Online from: 2011
Subject Area: Information and Knowledge Management
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|Title:||Dynamic analysis of Bayesian audit strategies with tests of controls and reliability modeling|
|Author(s):||Wei Chen, (Department of Information Management, Nanjing Audit University, Jiangsu, China), Ulrich Menzefricke, (Joseph L. Rotman School of Management, University of Toronto, Toronto, Canada), Wally J. Smieliauskas, (Joseph L. Rotman School of Management, University of Toronto, Toronto, Canada)|
|Citation:||Wei Chen, Ulrich Menzefricke, Wally J. Smieliauskas, (2011) "Dynamic analysis of Bayesian audit strategies with tests of controls and reliability modeling", Grey Systems: Theory and Application, Vol. 1 Iss: 3, pp.216 - 227|
|Keywords:||Audit strategy, Auditing, Internal control, Modelling, Reliability, Robust Bayesian|
|Article type:||Research paper|
|DOI:||10.1108/20439371111181224 (Permanent URL)|
|Publisher:||Emerald Group Publishing Limited|
|Acknowledgements:||This research was supported by the National Natural Science Foundation of China under Grants 70971068 and 70701018; the Humanities and Social Science Foundation of the Ministry of Education of China under Grant 08JC630045; the Qin Lan Project of Jiangsu Province; and the Project Funded by the Priority Academic Program Development of Jiangsu Higher Education Institutions (Auditing Science and Technology). The authors greatly appreciate their financial support and encouragement.|
Purpose – The purpose of this paper is to summarize a simulation study that analyzed the performance of Bayesian audit strategies in a novel fashion – dynamically and with varying sample sizes depending on the extent of an auditor's prior information.
Design/methodology/approach – The prior information for the Bayesian strategies arises from a set of control tests that are evaluated making use of reliability theory. The entire audit strategy is simulated under systematically different control reliabilities and related amounts of total misstatements in an accounting population.
Findings – The major finding is that robust Bayesian audit strategies that have recently been developed in auditing research are more sensitive to non-sampling errors than existing strategies of audit practice.
Practical implications – The authors find that there are differential effects of sampling error vs non-sampling error on the Bayesian strategies and that controls testing does not need to be extensive to get full internal control reliance.
Originality/value – The paper adds to existing research by examining the performance of various Bayesian audit strategies under more realistic audit conditions of sampling and non-sampling uncertainty.
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