Auditors perceptions towards the effectiveness of the international standard on auditing 240 Red Flags : evidence from Lebanon

Abstract

Most of the studies on auditors’ perceptions towards the effectiveness of the international standard on auditing 240 Red Flags (RF) were conducted in developed economies. This research, therefore, fills the gap by aiming to determine whether RF can be helpful for Lebanon certified public accountant (LCPA) working in auditing firms by detecting fraudulent financial reporting (FFR). Data were collected using a questionnaire that was distributed to a random sample of 130 LCPA. The results support that there is a positive significant association between pressures and FFR occurrence in Lebanon. However, there were no support for opportunities and attitudes to be associated with FFR occurrence. Moreover, the findings provide a strong evidence that ISA 240 RF for FFR can help external auditors in detecting material mis-statement (MM) due to fraud in Lebanon. Therefore, the current research recommends LCPA working in the audit firms in Lebanon to focus their efforts more on high quality RF, which will in turn facilitate fraud detection in the financial statements.