When Reckless Executives Become Dangerous Fraudsters

Reward Structures and Auditing Procedures Need to Be Reformed to Deter ‘Dark Triad’ Personalities

Sridhar Ramamoorti, PhD, CPA, CFE, CFF, MAFF, and Barry J. Epstein, PhD, CPA, CFF

At its foundations, auditing is about verifying the assertions that find expression through the numbers presented in the financial statements, performed by well-qualified, competent, and independent auditors. This propriety derives from, and may be constrained by, the integrity of executive management and the preparers of the financial statements—the people who create those numbers. But reliance upon principles-based accounting standards cannot succeed if the market is full of unscrupulous and unprincipled parties. Principles work only when wielded by principled people, and auditors and financial statement users shouldn't expect principles-based strategies to work very well with unprincipled actors.