ACC 670: Audit Theory

The course analyzes the market structure of the audit market as well as the auditor-client relations­hip. The separation of ownership and control and widespread shareholdings generate the demand for independent auditing. Audit theory investigates the role played by the auditor as a strategic player. The analysis is based on theoretical models utilizing game theory.

Learning outcomes
Students are familiar with the purpose and the scope of an independent audit. They see auditing as a potential resolution but also a potential source of agency conflicts. Furthermore, students know how the auditor strategically interacts in game theoretic settings. They are aware of the influence of regulatory changes on auditing and the audit firm’s responses to these changes.

Necessary prerequisites
ACC 5XX, not taken ACC 671

Recommended prerequisites
Preparation of the literature that will be provided for self-study

Forms of teaching and learningContact hoursIndependent study time
Lecture2 SWS9 SWS
Exercise class1 SWS5 SWS
ECTS Credits6
Form of assessmentWritten exam (60 min.) or oral exam
Restricted Admissionno
Further information
Performing lecturer
Prof. Dr. Dirk Simons
Prof. Dr. Dirk Simons, Dr. Sebastian Kronenberger
OfferingFall semester
Duration of module 1 semester
Range of applicationM.Sc. MMM, M.Sc. WiPäd, M.Sc. VWL, M.Sc. Wirt. Inf., LL.M.
Preliminary course work
Graded yes
LiteratureHayes/Gortemaker/Wallage (2014): Principles of auditing: an introduction to international standards on auditing, 3rd Ed., Harlow, Munich.
Wagenhofer, A. and R. Ewert (2015), Externe Unternehmens­rechnung, 3rd edition, Springer.
Module-specific literature will be communicated in the lecture.
Course outlineIntroduction and Institutional Background
The Need for Auditing
Audit Assignment and Low Balling
Learning Effects and Low Balling
Auditor Specialization and Low Balling
Audit Market Segmentation
Risk-Oriented Auditing Approach
Strategic Auditing and Substantive Testing
The Auditor’s Liability
Theory of Liability Regimes
Third-Party Liability