstorming guidelines, developed in the psychology
literature, on the quantity and quality on auditors’ individual brainstorming stage prior to attending
the team brainstorming session. In particular, we compare the effect of two alternatives on the
performance of practising auditors in identifying potential frauds and assessing the risk of material
misstatement due to fraud: (a) individual auditors provided with brainstorming guidelines origi-
nally developed by Osborn (1957), where four guidelines are aimed to defer judgment until after
the idea generation phase, and (b) individual auditors provided with the above brainstorming
guidelines together with additional guidelines developed to train facilitators.
In our study, we conduct a 2 × 1 between-subjects design and manipulate the brainstorming
guidelines provided to the auditors. In the basic brainstorming guidelines treatment, partici-
pants were provided the four brainstorming rules originally developed by Osborn (1957) to
follow (‘criticism is ruled out’, ‘freewheeling is welcome’, ‘combination and improvement are
sought’ and ‘most importantly, quantity is wanted’). We chose this treatment as a baseline treat-
ment because previous research (Trotman et al., 2009), using the same task in a setting of inter-
acting brainstorming groups, found that this treatment outperformed an unstructured
brainstorming team, presently used in practice. In the additional guidelines treatment, in addi-
tion to the above four guidelines, participants are provided four additional guidelines (‘stay
focused on the task’, ‘keep the brainstorming going’, ‘remember not to criticise’ and ‘return to
previous ideas’). These guidelines are based on the instructions used to train facilitators and
this treatment was chosen based on its success in psychology studies (Paulus et al., 2006).
Participants in both treatments are asked to list as many potential frauds as they can in a case
scenario which was originally developed by a Big 4 audit firm. We find that a greater number
of potential frauds are identified when additional brainstorming guidelines are provided than
when only basic guidelines are provided. Moreover, auditors in the additional guidelines treat-
ment identify more quality potential frauds, which are classified by a group of experts to be
most likely to occur in the case.
This article contributes to the literature by showing that an easy-to-implement method of
providing additional brainstorming guidelines to individual auditors leads to improved inputs
to the team brainstorming sessions. Prior studies find that providing basic brainstorming guide-
lines to interacting groups helps improving auditors’ performance (Trotman et al., 2009). Our
findings extend this stream of research by showing the brainstorming guidelines could be fur-
ther refined to enhance the productivity of individual brainstorming which provides the inputs
to the team brainstorming session. Our study informs audit firms and regulators on ways to
improve individual auditors’ inputs to the team brainstorming sessions, which contribute to
improve auditors’ ability in fraud detection. Such improvements to the fraud brainstorming ses-
sion have been suggested as one opportunity to enhance professional scepticism (CAQ, 2010;
Nelson, 2009). These enhancements are important given the international criticism of auditors
for exercising insufficient professional scepticism in the conduct of their audits (ASIC, 2015,
2017; FRC, 2013; IFIAR, 2015; PCAOB, 2013) not identifying high fraud risk situations and
not always responding to those situations with appropriate changes to planned audit procedures
(Hammersley, 2011).
The remainder of the article is organised as follows. Section 2 discusses the background and
develops the hypotheses. Section 3 discusses the research methods followed by Section 4 that pre-
sents the results. Section 5 concludes the article.
4 Australian Journal of Management 00(0)

2. Background and hypothesis development

2.1. Australian research on fraud detection
Benson et al. (2015) review 550 accounting research papers published in nine accounting journals
from the Asia Pacific region. They identify a range of streams of the literature that has impacted
practice, including the audit research literature. Our review of these papers indicates only three of
these papers specifically consider financial statement fraud. Trotman et al. (2011) review 50 years
of judgment and decision-making research in accounting, divided between financial, management
and auditing. In the audit section, they discuss published brainstorming studies, all of which are
published in the United States, but a number of these studies were conducted in Australia. Coram
et al. (2008) do not explicitly consider fraud brainstorming but do use Australian data to examine
the level of fraud reported. They find that organisations with an internal audit function are more
likely to detect and report fraud than those organisations without an internal audit function. Carcello
and Nagy (2004) using USA data4 find a significant negative relationship between auditor industry
specialisation and fraudulent financial reporting and this is weaker for larger clients.

