Download This PaperAudit Error
17 Pages Posted: 23 Jul 2004
Date Written: July 2004
Abstract
We analyze a setting where audit error depends on the ease with which an unaudited measure can be audited, e.g., cash flow versus accrual-based income, and demonstrate that the optimal error rate may be substantially above zero. Though counter-intuitive, this conclusion follows from the fact a measure that is easily audited may provide relatively less of the information that is critical for planning, control and valuation.
Keywords: Audit, error
JEL Classification: M49
Suggested Citation: Suggested Citation
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