Student Perceptions of Auditor Responses to Evidence of Suspicious Activities: An Experimental Assessment


  • David S Murphy Lynchburg College
  • Scott Yetmar Cleveland State University



Auditing, Auditor, Illegal Acts, Money Laundering, Suspicious Activities.


This study assessed student perceptions of auditor responses to evidence that a client failed to respond appropriately to suspicious activities that could indicate money laundering. Subjects were presented with a series of randomized cases in which partner type (new vs. experienced), firm type (regional vs. international) and audit fee materiality (not material, material to the local office only, material to the firm) were manipulated asked to indicate their perceptions of the likelihood that an audit partner would discuss such evidence with the client, and the likelihood that the issue would be disclosed by the auditor. Both partner type and audit fee materiality was found to have significant effects on perceived likelihoods.  

Author Biographies

David S Murphy, Lynchburg College

Professor and Chair, Departments of Accounting and Economic Crime Investigation

Scott Yetmar, Cleveland State University

Associate Professor of AccountingMonte Ahuja College of Business - BU528Cleveland State University


American Institute of Certified Public Accountants (AICPA). (2012). AU Section 250 consideration of laws and regulations in an audit of financial statements. New York: American Institute of Certified Public Accountants.

American Institute of Certified Public Accountants (AICPA). (2012). AU Section 317 illegal acts by clients. New York: American Institute of Certified Public Accountants.

American Institute of Certified Public Accountants (AICPA). (2010). AU Section 319 consideration internal control in a financial statement audit. New York: American Institute of Certified Public Accountants.

Ashton, R. H. & Kramer, S. S. (1980). Students as surrogates in behavioral accounting research: some evidence. Journal of Accounting Research, 18, 1-15.

Beck, Frecka, P. T. & Solomon, I. (1988). A model of the market for mas and audit services: knowledge spillovers and auditor-auditee bonding. Journal of Accounting Literature, 7: 50-64.

Bedard, J. (1991). Expertise and its relation to audit decision quality. Contemporary Accounting Research, 8, 198-221.

BloombergBusiness. (2015a). What’s next for Romania as premier faces corruption trial? Retrieved from

BloombergBusiness (2015b). Citygroup’s Mexico unit faces widening U.S. money-laundering probe. Retrieved from

Byrne, J. A. (2002). Fall from grace. Business Week, 12 August 2002, 55.

Carcello, J. V. & Nagy, A. L. (2004). Audit firm tenure and fraudulent financial reporting. Auditing: A Journal of Practice and Theory. 23(3), 55-69.

Daughtery, B. E., Dickins, D., Hatfield, R. C., & Higgs, J. L. (2013). Mandatory audit partner rotation: Perceptions of audit quality consequences. Current Issues in Auditing, 7(1), 30-35.

Easterbrook, F. and Fischel, D. (2004). The Economic Structure of Corporate Law, Cambridge: Harvard University Press.

George, N. (2009). The relationship between audit firm tenure and probability of financial statement fraud. Journal of Academy of Business and Economics, 9(4), 54-65.

Geiger, M. A. & Raghunandan, K. (2002). Auditor tenure and audit reporting failures. Auditing: A Journal of Practice and Theory, 21(1), 67-78.

Houghton, K. A. & Hronsky, J. J. F. (1993). The sharing of meaning between accounting students and members of the accounting profession. Accounting and Finance, (November), 131-147.

Johnson, V. E., Khurana. I. K., & Reynolds J. K. (2002). Audit firm tenure and the quality of financial reports. Contemporary Accounting Research 19(4), 637-660.

Knoblauch, A. (2015). Swiss authorities detail their FIFA investigation in statement. Los Angeles Times retrieved from

Labaton Sucharow. (2012). Wall Street Fleet Street Main Street: Corporate integrity at a crossroads. Retrieved from

Lawson, R. A. (2004). Is classroom cheating related to business student’s propensity to cheat in the “Real World”. Journal of Business Ethics, 49, 189-199.

Liyanarachchi, G. A. & Milne, M. J. (2005). Comparing the investment decisions of accounting practitioners and students: an empirical study on the adequacy of student surrogates. Accounting Forum, 29, 121-135.

Liyanarachchi, G. (2007). Feasibility of using student subjects in accounting experiments: a review. Pacific Accounting Review, 19(1), 47-67.

Mautz, R. K. & Sharaf, H. A. (161). The Philosophy of Auditing. American Accounting Association Monograph, No. 6. Sarasota, FL: American Accounting Association.

Mortenson, T., Fisher, R. & Wines, G. (2012). Students as surrogates for practicing accountants: further evidence. Accounting Forum, Vol. 36, 251-265.

Myers, J. N., Myers, L. A. & Omer, T. C. (2003). Exploring the terms of the auditor-client relationship and the quality of earnings: A case for mandatory audit firm rotation?, Accounting Review 78(3), 779-799.

Murphy, D. S. & Turek J. (2015). Audit response to money laundering by financial institutions: An economic perspective. Unpublished working paper.

Nonis, S. & Swift, C. (2001). An examination of the relationship between academic dishonesty and workplace dishonesty: A multicampus investigation. Journal of Education for Business, 7, 69-77.

Prentice, R. (2000). The case of the irrational auditor: A behavioral insight into securities fraud litigation. Northwestern University Law Review, 95, 133-219.

Public Company Accounting Oversight Board (PCAOB). (1989). AU Section 317 Illegal acts by clients. Washington, D. C.

Reed, G E., & Yeager, P. C. (1996). Organizational offending and neoclassical criminology: Challenging the reach of a general theory of crime. Criminology, Vol 34, No. 3, 357-382.

Tillman, R. (2009). Reputations and corporate malfeasance: Collusive networks in financial statement fraud. Crime Law and Social Change, 51, 365-382.

U. S. House of Representatives. (2002). The Sarbanes-Oxley Act of 2002. Public Law 107-204 [H.R. 3763]. Washington D.C.: Government Printing Office.

Walker, J. (2009). How big is global money laundering? Journal of Money Laundering Control. Vol. 3, No. 1, 25-37.