Fraud: A Critical Analysis of the Auditing Standard ISA in Connection with Corporate Psychopaths

Michael Peter Jakobsen

Student thesis: Master thesis


We hear of fraud scandals in both national and international Medias committed by management with tremendous loss for both companies and society. The purpose of this thesis is therefore to perform a critical analysis of ISA 240, and identify if frauds are committed by corporate psychopaths and whether ISA 240 takes into account the special characteristics of these corporate psychopaths in the definition of the fraudster in the audit standard. Based on a multi case study of three of the largest fraud scandals in Denmark, this thesis will perform a critical analysis of the International Audit Standard ISA 240 regarding Fraud and identify if these frauds where committed by corporate psychopaths. There is a general agreement within professionals, that 2-4 % of all western men are psychopaths, and these are overrepresented within Management level of the companies. Some professionals even state that up to 10% of the persons with Top Management are so called corporate psychopaths. ISA 240 are based on the theory of The Fraud Triangle developed by Donald R. Cressey in the 1950’s. The Fraud Triangle consist of the three elements, opportunity, pressure and rationalization. The perpetrator in the Fraud Triangle is based upon the Accidental Fraudster, who will perform a fraud only if there is a non-shareable problem and the above 3 elements exists. However in my case study I have identified that the perpetrators in the selected cases all have psychopathic traits, and in my opinion at least two of the three persons could be characterized as corporate psychopaths also known as Predators in the fraud literature. Through an analysis of the fraud theories developed in the period from Cressey’s Fraud Triangle to present day, I have discovered that new fraud theories such as the Fraud Scale and the Predator versus the Accidental Fraudster includes the fraudster’s personal traits. These are more practical useful, and in my opinion these should be incorporated in ISA 240. It is my opinion that ISA 240 needs to acknowledge the existence of the corporate psychopath, in the fraud literature, called the Predator. The special traits and characteristics of the corporate psychopath should be incorporated in ISA 240. Also examples of audit procedures should be included in ISA 240 appendix 2, such as an evaluation of the recruitment process by the clients and an internal work paper on the executives.

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
Publication date2016
Number of pages83