The Influence of Business Risk and Audit Pricing on Fraud Detection

Business risk approach for auditing process is expected to provide a better basis for assessing indicators that might contribute to financial statement fraud. In addition, clients with high business risk will lead to increase in auditor’s business risk, which may damage the reputation of auditor in professional auditing practices. Thus, more audit works need to be performed to avoid auditors’ expected losses. Consequently, this increases the audit fee. This paper intends to develop a model to identify the relationship between business risk, fraud and audit fee. Samples of 10 fraudulent companies 90 non-fraudulent companies were identified to achieve the objective. Stepwise logistic regression was employed. The results clearly indicate that business risk and audit fee entered the fraud prediction model.