On Auditor-Client Interactions: An Incomplete Information Game with Imperfect Revelation and Multiple Client Types

In this study, an auditor-client incomplete information game is introduced to analyze auditor-client interactions. The model formally recognizes the effect of allowing for imperfect revelation and multiple client types. It is demonstrated that as long as some sufficient conditions hold, the "standard" strategy of extending the audit and report truthfully can become a pure strategy equilibrium solution of the auditor. The results of our model help resolve all debates and doubts of Fellingham and Newman [10] which suggests that the "standards" strategy of extending audit procedures and reporting truthfully is never a pure strategy for the auditor in equilibrium.