Optimal auditing and insurance in a dynamic model of tax compliance

We study the optimal auditing of a taxpayer’s income in a dynamic principal- agent model of hidden income. Taxpayers in our model initially have low income and stochastically transit to high income that is an absorbing state. A low-income taxpayer who transits to high income can underreport his true income and evade his taxes. With a constant absolute risk-aversion utility function and a costly and imperfect auditing technology, we show that the optimal auditing mechanism in our model consists of cycles. Within each cycle, a low-income taxpayer is initially unaudited, but if the duration of low-income reports exceeds a threshold, then the auditing probability becomes positive. That is, the tax authority guarantees that the taxpayer will not be audited until the threshold duration is reached. We also find that auditing becomes less frequent if the auditing cost is higher or if the variance of income is lower.Tax auditing ; Taxation

The RIACS Intelligent Auditing and Categorizing System

The organization of the RIACS auditing package is described along with how to installation instructions and how to interpret the output. How to set up both local and remote file system auditing is given. Logging is done on a time driven basis, and auditing in a passive mode

Timing of Verification Procedures: Monitoring versus Auditing

This paper studies the strategic effect of a difference in timing of verification in an agency model. A principal may choose between two equally efficient verification procedures: monitoring and auditing. Under auditing the principal receives additional information. Due to a double moral hazard problem, there exists a tension between incentives for effort and incentives for verification. Auditing exacerbates this tension and, consequently, requires steeper incentive schemes than monitoring. Hence, auditing is suboptimal if 1) steep incentives structures are costly to implement due to bounded transfers, or 2) steep incentive schemes induce higher rents due to limited liability. verification in an agency model. A principal may choose between two equally efficient verification procedures: monitoring and auditing. Under auditing the principal receives additional information. Due to a double moral hazard problem, there exists a tension between incentives for effort and incentives for verification. Auditing exacerbates this tension and, consequently, requires steeper incentive schemes than monitoring. Hence, auditing is suboptimal if 1) steep incentives structures are costly to implement due to bounded transfers, or 2) steep incentive schemes induce higher rents due to limited liability.timing of verification; double moral hazard; monitoring; auditi

Optimal Auditing Under Intermediated Contracting

This paper builds on Faure-Grimaud and Martimort’s [Economics Letters 71 (2001) 75-82] analysis of intermediated contracting. I argue that intermediated contracting permits one form of auditing, in which the sub-contract offered to the firm is examined, contingent on the intermediary’s report. Auditing reduces the intermediary’s rent and increases allocative efficiency.Intermediated Contracting, Grand Contract, Optimal Auditing.

Similarities and Differences Between Internal Auditing, Internal Public Auditing and Other Services

The internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization's operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes, making propositions in order to consolidate the efficiency. The financial auditing represents the activity of professional examination of the information in the purpose of expressing a responsible and independent opinion, in relation to a standard, quality criteria aiming at improving the use of information. The Internal public auditing helps the public entity to fulfill its goals through a systematic and methodic approach, evaluating and improving the efficiency of the management system based on risk, control and administration processes management. The control represents a permanent or periodical analysis of the activity, of the situation in order to follow its development and in order to take improvement measures.internal auditing, internal public auditing, external audit, internal control.