2.2. Social psychology research on brainstorming guidelines

In examining the effect of different forms of brainstorming guidelines on individual auditor
fraud brainstorming performance, we draw on two main lines of social psychology research on
brainstorming. First, the research on the group brainstorming technique developed by Osborn
(1957) as an improved method of generating new ideas by having group members use four key
guidelines to generate as many ideas as they can on a given question (discussed below). Osborn
proposed that group brainstorming should outperform nominal groups as group members’
ideas would cognitively stimulate other ideas and thus generate more ideas (Baruah and
Paulus, 2008). However, the vast majority of research in social psychology has found that
interacting groups using the Osborn (1957) guidelines are outperformed by nominal groups of
individuals of the same size.
Second, there is a line of research that considers ways of enhancing group brainstorming includ-
ing research that uses facilitators who employ various social and cognitive procedures aimed at
encouraging contributions and keeping the participants on task (Baruah and Paulus, 2008). In
psychology, the use of facilitators who are trained to guide the brainstorming process has been
found to improve performance of both groups and individuals (Offner et al., 1996; Oxley et al.,
1996). Paulus et al. (2006) compare the performance of interacting brainstorming groups with a
facilitator present to the performance of groups with the original Osborn (1957) guidelines and a
set of additional guidelines which are similar to the instructions used to train facilitators. Thus, they
are able to isolate the effects of the facilitator presence and the facilitator instructions. Paulus et al.
show that the mere presence of a facilitator did not increase the brainstorming performance beyond
that of providing the additional guidelines.

2.3. Auditors’ performance in the brainstorming sessions

Auditors are required by the auditing standards to perform a team brainstorming session to
identify the possibilities of fraud on each audit (ISA 240, 2004; ISA 315, 2004). Thus, auditors
are performing an idea generation task. Osborn’s (1957) views on increasing creativity in idea
generation tasks were based on the assumption that generating a larger number of ideas would
lead to further cognitive stimulation and thus the creation of new ideas and extensions to previ-
ously generated ideas. However, there are decades of psychology research that have identified
Chen et al. 5

process losses in interacting groups (see Kerr and Tindale, 2004; Trotman et al., 2015). These
process losses relate to production blocking, evaluation apprehension and social loafing.
Production blocking refers to the fact that in interacting groups, only one participant can speak
at a time which can result in other members suppressing, forgetting and listening rather than
thinking of new ideas. Evaluation apprehension refers to the concerns participants may have
about their ideas being evaluated negatively and, therefore, they may withhold ideas. Social
loafing refers to participants relying on others because their ideas are unidentifiable or because
they believe their ideas are dispensable.
A range of studies have compared interacting group brainstorming, the most common method
used in practice, with other more structured interactions, including providing brainstorming guide-
lines (Trotman et al., 2009), backward thinking processes (Trotman et al., 2009) and facilitation
(Lynch et al., 2009) and found that adding these structures improves both the quantity and quality
of potential frauds generated. Of particular relevance to the present study, Trotman et al. (2009)
examine the effect of brainstorming guidelines at the interacting group level and find that interact-
ing groups with basic brainstorming guidelines, suggested by Osborn (1957), outperform those
interacting groups without such instructions in terms of quantity and quality of potential frauds
identified. Other studies have attempted to reduce or control for the process losses outlined above.
For example, Chen et al. (2015a) use electronic brainstorming which controls for production
blocking and evaluation apprehension. However, they still find that nominal electronic brainstorm-
ing outperforms interacting electronic brainstorming groups and this was because of social loafing
by seniors (as compared to managers) in the interacting groups. That is, the seniors in these groups
provided fewer ideas, likely because they consider their own contributions to be more dispensable
to team performance (Chen et al., 2015a).

