This paper introduces an approach to the assessment of financial statement fraud risk and audit program planning and illustrates its application by simulating its use in the 1999 audit of Olympus. The approach incorporates a rigorous approach to assessing risk and current standards and conventions to fraud risk assessment not in practice during the period when a substantial financial statement fraud occurred at Olympus. The approach described in this paper illustrates a ‘what-if’ analysis that suggests the possible effectiveness of using updated standards, practice and research on detecting financial statement fraud.In the proposed approach, which is based on the Theory of Belief Functions, auditors follow three steps: (1) fraud risk assessment at the overall financial statement level, (2) fraud risk assessment at an account level, and (3) assessment of account, transaction and evidence schemes used to perpetrate fraud. In the evidential network, formal auditor belief assessments concerning evidence obtained in each audit step are aggregated by using Dempster’s rule. High aggregated assessments of belief-in-fraud or plausibility-of-fraud which exceed the thresholds established by the audit firm requires the auditors to engage in further investigation, to heighten the level of professional skepticism, and, where appropriate, to adopt a forensic audit approach.The results of analyzing the 1999 audit of Olympus demonstrate that the applications of current standards applied jointly with our approach would have likely both indicated a high plausibility and belief that fraud existed and would have likely directed the audit team to effective forensic audit procedures.

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In this study, we investigated the effects of procedural fairness (fair and no fair) and success rate on self-interest behavior. We compared a fair procedure condition that provides detail information regarding colleagues’ cost structure and their willingness to sacrifice with an unfair condition without such information. Participants were assigned into two success rate groups: low and high. We expected that individuals who encountered a higher success rate condition were inclined toward a self-interest choice. Ultimately, we hypothesized that procedural fairness and success rate have an interaction effect on self-interest behavior. We conducted a controlled laboratory experiment to investigate individual decision process in a standard costing setting. The participants were 136 undergraduate business students enrolled in management accounting classes at three large private universities that acted to be the managers in a production department. They completed an experimental task on computer. The result of our experiment indicated a mitigating effect of procedural fairness on the individuals’ self-interest behavior once the individuals realized the pressure of cost reduction process. The findings allow concluding that both self-interest and social preferences are guiding motivational factors of individual behavior. The findings indicated that people are willing to pursue organizational goals on the expense of their personal benefits. The results also showed the process of encouraging employees to undertake projects that decrease their current benefit but potentially have future organizational payoff. However, we did not find the interaction effect between procedural fairness and success rate.

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This article investigates whether and how the Japanese Financial Services Agency’s mandatory use of XBRL affects investors in assessing financial information. Although regulators expect the introduction of XBRL to enhance the transparency and quality of business reporting, given the non-trivial implementation and learning costs, whether the XBRL-based disclosure reduces the information asymmetry between sophisticated and less-sophisticated investors remains an empirical question. As prior studies in other countries employing mandatory XBRL adoption provide mixed results, our analysis of the Japanese case should be somewhat insightful because Japan is one of the few countries where thousands of listed firms were forced to use the XBRL format all at once. By examining various measures in the pre- and post-XBRL periods, we provide evidence consistent with the notion that the adoption of XBRL has helped to improve the information environment, as indicated by the reduction of event returns volatility, absolute cumulative abnormal returns, changes in the standard deviation of returns, and the abnormal bid-ask spread.

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