The role of audit thresholds in the misreporting of private information

The role of audit thresholds in the misreporting of private information The accounting profession has faced considerable criticism in recent years for failing to effectively combat reporting manipulation. A particular point of contention is the use of audit thresholds. The tendency for auditors to suppress inconsistencies that are deemed immaterial has been viewed as an open invitation for abuse. This paper revisits the effectiveness of audits and the misreporting of private information in light of audit thresholds. The paper demonstrates that while audit thresholds may create incentives for misstatements, the predictability of such misstatements may actually serve to promote efficiency. In effect, an environment in which parties are expected to systematically bias their reports can bring the threat of audit consequences for further exaggeration to the forefront. Such a consideration also suggests that more relaxed audit thresholds (and the ensuing increase in equilibrium misstatements) may be condoned by report recipients and can actually lessen inefficiencies wrought by adverse selection. Review of Accounting Studies Springer Journals

The role of audit thresholds in the misreporting of private information

Loading next page...
Springer US
Copyright © 2009 by Springer Science+Business Media, LLC
Business and Management; Accounting/Auditing; Corporate Finance; Public Finance
Publisher site
See Article on Publisher Site


You’re reading a free preview. Subscribe to read the entire article.

DeepDyve is your
personal research library

It’s your single place to instantly
discover and read the research
that matters to you.

Enjoy affordable access to
over 12 million articles from more than
10,000 peer-reviewed journals.

All for just $49/month

Explore the DeepDyve Library

Unlimited reading

Read as many articles as you need. Full articles with original layout, charts and figures. Read online, from anywhere.

Stay up to date

Keep up with your field with Personalized Recommendations and Follow Journals to get automatic updates.

Organize your research

It’s easy to organize your research with our built-in tools.

Your journals are on DeepDyve

Read from thousands of the leading scholarly journals from SpringerNature, Elsevier, Wiley-Blackwell, Oxford University Press and more.

All the latest content is available, no embargo periods.

See the journals in your area

Monthly Plan

  • Read unlimited articles
  • Personalized recommendations
  • No expiration
  • Print 20 pages per month
  • 20% off on PDF purchases
  • Organize your research
  • Get updates on your journals and topic searches


Start Free Trial

14-day Free Trial

Best Deal — 39% off

Annual Plan

  • All the features of the Professional Plan, but for 39% off!
  • Billed annually
  • No expiration
  • For the normal price of 10 articles elsewhere, you get one full year of unlimited access to articles.



billed annually
Start Free Trial

14-day Free Trial