2.4. Brainstorming guidelines and the identification of potential frauds

Trotman et al. (2015) note that a key focus of research on brainstorming should be to reduce poten-
tial process losses that occur with alternative brainstorming methods, including methods presently
used in practice and those that could be adopted. Psychology research (Oxley et al., 1996; Paulus
et al., 2006) suggests that facilitation training can reduce production blocking and evaluation
apprehension. This method has potential in audit brainstorming as partners and managers often
take a facilitating role in fraud brainstorming sessions (Dennis and Johnstone, 2016). Thus, one
possibility is to have the partner/manager take a facilitator role similar to that used in some psy-
chology research (e.g. Oxley et al., 1996). An alternative is to use additional brainstorming guide-
lines which are similar to the instructions used to train facilitators. These guidelines are an extension
of Osborn’s (1957) original guidelines and were developed by Oxley et al. (1996) and modified in
subsequent psychology studies (Paulus et al., 2006; Putman, 2001). It is these guidelines we
manipulate in this study. Experimentally, this provides a clean test of the effectiveness of these
guidelines independent of the actions of a facilitator. If we had manipulated the presence/absence
of a facilitator, any differences between treatments could be caused by the performance of the
facilitator or the use of these additional guidelines.
The associative memory model provides the theoretical basis for the potential effectiveness of
additional guidelines (Brown et al., 1998; Paulus and Brown, 2003). This model suggests that an
individual’s knowledge of a task is organised as a semantic network where the more closely related
ideas are more strongly connected to each other than the less related ideas. Therefore, during the
brainstorming process of an individual auditor, closely related ideas are more likely to become
active in memory. However, this activation process may lead to lower performance if individuals
become distracted from the listing of ideas to other related activities such as discussing ideas,
6 Australian Journal of Management 00(0)

evaluating ideas. These activities may intervene with the activation of additional related ideas due
to the limited capacity of working memory. Provision of the first additional specific guideline sug-
gesting ‘stay focused on the task (do not tell stories or explain ideas)’ will keep the participant
focused on brainstorming and avoiding irrelevant thought processes such as judging whether the
idea is good or bad. The second guideline that explicitly reminds individuals to ‘keep the brain-
storming going’ has the objective of ensuring that even when the participants begin to run out of
ideas, they restate the problem and try to think of more ideas. The third guideline reminds partici-
pants of Osborn’s (1957) original guideline ‘do not criticise’ which is aimed at encouraging partici-
pants to state any idea they think of without evaluating its usefulness. It is expected that this
deferment of judgment will result in a greater quantity of ideas. The final guideline instructs them
to ‘return to previous categories’ and try to build on them. Explicitly asking participants to consider
previously discussed categories when they begin to run out of ideas can lead to generation of less
accessible ideas and thus help increase brainstorming productivity.
Oxley et al. (1996) find that an interacting group with a trained facilitator who uses the four
additional guidelines outperforms groups without a facilitator. This suggests that the facilitator
and/or the brainstorming guidelines reduce some of the process losses that normally occur in inter-
acting groups. Paulus et al. (2006) test the relative impact of the original Osborn (1957) guidelines,
facilitator presence and additional brainstorming guidelines on both group and individual perfor-
mance. They find that providing additional brainstorming guidelines enhances the performance of
both individuals and groups, and that the mere presence of a facilitator does not increase the per-
formance beyond that of simply providing the additional brainstorming guidelines. This suggests
that additional guidelines are an economical substitute for a facilitator and help in avoiding prob-
lems of evaluation apprehension caused by an in-house facilitator. This is particularly important in
an audit environment where the likely facilitator will also be a superior, with resulting increases in
evaluation apprehension by the auditors performing the brainstorming task.
Thus, it is expected the performance of individuals with additional guidelines to be higher than
individuals who receive only the basic guidelines. This will hold for the quantity and the quality of
potential frauds identified by individual auditors. This leads to the following hypotheses:

Hypothesis 1. Individuals with additional brainstorming guidelines will identify a greater quan-
tity of potential frauds than individuals with basic brainstorming guidelines.
Hypothesis 2. Individuals with additional brainstorming guidelines will identify a greater num-
ber of quality potential frauds than individuals with basic brainstorming guidelines.

3. Research methods
3.1. Participants
Thirty-nine auditors including seniors (17), assistant managers (11) and managers (11) partici-
pated in the experiment at the offices of a Big 4 firm in Australia.5 Each participant was given an
AUD$50 gift voucher for participating in the study. Participants had an average audit experience
of 4.33 years. Statistical tests revealed no significant experience differences between individuals
in the basic brainstorming guidelines treatment (mean = 4.24) and those in the additional brain-
storming guidelines treatment (mean = 4.42, t37 = 0.27, p = 0.79).6 Participants in the two treat-
ments are not significantly different in terms of their rank in the firm (number of seniors/assistant
managers/managers is 8/6/5 in the basic guidelines group and 9/5/6 in the additional guidelines
treatment, χ2(2) = 0.22, p = 0.90). We add audit experience as a covariate in the analysis to control
for any potential experience effects.7
Chen et al. 7

