Efficient Committed Budget for Implementing Target Audit Probability for Many Inspectees
Strategic models of auditor-inspectee interaction have neglected implementation details in multiple-inspectee settings. With multiple inspectees, the target audit probability derived from the standard analysis can be implemented with sampling plans differing in the budgets committed to support them. Overly committed audit budgets tie up unneeded resources that could have been allocated for better uses. This paper studies the minimum committed budget required to implement a target audit probability when (i) the audit sample can be contingent on “red flags” due to signals of inspectees’ private information (e.g., from self-reporting) and (ii) the number of inspectees is large. It proposes an audit rule called bounded simple random sampling (SRS), which is shown to require no more committed budget to support than two other rules naturally generalized from the one-to-one analysis. When the number of inspectees is large enough, bounded SRS is nearly as good as any efficient audit rule, which demands the lowest committed budget necessary to implement the target audit probability. The results offer insights on how audit sampling plans may be formulated to reduce inefficiency and what budget usage ratios should be expected accordingly.
|Date of creation:||Dec 2009|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Alm, James & Bahl, Roy & Murray, Matthew N., 1993. "Audit selection and income tax underreporting in the tax compliance game," Journal of Development Economics, Elsevier, vol. 42(1), pages 1-33, October.
- Polinsky, A. Mitchell & Shavell, Steven, 1998. "On offense history and the theory of deterrence," International Review of Law and Economics, Elsevier, vol. 18(3), pages 305-324, September.
- Cremer, Helmuth & Gahvari, Firouz, 1996. "Tax evasion and the optimum general income tax," Journal of Public Economics, Elsevier, vol. 60(2), pages 235-249, May.
- Bontems, Philippe & Bourgeon, Jean-Marc, 2005.
"Optimal environmental taxation and enforcement policy,"
European Economic Review,
Elsevier, vol. 49(2), pages 409-435, February.
- P. Bontems & J-M. Bourgeon, 2000. "Optimal Environmental Taxation and Enforcement Policy," THEMA Working Papers 2000-56, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
- Philippe Bontems & Jean-Marc Bourgeon, 2005. "Optimal environmental taxation and enforcement policy," Working Papers 156808, Institut National de la Recherche Agronomique, France.
- M. Ruth & K. Donaghy & P. Kirshen, 2006. "Introduction," Chapters, in: Regional Climate Change and Variability, chapter 1 Edward Elgar.
- Mookherjee, Dilip & Png, Ivan, 1989. "Optimal Auditing, Insurance, and Redistribution," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 399-415, May.
- Dubin, Jeffrey A & Graetz, Michael J & Wilde, Louis L, 1987. "Are We a Nation of Tax Cheaters? New Econometric Evidence on Tax Compliance," American Economic Review, American Economic Association, vol. 77(2), pages 240-45, May.
- Sandmo, Agnar, 2005. "The Theory of Tax Evasion: A Retrospective View," National Tax Journal, National Tax Association, vol. 58(4), pages 643-63, December.
- Jennie Cho & Jilnaught Wong & Norman Wong, 2006. "Book-Tax Differences and Inland Revenue Audit Adjustments in New Zealand," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 33(9-10), pages 1650-1667.
- Border, Kim C & Sobel, Joel, 1987. "Samurai Accountant: A Theory of Auditing and Plunder," Review of Economic Studies, Wiley Blackwell, vol. 54(4), pages 525-40, October.
- Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 323-338, November.
- Mustafa Besim & Glenn Jenkins, 2005. "Tax compliance: when do employees behave like the self-employed?," Applied Economics, Taylor & Francis Journals, vol. 37(10), pages 1201-1208.
- Graetz, Michael J. & Reinganum, Jennifer F. & Wilde, Louis L., .
"The Tax Compliance Game: Toward an Interactive Theory of Law Enforcement,"
589, California Institute of Technology, Division of the Humanities and Social Sciences.
- Graetz, Michael J & Reinganum, Jennifer F & Wilde, Louis L, 1986. "The Tax Compliance Game: Toward an Interactive Theory of Law Enforcement," Journal of Law, Economics and Organization, Oxford University Press, vol. 2(1), pages 1-32, Spring.
