ACC 670: Audit Theory

Why is there a need for auditing? How are audits priced? How do (different) auditor liability rules affect audit quality? These questions are raised frequently in light of the Wirecard scandal and the regulatory actions that just recently followed. This course addresses these (and other) questions by analyzing the auditor-client relations­hip as well as the market structure of the auditing profession. The analysis is based on theoretical models that use game theory. For that purpose, auditors are perceived as strategic players that rationally interact with their various stakeholders.

Learning outcomes
Students are familiar with the purpose and the scope of an independent audit. They realize that audfiting does not only mitigate agency conflicts, but is also a potential source for such frictions. Furthermore, students know how the auditor strategically interacts in game theoretic settings. They are aware of the influence of regulatory changes on the auditing profession and the responses of audit firms to these changes.

Necessary prerequisites
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
Graded yes
Form of assessmentWritten exam (60 min) or oral exam (30 min)
Restricted admissionno
Further information
Performing lecturer
Prof. Dr. Dirk Simons
Prof. Dr. Dirk Simons, Dr. Sebastian Kronenberger
Frequency of 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
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