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Increasing the frequency of auditing can deter fraud and false statement due to several reasons.
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First one is deterrence effect.
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The prospect of being audited act as a deterrent to individuals and corporations contemplating fraudulent activities knowing that there is a higher chance of being caught facing penalties making potential offenders think twice before engaging in fraudulent behavior.
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Then increased risk perception.
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When the frequency of audits is high, individuals and corporations perceive a higher risk of detection.
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This perception makes them more cautious and less likely to commit fraud or make false statement as they fear the consequences of being caught.
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Then increased detection rate with more frequent audits, the irs has a better chance of detecting fraudulent activity and false statements.
01:17
This creates high level of scrutiny discouraging potential offenders and increasing the overall effectiveness of the auditing system.
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Then general deterrence effect.
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By increasing the frequency of auditing, irs sends a strong message that is actively monitoring and enforcing compliance.
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This creates a general deterrent effect on the population discouraging fraudulent behavior even among those who are not directly audited.
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Then come to the b part.
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The economic reasoning behind the specification of a large penalty if convicted can be explained by several factors...