Audit contracts and reputation
AbstractThis paper characterizes the contractual relationship between an external auditor and a manager of a client firm when the incentives for both agents are implicit as in the career concerns framework. The main result is that the earning management and the audit effort are decreasing over time because the incentives to build a reputation also decline for both agents in spite of a managers first mover advantage. This suggests that the audit effort should be higher when the auditor is an emerging firm and the future employment opportunities for the client firm´s manager are larger.
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Bibliographic InfoPaper provided by Universidad Carlos III, Departamento de Economía in its series Economics Working Papers with number we091308.
Date of creation: Mar 2009
Date of revision:
Contract theory; Career concerns; Reputation; Auditing;
Find related papers by JEL classification:
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
- G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
This paper has been announced in the following NEP Reports:
- NEP-ACC-2009-03-07 (Accounting & Auditing)
- NEP-ALL-2009-03-07 (All new papers)
- NEP-BEC-2009-03-07 (Business Economics)
- NEP-CTA-2009-03-07 (Contract Theory & Applications)
- NEP-LAB-2009-03-07 (Labour Economics)
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