Theory of Auditing Economics: A Review of Analytical Auditing Research

Abstract

Research on the economics of auditing has grown significantly in light of accounting scandals and regulatory reforms in recent years. As an important component of auditing economics, analytical auditing research considers individuals involved as economic agents maximizing utilities and derives equilibrium solutions. This research provides an underlying theory for auditing economics analysis. Despite the importance of theory, there have been no papers that provide a comprehensive review of research conducted in this area. This paper summarizes the existing analytical auditing research and provides suggestions for future research. It develops a framework that incorporates the demand and supply of audits and considers the economic incentives of individuals or organizations involved in the audits as well as their strategic interactions. This paper intends to stimulate more analytical auditing research and to help research based on other methodologies build strong theory.

Keywords: review; analytical auditing; strategic audit; markets; regulation

JEL Classification: M42, M48