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Game Theory And The Auditor'S Penalty Regime

Author

Listed:
  • David Hatherly
  • Luc Nadeau
  • Lyn Thomas

Abstract

This paper models the audit as a cooperative game played by the auditor and auditee within a penalty regime imposed by a regulatory authority. The paper investigates the relationship between the penalties set by the regulator and the jointly agreed strategy of the auditor and auditee, and discusses how the penalty regime might be employed so as to induce a particular strategic outcome such as high effort levels on the part of the auditee and/or auditor.

Suggested Citation

  • David Hatherly & Luc Nadeau & Lyn Thomas, 1996. "Game Theory And The Auditor'S Penalty Regime," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 23(1), pages 29-45, January.
    • Handle: RePEc:bla:jbfnac:v:23:y:1996:i:1:p:29-45
    DOI: 10.1111/j.1468-5957.1996.tb00400.x
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    References listed on IDEAS

    as
    1. Melumad, Nd & Thoman, L, 1990. "On Auditors And The Courts In An Adverse Selection Setting," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 28(1), pages 77-120.
    2. Baiman, S & Evans, Jh & Noel, J, 1987. "Optimal-Contracts With A Utility-Maximizing Auditor," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 25(2), pages 217-244.
    3. Patterson, Er, 1993. "Strategic Sample-Size Choice In Auditing," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 31(2), pages 272-293.
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