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Unformatted text preview: ease in audit levels in the resolution phases
0.01). This suggests that information about managers’ choices affects auditors’
Analysis of the average fraud index (Panel B of Table 5) indicates that managers chose
signiﬁcantly less fraud in the resolution phase of the YP/WG setting, suggesting that managers were aware that they used puffery to condition auditors’ expectations during the
regular play phase, and expected retribution during the resolution phase. In addition,
the average payoff differences (Panel C of Table 5) are signiﬁcantly higher in the regular
play than in the resolution phases for the NP/WG, YP/WG, and YP/SG settings. That is,
auditors audited more and the managers chose less fraud in the resolution phase, so the
auditors had a lower payoff disadvantage in the resolution phase.
For independent auditors to enhance the credibility of ﬁnancial statements, auditors
must represent the interests of external parties, not those of management. For the past 30
years, policymakers have debated the extent t...
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This note was uploaded on 01/27/2014 for the course ACCY 405 taught by Professor Staff during the Fall '08 term at University of Illinois, Urbana Champaign.
- Fall '08