The Role of Audit Evidence in a Strategic Audit
11 Pages Posted: 3 Sep 2008
Date Written: March 8, 2008
This study examines how audit risk (the probability of false acceptance) and its components change when the auditor obtains audit evidence in an acceptance sampling model. Inherent risk and audit risk increase with audit evidence if the auditee has a sufficiently strong incentive for committing fraud. Detection risk always increases when audit evidence is introduced. If the auditor has a sufficiently strong incentive for avoiding false rejection, audit risk also increases with audit evidence. The analysis indicates that requiring auditors to obtain information is not effective in preventing material misstatements in at least some instances.
Keywords: strategic audits, audit risk, audit evidence
JEL Classification: C72, D81, D82, M49
Suggested Citation: Suggested Citation