A BAYESIAN AUDITING MODEL

A Bayesian procedure is demonstrated that binds together multiple audit tests in a multiple‐stage decision analysis. The analysis uses information provided by one test in the design of subsequent tests even when subsequent tests are directed at a different set of system characteristics. The analysis is applied to compliance and substantive tests undertaken to ascertain the fairness of a particular account balance. Although the analysis is not operational as presented, it provides a logical framework that clarifies the complex conceptual structure of the problem and enables the identification of impediments to its implementation