3.2. Case material and procedures

Case materials were the same as used in Chen et al. (2015b) which were a shortened version of the
case adapted from Trotman et al. (2009). The participants completed the experiment in 50 minutes.
They carried out the experiment as individuals in all stages. Participants from both treatment groups
received the background information of a fashion retailer company, including (a) a brief description
of the company, industry and environment; (b) the company’s accounting policies and practices and
(c) the company’s financial performance. After they had read the case, participants were told to
assume that they were to meet with the audit manager and partner on the job as part of the risk assess-
ment and planning discussion. They were told to assume that managers and partners have been
delayed and were asked to record a list of potential misstatements due to fraud (hereafter ‘potential
frauds’) in 20 minutes prior to the arrival of the manager and partner. All participants were provided
the four brainstorming rules originally developed by Osborn (1957) to follow (‘criticism is ruled out’,
‘freewheeling is welcome’, ‘combination and improvement are sought’ and ‘most importantly, quan-
tity is wanted’). In the additional brainstorming guidelines group, in addition to the above four rules,
participants are provided additional four guidelines (‘stay focused on the task’, ‘keep the brainstorm-
ing going’, ‘remember not to criticise’ and ‘return to previous ideas’). Appendix 1 summarises the
manipulations of the basic and additional brainstorming guidelines groups. All participants were
asked to document as many potential frauds as they could in the time allowed.
Following the brainstorming stage, the participants were asked to indicate the likelihood that a
fraud has occurred for the company this financial year using an 11-point scale (0 = extremely
unlikely, 1.00 = extremely likely). The envelope containing participants’ responses at the brain-
storming stage was collected at this stage. In a second stage of the experiment, the participants were
provided two potential frauds which were selected from the seven frauds identified by a group of
experts to be most salient (i.e. those shaded potential frauds in Table 1). Participants were then asked
to document additional potential frauds to the ones they had listed in brainstorming stage.
At the end of the experiment as a manipulation check, participants were provided with a list of
the basic and additional brainstorming guidelines and were asked to tick those guidelines they were
given. Participants then completed demographic questions.

3.3. Coding
The potential frauds listed by participants were typed by a research assistant (not involved in coding)
and a number was randomly allocated so that the coders were blind to the treatment when coding. The
case solution was the same as the one used in Trotman et al. (2009), which was initially developed by
an international team of partners and senior managers from a Big 4 firm and then went through a num-
ber of iterations with partners/managers to reach an agreement on the solution (see Libby and Libby,
1989 for a similar method). The coders identified 24 fraud categories and one additional category
‘other’ was used to code potential frauds which were identified infrequently and did not fall in any of
the 24 categories. Thus, in total, there were 25 fraud categories (see Table 1). Among them, there are
11 potential frauds that were identified by an international team from the Big 4 audit firm as most
likely to occur in the case (referred as expert identified most likely frauds; those items with an asterisk
in Table 1). There were a number of iterations between these experts before agreement.8 The Big 4 firm
expert team further classified seven of these 11 misstatements to be most salient in terms of fraud for
this particular case (referred as expert identified high risk frauds; those shaded items in Table 1).
One of the authors and a research assistant with auditing experience independently coded the
responses. Initially, the coders coding the responses of five participants resulted in a high agree-
ment rate of 83% and discrepancies were resolved by discussion.9 They then proceeded to code the
8 Australian Journal of Management 00(0)

Table 1.  Potential frauds categories identified by individual auditors.

