The impact of audit penalty distributions on the detection and frequency of fraudulent reporting

@article{Burton2011TheIO,
  title={The impact of audit penalty distributions on the detection and frequency of fraudulent reporting},
  author={F. Greg Burton and T. Jeffrey Wilks and Mark F. Zimbelman},
  journal={Review of Accounting Studies},
  year={2011},
  volume={16},
  pages={843-865}
}
We investigate how the distribution of the penalties incurred by auditors for failing to detect fraud influences their effort to detect fraud and auditees’ commission of fraud. We compare a probabilistic, skewed audit penalty to a penalty that automatically imposes the expected penalty of the probabilistic distribution (hereafter, a deterministic penalty). Our experiments show that a deterministic penalty with the same expected value of a probabilistic, skewed penalty increases audit effort to… CONTINUE READING