Audit Error

17 Pages Posted: 23 Jul 2004

See all articles by Joel S. Demski

Joel S. Demski

University of Florida - Fisher School of Accounting

Hans Frimor

Aarhus University; University of Southern Denmark - Department of Business and Economics

David E. M. Sappington

University of Florida - Department of Economics; National Bureau of Economic Research (NBER)

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

Demski, Joel S. and Frimor, Hans and Frimor, Hans and Sappington, David E. M., Audit Error (July 2004). Available at SSRN: https://ssrn.com/abstract=567844 or http://dx.doi.org/10.2139/ssrn.567844

Joel S. Demski (Contact Author)

University of Florida - Fisher School of Accounting ( email )

Warrington College of Business
PO Box 117166
Gainesville, FL 32611-7166
United States
352-392-7597 (Phone)
352-378-1079 (Fax)

Hans Frimor

Aarhus University ( email )

Department of Economics and Business
Bartholins Allé 10
Aarhus DK-8000
Denmark
+45 8942 2141 (Phone)

University of Southern Denmark - Department of Business and Economics ( email )

DK-5230 Odense
Denmark

David E. M. Sappington

University of Florida - Department of Economics ( email )

224 Matherly Hall
Gainesville, FL 32611-7140
United States
352-392-3904 (Phone)
352-336-1420 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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