Planned audit quality

Regulating the Market for Audit Services: A Game Theoretic Approach

“…This paper is consistent with the approach of Elitzur and Falk (1996) in terms of both research objectives and focus on the detection risk. Although examining combinations of regulatory actions in terms of auditor rotation and auditor liability, Elitzur and Falk (1996) do not consider different options for mandatory audit firm rotation (e.g., short‐term or long‐term) or other regulatory instruments intended to discipline the audit firm. They also examine only the supply side of the audit market.…”

“…Since an infinite value of q B is unrealistic, the second best solution for the social planner is the highest possible value of q B . The maximization of the audit effort as the goal of the social planner is in alignment with prior literature using modelling approaches similar to ours (Elitzur and Falk, 1996).…”

“…The expression for the loss term in equation (1) is consistent with prior literature (Elitzur and Falk, 1996) and draws from the standard audit risk model. This defines the total audit risk ( AR ) as the product of inherent risk ( IR ), control risk ( CR ), and detection risk ( DR ): AR = IR × CR × DR .…”

Regulating the Market for Audit Services: A Game Theoretic Approach

“…This paper is consistent with the approach of Elitzur and Falk (1996) in terms of both research objectives and focus on the detection risk. Although examining combinations of regulatory actions in terms of auditor rotation and auditor liability, Elitzur and Falk (1996) do not consider different options for mandatory audit firm rotation (e.g., short‐term or long‐term) or other regulatory instruments intended to discipline the audit firm. They also examine only the supply side of the audit market.…”

“…Since an infinite value of q B is unrealistic, the second best solution for the social planner is the highest possible value of q B . The maximization of the audit effort as the goal of the social planner is in alignment with prior literature using modelling approaches similar to ours (Elitzur and Falk, 1996).…”

“…The expression for the loss term in equation (1) is consistent with prior literature (Elitzur and Falk, 1996) and draws from the standard audit risk model. This defines the total audit risk ( AR ) as the product of inherent risk ( IR ), control risk ( CR ), and detection risk ( DR ): AR = IR × CR × DR .…”

Legal Regimes, Damage Apportionment Rules, and Auditor Independence - Theory and Experimental Evidence

“…3 While the public practice has debated over mandatory rotation since the 1970s (Bates, Ingram, and Reckers 1982;Brody and Moscove 1998;Hoyle 1978;Petty and Cuganesan 1996;Stevens 1990;Vanasco 1996;Winters 1976;), 4 the academic lagged in this issue until recent years. Similar to the nonaudit service studies, however, most of the current research generates mixed results to support the adoption of mandatory rotation (Arrunada and Paz-Ares 1997;Dopuch, King, and Schwartz 2001;Elitzur and Falk 1996;Geiger and Raghunandan 2002;Johnson, Khurana, and Reynolds 2002;Myers, Myers, and Omer 2003;Summer 1998). In light of these and other anecdotal evidence, the efficacy of these two proposed mechanisms is still in debate.…”

Audit disaster futures: antidotes for the expectation gap?

“…They note that`a n audit committee is in the best position to inspect the rotation plan of the independent auditor, evaluate its effectiveness, and decide, if appropriate, to rotate firms'' (General Accounting Office, 1996, p. 109). Elitzur and Falk (1996) provide a model for the costs associated with mandatory auditor rotation that provides some support for the above arguments. However, their model assumes fixed, exogenously determined audit fees and ignores supply and demand for audit quality.…”

Regulating the Market for Audit Services: A Game Theoretic Approach

“…This paper is consistent with the approach of Elitzur and Falk (1996) in terms of both research objectives and focus on the detection risk. Although examining combinations of regulatory actions in terms of auditor rotation and auditor liability, Elitzur and Falk (1996) do not consider different options for mandatory audit firm rotation (e.g., short‐term or long‐term) or other regulatory instruments intended to discipline the audit firm. They also examine only the supply side of the audit market.…”

“…Since an infinite value of q B is unrealistic, the second best solution for the social planner is the highest possible value of q B . The maximization of the audit effort as the goal of the social planner is in alignment with prior literature using modelling approaches similar to ours (Elitzur and Falk, 1996).…”

