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Unformatted text preview: teresting question is whether auditors can be leaders in a leader / follower game in practice; however this issue
is beyond the scope of this study.
The resolution phase has only six rounds (and the regular play has 18 or 19), so that managers are not motivated
to use the regular play phase to form reputations to be consumed in the resolution phase. Auditors do not know
the number of rounds, but do know there are fewer rounds in the resolution phase than in the regular play phase. 274 The Accounting Review, April 2002 FIGURE 1
Manager’s Computer Screen under Yes-Puffery / Strong Group Setting Game Tree shows the payoffs to the manager if the auditor does not detect fraud (denoted
as Inﬂow). The probability of no sanction is 0.71, and the payoff to the manager is 139.29.
The right branch shows that the probability of fraud detection (denoted as Outﬂow) is 0.29
and that the payoff to the manager is 113.75. The expected value of these two possibilities is 65.96. The screen updates the Game Tree each time a...
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- Fall '08