Allocating audit resources to detect fraud

Springer Science and Business Media LLC - Tập 1 - Trang 161-182 - 1996
Paul Newman1, Shelley Rhoades2, Reed Smith3
1Department of Accounting, Graduate School of Business, The University of Texas at Austin, Austin
2Washington University USA
3University of Oregon, USA

Tóm tắt

This paper addresses how to allocate audit resources across different auditable units when misstatements may occur in any or all of the units. We consider two benchmark scenarios. In the first, the extent of overstatement affects only the cost of detection, but not the effectiveness of audit inputs in determining the likelihood of detection. In the second, overstatement directly affects the likelihood of detection but not audit cost. In a two location setting, if overstatement affects only audit effectiveness, the realized value at one location has no impact on the reported value at the other. In addition, the auditor allocates an identical amount of audit resources to each location. In contrast, if overstatement affects only audit cost, the agent’s reporting strategy reflects interdependencies between both realized values and audit costs across locations.

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