Using Game Theory and Strategic Reasoning Concepts to Prevent and Detect Fraud
Posted: 28 Jul 2004
This commentary examines academic research for insights regarding the detection and prevention of fraudulent financial reporting. We review theoretical and empirical research from game theory, social psychology, judgment and decision making, and auditing to identify improvements in audit practice and promising areas for future research. This review focuses on the strategic fraud setting and suggests modifications in auditing standards that should facilitate auditors' use of strategic reasoning in this setting. We emphasize three critical audit tasks - fraud risk assessment, audit planning, and audit plan implementation - and recommend changes to current auditing standards and identify potential research questions for each task.
Keywords: Audit judgment, audit planning, fraud, game theory, risk assessment, strategic reasoning
JEL Classification: M41, M49
Suggested Citation: Suggested Citation