Applications of Game Theory and Evolutionary Game Theory in Auditing

摘要

An audit in accordance with International Standards of Auditing (ISA) should be designed to provide reasonable assurance that the financial statements as a whole are free from material misstatements. Misstatements in the financial statements can arise either by fraudulent reporting or inadvertent error. The former appear when, the government or the auditee firm manipulate on purpose financial reports in order to gain an illegal advantage, while the latter appear due to unintentional mistakes or misinterpretations in gathering or processing of data. Even though, actions should be taken for both cases to be avoided the most critical one, however, that should be detected and confronted is fraudulent financial reporting.In this chapter, initially, the fraud detection problem is formulated as a two-player game between the auditor and the auditee where the auditor aims at eliminating misstatements, reducing at the same time his audit efforts, while the auditee aims at benefiting from fraudulent financial reporting and defalcation. Then, this analysis is extended to cover the case of audit of group of financial statements. Since classic game theory formulations fail to specify: 1) how the players arrive at equilibrium, 2) whether this equilibrium is stable or not and, 3) what is the long term behavior of the auditor's tenure on the quality of auditing, an alternative formulation based on evolutionary game theory will be also presented.