GRA 6242 Economics of Auditing
GRA 6242 Economics of Auditing
The course "Economics of Auditing” is not about “how” audits are done, but primarily about “why” there are audits and how auditors’ and audit clients’ decisions depend on each other. From an economic perspective, accounting can be regarded as an information system whereat auditing provides assurance over the respective information. However, an audit should not be regarded as some form of technology but auditors make (some form of utility maximizing) decisions. The main objective of this research-oriented course is (1) to analyse the economic role of the audit and its beneficial (and potentially harmful) economic effects and (2) to analyse how auditors, audit clients, and addressees of audited financial statements interact. The analyses are primarily based on formal-theoretical models; however, empirical studies are also considered.
By the end of the course, the students are familiar with the purpose and the underlying economic mechanisms of independent audits. They understand how auditors strategically interact with their audit clients. The students can identify the mechanisms that make audits a potential resolution of conflicts between firm insiders (e.g., firm management or informed owners) and outsiders (e.g., potential new investors or stockholders), but can also identify potential sources of conflicts inherent in the audit process. The students can analyse the impact of regulations on audit outcomes and the audit market structure. They also understand how the audit market structure, in turn, can influence the reliability of audit outcomes.
By the end of the course, the students are able to:
- Explain in a very precise way what an audit is about in general.
- Use analytical thinking and modelling to derive clear answers to questions related to auditing.
- Explain why auditing is not primarily about protecting investors, but also of value for client firms’ managers.
- Understand the strategic interaction between auditors, auditees, and addressees of (audited) financial statements.
- Analyse the effects of audit market regulations, audit standards, and the legal environment on audit outcomes.
- Analyse the effects of the audit market structure on audit outcomes.
These skills ultimately enable students to:
- Better assess the information content of audited accounting numbers.
Upon completion of the course, the students have a comprehensive understanding of the economic role of independent audits. They are able to identify the source of potential conflicts between the auditor, the preparer of financial statements, and their addressees what is helpful in solving such conflicts. They further understand the general idea behind formal-theoretical models in auditing (and accounting) and can use formal-analytical model approaches to assess empirical results.
The lecture covers the following topics:
- Stewardship, information, and insurance hypotheses
- Costs and benefits of auditing
- Demand for and supply of audits
- Optimal contracts and moral hazard in auditing frameworks
- Optimal audit procedures and strategies
- Quality of audited financial statements
- Auditor liability
- Auditor independence
- Audit market regulations
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Please note that while attendance is not compulsory in all lectures, it is the students’ own responsibility to obtain any information provided in class. All parts of the assessment must be passed in order to get a grade in the course.
All courses in the Masters programme will assume that students have fulfilled the admission requirements for the programme. In addition, courses in second, third and/or fourth semester can have specific prerequisites and will assume that students have followed normal study progression. For double degree and exchange students, please note that equivalent courses are accepted.
Disclaimer
Deviations in teaching and exams may occur if external conditions or unforeseen events call for this.
- EXC 3520 Microeconomics, SØK 3520 Mikroøkonomi or similar recommended
| Assessments |
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Exam category: Activity Form of assessment: Presentation Weight: 30 Grouping: Group/Individual (1 - 2) Comment: Presentation of an assigned research paper Exam code: GRA 62421 Grading scale: ECTS Resit: Examination when next scheduled course |
Exam category: Submission Form of assessment: Written submission Invigilation Weight: 70 Grouping: Individual Support materials:
Duration: 3 Hour(s) Comment: Written examination under supervision Exam code: GRA 62422 Grading scale: ECTS Resit: Examination when next scheduled course |
All exams must be passed to get a grade in this course.
A course of 1 ECTS credit corresponds to a workload of 26-30 hours. Therefore a course of 6 ECTS credits corresponds to a workload of at least 160 hours.