Potential frauds categories Basic Additional Total

guidelines guidelines
1 Revenue overstated 15 15 30
2* Fictitious sales 1 3 4
3 Revenue cut-off 7 6 13
4 Sales return reserve misstated 12 13 25
5 Incorrect capitalisation of costs/expenses 5 17 22
6* Incorrect capitalisation of costs not directly 10 8 18
incurred in purchase of new stores
7* Incorrect capitalisation of store fitout/ 6 17 23
refurbishment of existing stores
8* Incorrect capitalisation of setup costs of loans 10 7 17
9* Inventory valuation/pricing – writedown, fake 12 16 28
copies sold elsewhere, obsolescence and COGS
10* Inventory levels– quantity 7 10 17
11* Breached standards of disposal packaging but did 11 10 21
not record the liability
12* Tax calculations 5 7 12
13 Cash – stealing during the year 1 1 2
14* Bad debts understated 10 15 25
15* Terms and conditions of customer specific 0 3 3
contracts resulting in manipulation of revenue
recognition
16* Provisions 9 8 17
17 Accumulated depreciation 10 14 24
18 Accounts receivable overstated 3 2 5
19 Other revenue overstated (concession/rent 3 3 6
income)
20 Overstatement of accruals 0 4 4
21 Overstatement of fixed assets 4 6 10
22 Contingent liabilities 0 1 1
23 Leases 2 0 2
24 Understatement of Liabilities 4 4 8
25 Other: accruals for operating expenditure, 4 9 13
accruals for bonuses, impairment losses,
goodwill, foreign currency translation
Number of potential frauds 151 199  

Potential frauds with an asterisk are the 11 expert identified most likely frauds that identified by a group of experts as
those most likely to occur in the case. The seven shaded categories are those expert identified high risk frauds identified
by the experts to have a higher risk of fraud in this case.
Chen et al. 9

remaining responses with a final agreement rate of 88% with any differences reconciled by a dis-
cussion between the coders. Both coders were blind to the treatment and the non-author coder was
blind to hypotheses.

3.4. Dependent variables

We use the quantity and the quality of potential frauds identified by participants as main dependent
variables to test the hypotheses. We count the number of unique potential frauds as a quantity
measure, that is, if a participant lists the same fraud twice, it is only included once. We use two
quality measures developed in Trotman et al. (2009). One is expert identified most likely frauds,
which includes the 11 potential frauds identified by the Big 4 firm as being most likely to occur in
the case. The second is expert identified high risk frauds, which include the seven potential frauds
identified by the Big 4 firm as having a high risk of fraud for the case.

4. Results
4.1. Manipulation checks
We provide all participants with the eight guidelines and ask them to indicate the guidelines they
have received. Results show that participants in the additional guidelines treatment indicate they
received on average 6.80 guidelines, compared to 4.47 guidelines indicated by those in the basic
guidelines treatment (t37 = 5.71, one-tailed p < 0.01), suggesting that participants successfully
acquire the brainstorming guidelines information provided.10

4.2. Test of hypotheses

Our ANCOVA analysis includes participants’ audit experience as a covariate to examine the effect
of additional brainstorming guidelines on the quantity (H1) and quality (H2) of potential frauds
identified by auditors. H1 predicts that the provision of additional guidelines will lead to greater
number of potential frauds identified by auditors than in the basic guidelines treatment. As shown
in Panel A, Table 2, participants in the additional guidelines treatment document more potential
frauds (mean = 9.95) than those in basic guidelines treatment (mean = 7.95, F1,36 = 5.58, one-tailed
p = 0.01). Thus, H1 is supported.
H2 predicts that participants in additional guidelines treatment will list a greater number of
quality potential frauds than those in the basic guidelines treatment. Results show that the number
of expert identified most likely frauds listed by participants are significantly higher in the addi-
tional guidelines treatment (mean = 5.20) than in the basic guidelines treatment (mean = 4.26,
F1,36 = 3.65, one-tailed p = 0.03). However, in terms of expert identified high risk frauds, there are
no significant differences between the two treatments (mean = 2.53 and 2.45 in the basic and addi-
tional guidelines treatments, respectively, F1,36 = 0.08, one-tailed p = 0.39). In summary, the posi-
tive effect of additional brainstorming guidelines on the quality of potential frauds is limited to
those quality frauds identified by the Big 4 firm as most likely to occur in the case.11

4.3. Additional analysis

4.3.1. Test of mechanism.  Our theory suggests that the greater quantity and quality of potential frauds
identified by the auditors in the additional guidelines treatment is because the additional guidelines
better shape their brainstorming process to keep auditors from engaging in irrelevant thought processes
10 Australian Journal of Management 00(0)

Table 2.  Effect of additional guidelines on quantity and quality of potential frauds identified.

