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On the Conditions That Audit Risk Increases with More Information
Yasuhiro Ohta,
Keio University
ABSTRACT. In the literature of strategic auditing, it is known that audit risk (the probability of audit failure) may increase when the auditor obtains information, whereas the conditions for the cases remain to be seen. This paper provides simple models to analyze the general tendencies of exogenous parameters for the cases. The analysis shows that audit risk tends to increase with more information if the auditee has strong incentive to commit fraud. If the auditee has incentive to avoid the auditor's rejection even when the auditee does not commit fraud, detection risk increases with more information. In this case, if the auditor has strong incentive to avoid false rejection, audit risk increases with more information.
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