The Theory of Auditing Economics: Evidence and Suggestions for Future Research

Analytical auditing research provides underlying theory for the economic analysis of auditing. Despite its importance,there have been no papers that provide a comprehensive review of research conducted in this area. This monograph reviews existing analytical auditing research. I identify the assumptions and key economic forces addressed in selected papers and provide suggestions for future research by summarizing and critiquing the existing research. I develop a framework that incorporates the demand for and supply of audits and considers the economic incentives and strategic interactions of individuals or organizations involved in the audits. Using this framework, I examine three questions: Why do we need financial statement audits? What determines the assurance production and reporting? How do parties interact within an audit and in markets? This monograph intends to stimulate further analytical auditing research and help guide research using other methodologies.