Panel A: descriptive statistics – quantity and quality of potential frauds (standard deviation)

  Treatment

  Basic guidelines Additional guidelines

Quantity of Mean number of potential 7.95 (2.59) 9.95 (2.82)
potential frauds frauds identified
Quality of Mean number of expert 4.26 (1.59) 5.20 (1.47)
potential frauds identified most likely frauds
Mean number of expert 2.53 (1.31) 2.45 (1.05)
identified high risk frauds
  N = 19 N = 20

Panel B: planned contrasts

  df Mean square F-statistics One-tailed

p-value
Quantity of Mean number of potential 1 35.51 5.58 0.01
potential frauds frauds identified
Quality of Mean number of expert 1 7.72 6.64 0.03
potential frauds identified most likely frauds
Mean number of expert 1 0.10 0.08 0.39
identified high risk frauds

Mean number of potential frauds identified: the average number of potential frauds identified by each participant from
potential frauds listed in Table 1.
Mean number of expert identified most likely frauds: the average number of the potential frauds identified by each
participant for the 11 asterisked (*) frauds in Table 1.
Mean number of expert identified high risk frauds: the average number of the potential frauds identified by each
participant for the seven shaded frauds in Table 1.

and documentation (Paulus et al., 2006). To test this mechanism, we examine the efficiency with
which auditors identify potential frauds. We measure the efficiency using the total number of words
used divided by the total number of potential frauds identified. When more words were used to describe
each potential fraud, it is more likely that participants made extraneous or less relevant comments. We
find that in the basic guidelines treatment, participants use more words to describe each potential fraud
(mean = 22.09) than those in the additional guidelines treatment (mean = 15.51, F1,36 = 7.23, one-tailed
p = 0.01 untabulated). This finding supports our theory that additional guidelines help participants
avoid engaging in additional commentary and improve the brainstorming productivity.
Prior research in psychology and auditing has identified the three types of process losses for
group brainstorming (production blocking, evaluation apprehension and social loafing) as described
earlier. As we examine individual brainstorming, evaluation apprehension and social loafing are
unlikely to be major issues. Production blocking can still occur when individuals spend too much
time thinking about individual ideas or categories of ideas. Our results above suggest that the addi-
tional guidelines do reduce production blocking.

4.3.2. Fraud risk assessments.  In our study, auditors were provided with the brainstorming rules
(either basic or basic plus additional guidelines) and were asked to identify potential frauds
Chen et al. 11

following these guidelines and subsequently indicate the likelihood that a fraud has occurred for
the company this financial year using an 11-point scale (0 = extremely unlikely, 1.00 = extremely
likely) (referred to as ‘fraud risk assessments’). We conduct additional analysis to examine whether
the provision of additional brainstorming guidelines has any effect on participants’ fraud risk
assessments. Untabulated results suggest that participants’ fraud risk assessments are not signifi-
cantly different between the additional guidelines treatment (mean = 0.65) and the basic guidelines
treatment (mean = 0.59, F1,35 = 0.88, p = 0.36). We run ANCOVA models with fraud risk assess-
ments as the dependent variable, treatments as the independent variable and audit experience, the
number of potential frauds identified, the number of expert identified likely frauds and the number
of expert identified high risk frauds as covariates. Results show that there is a marginally signifi-
cant negative association between auditors’ fraud risk assessments and audit experience (p = 0.07).
The effects of other variables are all insignificant (p ≥ 0.31).
We further examine the correlation between each of the brainstorming performance measures
(number of potential frauds identified, the number of expert identified most likely frauds and the
number of expert identified high risk frauds) and the fraud risk assessments within each treatment.
We find that in the basic brainstorming guidelines treatment, fraud risk assessments are positively
correlated with the quantity and quality of potential frauds identified (Pearson correlation coeffi-
cient = 0.39/0.56/0.58, p = 0.10/0.01/0.01 for number of potential frauds identified, expert identi-
fied most likely frauds and expert identified high risk frauds, respectively). In contrast, in the
additional brainstorming guidelines treatment, the correlations between these three measures and
fraud risk assessments are all insignificant (p ≥ 0.61).
In summary, the effect of the provision of additional brainstorming guidelines pertains to the
brainstorming stage only and does not have significant incremental effects on auditors’ fraud risk
perceptions. This is consistent with recent research that has not found a positive relationship
between the quantity and quality of frauds generated and risk assessments (Carpenter, 2007;
Chen et al., 2015b; Trotman et al., 2009). One possible explanation is that the different treat-
ments have different priming effects with resulting differences on risk assessments (see
Hammersley et al., 2010).

