On the Conditions Under Which Audit Risk Increases With Information

Posted: 9 Apr 2008 Last revised: 27 Dec 2008

Abstract

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

Ohta, Yasuhiro, On the Conditions Under Which Audit Risk Increases With Information. European Accounting Review, Vol. 17, No. 3, pp. 559-585, September 2008, Available at SSRN: https://ssrn.com/abstract=1118325

Yasuhiro Ohta (Contact Author)

Keio University ( email )

4-1-1 Hiyoshi
Kouhoku-ku
Yokohama, Kanagawa 223-8526
Japan
81-45-564-2026 (Phone)
81-45-562-3502 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
1,029
PlumX Metrics