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An investigation of the possible effects of nonsampling error on inference in auditing: A Bayesian analysis

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  • RAMONA L. TRADER
  • H. FENWICK HUSS

Abstract

. A Bayesian model for nonsampling errors made by the auditor is investigated to determine the effects of such errors on audit inferences. Predictive distributions are used to illustrate that for “realistic†audit situations, Type II errors will have little effect on inferences for a given level of Type I error. Type I errors are shown to play a more critical role in determining the acceptability of an internal control. Résumé. Un modèle Bayesien relatif aux erreurs, de nature autre qu'échantillonnale, commises par le vérificateur est étudié afin de déterminer les effets de telles erreurs sur les inférences en vérification. Des distributions de prédiction sont employées pour illustrer le fait qu'en situation de vérification «réaliste», les erreurs de deuxième espèce auront peu d'effet sur les inférences pour un niveau donné d'erreur de première espèce. Il est montré que les erreurs de première espèce jouent un rôle plus critique en ce qui a trait à la détermination du caractère acceptable d'un procédé de contrôle interne.

Suggested Citation

  • Ramona L. Trader & H. Fenwick Huss, 1987. "An investigation of the possible effects of nonsampling error on inference in auditing: A Bayesian analysis," Contemporary Accounting Research, John Wiley & Sons, vol. 4(1), pages 227-239, September.
    • Handle: RePEc:wly:coacre:v:4:y:1987:i:1:p:227-239
    DOI: 10.1111/j.1911-3846.1987.tb00665.x
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    References listed on IDEAS

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    1. Felix, Wl & Grimlund, Ra, 1977. "Sampling Model For Audit Tests Of Composite Accounts," Journal of Accounting Research, Wiley Blackwell, vol. 15(1), pages 23-41.
    2. Kinney, Wr, 1975. "Decision-Theory Approach To Sampling Problem In Auditing," Journal of Accounting Research, Wiley Blackwell, vol. 13(1), pages 117-132.
    3. Huss, Hf & Trader, Rl, 1986. "A Note On Optimal Sample Sizes In Compliance Tests Using A Formal Bayesian Decision-Theoretic Approach For Finite And Infinite Populations," Journal of Accounting Research, Wiley Blackwell, vol. 24(2), pages 394-399.
    4. Godfrey, Jt & Andrews, Rw, 1982. "A Finite Population Bayesian Model For Compliance Testing," Journal of Accounting Research, Wiley Blackwell, vol. 20(2), pages 304-315.
    5. Loebbecke, Jk & Neter, J, 1975. "Considerations In Choosing Statistical Sampling Procedures In Auditing," Journal of Accounting Research, Wiley Blackwell, vol. 13, pages 38-52.
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    Cited by:

    1. David R. Finley, 1994. "Game Theoretic Analysis of Discovery Sampling for Internal Fraud Control Auditing," Contemporary Accounting Research, John Wiley & Sons, vol. 11(1), pages 91-114, June.

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