On the Conditions Under Which Audit Risk Increases With Information
Posted: 9 Apr 2008 Last revised: 27 Dec 2008
It has been reported in the literature on strategic auditing that audit risk (the probability of audit failure) may increase when the auditor obtains information, whereas conditions for such cases have not been identified as yet. This paper provides simple models to analyze the general tendencies of exogenous parameters for such cases. The analysis shows that audit risk increases with more information if the auditee has a sufficiently strong incentive to commit fraud. If the auditee is penalized by auditor rejection even when he does not commit fraud, the detection risk increases with more information. In this case, if the auditor has a sufficiently strong incentive to avoid false rejection, audit risk increases with more information.
Keywords: strategic audits, audit risk, audit evidence, acceptance sampling
JEL Classification: C72, D81, D82, M49
Suggested Citation: Suggested Citation