“…The expression for the loss term in equation (1) is consistent with prior literature (Elitzur and Falk, 1996) and draws from the standard audit risk model. This defines the total audit risk ( AR ) as the product of inherent risk ( IR ), control risk ( CR ), and detection risk ( DR ): AR = IR × CR × DR .…”

Legal Regimes, Damage Apportionment Rules, and Auditor Independence - Theory and Experimental Evidence

“…3 While the public practice has debated over mandatory rotation since the 1970s (Bates, Ingram, and Reckers 1982;Brody and Moscove 1998;Hoyle 1978;Petty and Cuganesan 1996;Stevens 1990;Vanasco 1996;Winters 1976;), 4 the academic lagged in this issue until recent years. Similar to the nonaudit service studies, however, most of the current research generates mixed results to support the adoption of mandatory rotation (Arrunada and Paz-Ares 1997;Dopuch, King, and Schwartz 2001;Elitzur and Falk 1996;Geiger and Raghunandan 2002;Johnson, Khurana, and Reynolds 2002;Myers, Myers, and Omer 2003;Summer 1998). In light of these and other anecdotal evidence, the efficacy of these two proposed mechanisms is still in debate.…”

Audit disaster futures: antidotes for the expectation gap?

“…They note that`a n audit committee is in the best position to inspect the rotation plan of the independent auditor, evaluate its effectiveness, and decide, if appropriate, to rotate firms'' (General Accounting Office, 1996, p. 109). Elitzur and Falk (1996) provide a model for the costs associated with mandatory auditor rotation that provides some support for the above arguments. However, their model assumes fixed, exogenously determined audit fees and ignores supply and demand for audit quality.…”

Regulating the Market for Audit Services: A Game Theoretic Approach

“…This paper is consistent with the approach of Elitzur and Falk (1996) in terms of both research objectives and focus on the detection risk. Although examining combinations of regulatory actions in terms of auditor rotation and auditor liability, Elitzur and Falk (1996) do not consider different options for mandatory audit firm rotation (e.g., short‐term or long‐term) or other regulatory instruments intended to discipline the audit firm. They also examine only the supply side of the audit market.…”

“…Since an infinite value of q B is unrealistic, the second best solution for the social planner is the highest possible value of q B . The maximization of the audit effort as the goal of the social planner is in alignment with prior literature using modelling approaches similar to ours (Elitzur and Falk, 1996).…”

“…The expression for the loss term in equation (1) is consistent with prior literature (Elitzur and Falk, 1996) and draws from the standard audit risk model. This defines the total audit risk ( AR ) as the product of inherent risk ( IR ), control risk ( CR ), and detection risk ( DR ): AR = IR × CR × DR .…”

Legal Regimes, Damage Apportionment Rules, and Auditor Independence - Theory and Experimental Evidence

“…3 While the public practice has debated over mandatory rotation since the 1970s (Bates, Ingram, and Reckers 1982;Brody and Moscove 1998;Hoyle 1978;Petty and Cuganesan 1996;Stevens 1990;Vanasco 1996;Winters 1976;), 4 the academic lagged in this issue until recent years. Similar to the nonaudit service studies, however, most of the current research generates mixed results to support the adoption of mandatory rotation (Arrunada and Paz-Ares 1997;Dopuch, King, and Schwartz 2001;Elitzur and Falk 1996;Geiger and Raghunandan 2002;Johnson, Khurana, and Reynolds 2002;Myers, Myers, and Omer 2003;Summer 1998). In light of these and other anecdotal evidence, the efficacy of these two proposed mechanisms is still in debate.…”

Audit disaster futures: antidotes for the expectation gap?

“…They note that`a n audit committee is in the best position to inspect the rotation plan of the independent auditor, evaluate its effectiveness, and decide, if appropriate, to rotate firms'' (General Accounting Office, 1996, p. 109). Elitzur and Falk (1996) provide a model for the costs associated with mandatory auditor rotation that provides some support for the above arguments. However, their model assumes fixed, exogenously determined audit fees and ignores supply and demand for audit quality.…”