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A theory of strategic auditing: How should we select one member from a homogeneous group?

Author

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  • Yoshio Kamijo

    (School of Management, Kochi University of Technology)

Abstract
This paper theoretically analyzes an audit rule that selects a taxpayer for an audit based on the reported income profile and creates strategic interdependence. Such strategic auditing contrasts with the random auditing rule. This paper proposes the lowest-reporter-audited rule. This rule ensures that the taxpayer with the lowest reported income is inspected from a group of taxpayers that are categorized according to factors such as social status, income level, occupation, and place of residence. We show that, under a realistic penalty rate condition, the lowest-reporter-audited rule is superior to the random audit rule.

Suggested Citation

  • Yoshio Kamijo, 2014. "A theory of strategic auditing: How should we select one member from a homogeneous group?," Working Papers SDES-2014-1, Kochi University of Technology, School of Economics and Management, revised Oct 2014.
    • Handle: RePEc:kch:wpaper:sdes-2014-1
    as

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    File URL: http://www.souken.kochi-tech.ac.jp/seido/wp/SDES-2014-1.pdf
    File Function: First version, 2014
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    References listed on IDEAS

    as
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