Deterring Fraud by Looking Away
28 Pages Posted: 23 Sep 2015
Date Written: September 21, 2015
Individuals being audited potentially learn how to exploit the weaknesses inherent in any audit methodology if they face the same method many times. Hence, an auditor better deters fraud by randomizing her choice of methodology over time, thereby frustrating a would-be fraudster’s ability to learn. In the extreme, an auditor benefits from refusing to audit even though audits are costless to her.
Keywords: Audit, learning
JEL Classification: D83, M42
Suggested Citation: Suggested Citation