Jessen L. Hobson (University of Illinois at Urbana-Champaign), William J. Mayew (Duke University), Mark E. Peecher (University of Illinois at Urbana-Champaign), and Mohan Venkatachalam (Duke University) experimentally study this question, using CEO narratives from earnings conference calls as case materials. They randomly assign narratives of fraud and non-fraud companies to auditors as well as the presence versus absence of an instruction explaining that cognitive dissonance in speech is helpful for detecting deception.
The authors find that auditors’ deception judgments are less accurate for fraud companies than for non-fraud companies unless they receive this instruction. They also find that instructed auditors more extensively describe red flags for fraud companies and more accurately identify specific sentences in narratives that pertain to underlying frauds. These findings indicate that instructing experienced auditors to be alert for cognitive dissonance in CEO narratives can activate deception detection capabilities.
Read full paper “Improving Experienced Auditors’ Detection of Deception in CEO Narratives” by Jessen L. Hobson, William J. Mayew, Mark E. Peecher, and Mohan Venkatachalam, Journal of Accounting Research (Volume 55, Issue 5, December 2017, Pages 1137-1166) at Wiley Online Library.