4.3.3. Cognitive stimulation at the idea sharing stage.  To test for the possible effects of the treatments on
cognitive stimulation, in a second stage of the experiment, we provided the participants with two
additional potential frauds as described in the research methods section. Participants were then asked
to document additional potential frauds to those they had listed in the brainstorming stage. Untabu-
lated results show that the quantity and quality of additional frauds generated did not differ between
treatments (p ≥ 0.30). This insignificant result is consistent with prior findings in the psychology lit-
erature that cognitive stimulation in the interacting groups may not necessarily result in improved
quantity and quality of ideas generated due to the process losses (Kerr and Tindale, 2004). It is also
possible that the benefit from the additional brainstorming guidelines has reached an upper limit so
that the additional disclosure of these two potential frauds has no further incremental benefit.

5. Conclusion
Auditors’ individual preparation for the subsequent team brainstorming sessions is common in
practice (Brazel et al., 2010; Dennis and Johnstone, 2016; KPMG, 2011) and an important input
to the team brainstorming session (Chen et al., 2015b). Improvements in fraud brainstorming
outcomes are important given criticism of these processes by various inspection agencies
around the world (e.g. IFIAR, 2015). A number of potential options for improving fraud brain-
storming have been suggested in the psychology literature including the adoption of Osborn’s
12 Australian Journal of Management 00(0)

(1957) basic brainstorming guidelines and the use of facilitator training rules. We examine the
individual brainstorming stage and provide evidence that provision of additional guidelines
based on facilitator training guidelines leads to better brainstorming performance of individual
auditors compared to the basic brainstorming guidelines in terms of both quantity and quality
of frauds identified. Our additional analysis suggests that these benefits are the result of
decreased production blocking, with our analysis on word counts indicating these guidelines
reduce auditors engaging in extraneous discussion around individual ideas and encouraging the
generation of new ideas.
The results of this study, together with previous studies that have used different forms of struc-
ture in brainstorming (Hoffman and Zimbelman, 2009; Lynch et al., 2009; Trotman et al., 2009),
suggest advantages to adding structure to the brainstorming process. We find that adding structure
by the use of additional guidelines based on facilitator training improved performance on individ-
ual brainstorming. Such guidelines are a useful alternative to having a trained facilitator which is
impractical in individual brainstorming but could be used in group brainstorming and should be
further examined in that environment.
Our results should be considered in light of the following potential limitations. First, we consider
the joint effect of four additional brainstorming guidelines provided instead of the incremental effect
of each of these guidelines. It is difficult to conclude whether the positive effect on auditors’ brain-
storming performance is because of one particular guideline or the combinations of the guidelines.
Examining this specific issue would involve a very large number of participants to isolate the indi-
vidual effects. Second, we examine the short-term effect of these guidelines. Whether similar advan-
tages will exist long-term or whether the effects of brainstorming guidelines will decrease overtime
is left for future research. Third, we examine individual brainstorming as an important input to team
brainstorming. Future research should consider these methods as part of team brainstorming where
production blocking and evaluation apprehension are likely to impact performance.

Funding
The author(s) disclosed receipt of the following financial support for the research, authorship, and/or publica-
tion of this article: Ken T Trotman acknowledges the financial support of an ARC Australian Professorial
Fellowship (DP110103382). Wei Chen acknowledges the financial support of an ARC Discovery Early
Career Researcher Award scheme (DE160101369).

Notes
  1. While the term ‘interacting group brainstorming’ is used in the psychology literature, the term ‘inter-
acting team brainstorming’ is commonly used in the audit literature (see Trotman et al., 2015). One
explanation is that audit standards (ISA 240, 2004) refer to audit team discussions. Sometimes, the term
‘interacting group (or team) brainstorming’ is prefaced by ‘unstructured’ or ‘structured’ depending on
whether additional structure has been added to the discussion (see Hammersley, 2011).
  2. Nominal groups, participants complete the task as individuals without interaction and then unique ideas
are combined by the researcher at the completion of the task (Trotman et al., 2015).
  3. In a survey of auditors’ brainstorming sessions for 179 audit engagements, Brazel et al. (2010) find that
for 67.6% of these engagements, individual auditors were asked to identify fraud risk factors prior to
attending to the team brainstorming sessions.
  4. A distinction needs to be made between research published in Asia Pacific journals when the data may/
may not be from that area of the world and research using local data and published outside of this area.
For example, papers cited in the next section of this article that use Australian data include Trotman et al.
(2009), Chen et al. (2015a) and Chen et al. (2015a).
  5. The data analysed in this article was part of a larger study involving 58 Big 4 auditors (24 seniors,
18 assistant managers and 16 managers). They were randomly allocated to three treatments: (a) the
Chen et al. 13