- Joel Slemrod & Shlomo Yitzhaki, 2000.
"Tax Avoidance, Evasion, and Administration,"
NBER Working Papers
7473, National Bureau of Economic Research, Inc.
- Naomi E. Feldman & Joel Slemrod, 2007. "Estimating tax noncompliance with evidence from unaudited tax returns," Economic Journal, Royal Economic Society, vol. 117(518), pages 327-352, 03.
- de la Fuente, Angel & Marin, JoseMaria, 1996.
"Innovation, bank monitoring, and endogenous financial development,"
Journal of Monetary Economics,
Elsevier, vol. 38(2), pages 269-301, October.
- Ángel de la Fuente & José M. Marín, 1994. "Innovation, "bank" monitoring and endogenous financial development," Economics Working Papers 59, Department of Economics and Business, Universitat Pompeu Fabra.
- de la Fuente, Angel & Marín Vigueras, José Maria, 1995. "Innovation, 'Bank' Monitoring and Endogenous Financial Development," CEPR Discussion Papers 1276, C.E.P.R. Discussion Papers.
- James Andreoni & Brian Erard & Jonathan Feinstein, 1998.
Journal of Economic Literature,
American Economic Association, vol. 36(2), pages 818-860, June.
- Hohzaki, Ryusuke, 2007. "An inspection game with multiple inspectees," European Journal of Operational Research, Elsevier, vol. 178(3), pages 894-906, May.
- Chang, Cyril F. & Steinbart, Paul J. & Tuckman, Howard P., 1993. "Are Medicare audits random or predictable?," Journal of Accounting and Public Policy, Elsevier, vol. 12(2), pages 135-154.
- Picard, Pierre, 1996. "Auditing claims in the insurance market with fraud: The credibility issue," Journal of Public Economics, Elsevier, vol. 63(1), pages 27-56, December.
- Avenhaus, Rudolf & Von Stengel, Bernhard & Zamir, Shmuel, 2002. "Inspection games," Handbook of Game Theory with Economic Applications, in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 3, chapter 51, pages 1947-1987 Elsevier.
- Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
- Pentland, Brian T. & Carlile, Paul, 1996. "Audit the taxpayer, not the return: Tax auditing as an expression game," Accounting, Organizations and Society, Elsevier, vol. 21(2-3), pages 269-287.
- Florens, Jean-Pierre & Foucher, Caroline, 1999. "Pollution Monitoring: Optimal Design of Inspection--An Economic Analysis of the Use of Satellite Information to Deter Oil Pollution," Journal of Environmental Economics and Management, Elsevier, vol. 38(1), pages 81-96, July.
- Louis Kaplow & Steven Shavell, 1991.
"Optimal Law Enforcement with Self-Reporting of Behavior,"
NBER Working Papers
3822, National Bureau of Economic Research, Inc.
- Kaplow, Louis & Shavell, Steven, 1994. "Optimal Law Enforcement with Self-Reporting of Behavior," Journal of Political Economy, University of Chicago Press, vol. 102(3), pages 583-606, June.
- Wurst, John & Neter, John & Godfrey, James, 1989. "Efficiency of Sieve Sampling in Auditing," Journal of Business & Economic Statistics, American Statistical Association, vol. 7(2), pages 199-205, April.
- Alm, James & McKee, Michael, 2004. "Tax compliance as a coordination game," Journal of Economic Behavior & Organization, Elsevier, vol. 54(3), pages 297-312, July.
- Sanchez, Isabel & Sobel, Joel, 1993. "Hierarchical design and enforcement of income tax policies," Journal of Public Economics, Elsevier, vol. 50(3), pages 345-369, March.
- Alm, James & Blackwell, Calvin & McKee, Michael, 2004. "Audit Selection and Firm Compliance with a Broad-based Sales Tax," National Tax Journal, National Tax Association, vol. 57(2), pages 209-27, June.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:27856. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht)
If references are entirely missing, you can add them using this form.