DOES COOPERATION IN AUDITING MATTER - A COMPARISON OF A NONCOOPERATIVE AND A COOPERATIVE GAME MODEL OF AUDITING

A game model of auditing including internal control investigation and substantive testing is analysed as a non-cooperative game. It is shown that in order for the presumed socially desirable outcome of high and honest effort by all to be obtained, it is necessary to adjust the co st structure to ameliorate the costs of not-qualifying erroneous accou nts if the auditor can prove he or she has worked hard. Comparison wit h a cooperative game analysis of the model shows that there is a regio n of parameters where both cooperative and non-cooperative versions of the game lead to this socially desirable outcome. The significance of this result is that whilst society expects an 'independent' auditor n ot to cooperate with the auditee, the practical realities of auditing require a considerable degree of cooperation. This leads to an 'expect ations gap' between what society expects and what actually happens, ex cept in those cost regions where both the cooperative and non-cooperat ive versions of the audit game lead to the same solution. (C) 1997 Pub lished by Elsevier Science B.V.