basic brainstorming guidelines (19), (b) additional brainstorming guidelines (20) and (c) decompo-
sition (19). In Chen et al. (2015b), we compared treatments (a) and (c). In this study, we compare
(a) and (b). That is, the 19 participants in our basic brainstorming guidelines group were the same
participants whose results were reported in Chen et al. (2015b). Our additional guidelines data have
not previously been reported.
  6. All the p-values are two-tailed unless specified otherwise.
  7. Our results are similar when we control for individual auditors’ rank in the analysis.
  8. Trotman et al. (2009) include 16 potential fraud categories plus one ‘other’ category. In our coding
scheme, in addition to the 16 potential fraud categories included in Trotman et al. (2009), we further
include eight categories frequently identified by participants and one ‘other’ category. The 11 expert
identified most likely frauds used in this article are the same as those included in Trotman et al. (2009).
  9. When the coders assigned one item to two possible categories in their initial coding (e.g. for one item,
coder 1 coded it as #9 and coder 2 coded it as #4 and #9), these were counted as an agreement. When we
treat those cases as disagreements, the agreement rate dropped to 72%.
10. In the basic guidelines treatment, the most common error was including ‘remember not to criticise’,
likely because this is an additional guideline that reinforces the basic guideline not to criticise. While
this guideline is likely to have the most impact on the group level, we included it at the individual
level, consistent with psychology research (Paulus et al., 2006), to decrease the likelihood of partici-
pants not including some ideas because of self-criticism. After controlling for whether participants
correctly recalled this guideline, the effects of guidelines treatments on auditor brainstorming per-
formance are still significant (e.g. one-tailed p = 0.03/0.05 for the number of potential frauds/expert
identified most likely frauds), suggesting that our results are not sensitive to failure in recalling this
particular guideline.
11. Following Chen et al. (2015b), we classify the potential frauds identified into four categories: revenue
recognition/receivables, inventory, non-current assets and management estimates. We find that addi-
tional guidelines have a significant positive effect on the quantity of potential frauds identified in the
category of non-current assets (p = 0.01). Additional guidelines also lead to higher quality of potential
frauds identified in the category of revenue for both quality measures (p = 0.04 and 0.09 for the number
of expert identified most likely frauds and high risk frauds).

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Appendix 1
Experimental materials
Basic brainstorming guidelines and additional brainstorming guidelines treatments.  The manager and
partner have given you the following basic brainstorming rules to follow:

1. Criticism is ruled out. Make sure each documented potential material misstatement fits the
facts of the case, but otherwise adverse judgment of ideas must be withheld so do not criti-
cise any ideas that come to mind. Write everything you think of that fits the facts.
2. Freewheeling is welcome. The more creative the idea, the better. Do not be afraid to write
anything that comes to mind. As long as it fits the facts of the case, the more unusual the
idea the better. This will stimulate more and better ideas.
3. Combination and improvement are sought. You should try to join or change ideas you have
into still better ideas of potential material misstatements. Do not be afraid to combine and
improve on them.
4. Most important: quantity is wanted. The greater the number of ideas, the better. Come up
with as many as you can that fit the case facts.

Additional brainstorming guidelines treatment

5. Stay focused on the task. Concentrate on the problem at hand and avoid engaging in irrele-
vant thought processes. Do not tell stories. We are only interested in your ideas. Do not write
stories about your experiences. Do not explain ideas. Do not expand on why you think
something is good or bad. Simply write your idea and then continue on with the next idea.
16 Australian Journal of Management 00(0)

6. Keep the brainstorming going. During a lapse of time when you have no ideas, restate the
problem in your mind and try to think of additional ideas.
7. Remember not to criticise. Do not criticise any of the ideas that you generate. Write any
idea that you think of and do not evaluate its usefulness.
8. Return to previous ideas. When you cannot think of other ideas, go back to earlier ideas that
you have already written and try to build on these previous ideas.