Article ID: | iaor200973224 |
Volume: | 55 |
Issue: | 12 |
Start Page Number: | 2000 |
End Page Number: | 2018 |
Publication Date: | Dec 2009 |
Journal: | Management Science |
Authors: | Yim Andrew |
Keywords: | auditing |
Strategic models of auditor-inspectee interaction have neglected implementation details in multiple-inspectee settings. With multiple inspectees, the target audit probability derived from the standard analysis can be implemented with sampling plans differing in the budgets committed to support them. Overly committed audit budgets tie up unneeded resources that could have been allocated for better uses. This paper studies the minimum committed budget required to implement a target audit probability when (i) the audit sample can be contingent on ‘red flags’ due to signals of inspectees' private information (e.g., from self-reporting) and (ii) the number of inspectees is large. It proposes an audit rule called