Audit pricing and independence

Article Abstract:

Auditing studies have hypothesized that market forces related to price competition have a negative effect on auditors' independence. A study investigating the link between auditor independence and the pricing of audit services ascertained how auditors' independence is influenced by the expected economic benefits of keeping a client through low-balling in the area of pricing. Auditors who cut prices to attract clients were believed to have an economic incentive to retain clients by compromising their independence in the face of pressure from clients. Research results reveal that there is little threat to independence from auditors' incumbency in situations where contingent fees are not allowed and there is no multi-period commitments. Research results also reveal a link between financial reporting standards and independence: independence is easier to maintain when standards lack ambiguity.

Auditing, Behavior, Auditors

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The effects of accounting knowledge and context on the omission of opportunity costs in resource allocation decisions

Article Abstract:

Results of a research indicated that decision makers with high-accounting knowledge disregarded opportunity costs in business decisions. They neglected a greater number of costs when the decision was based on a business context that when it was noted in a personal frame. Acquisition knowledge was measured discretely and continuously. The discrete measure categorized decision makers based on the graduate business study program in which they were enrolled while the continuous measure was focused on the number of accounting courses they completed. The study also integrated structurally equivalent business and personal resource allocation cases and controled analytical ability and manipulated decision context to eliminate poor general performances among the decision makers.

Accounting Methods, Decision-making, Decision making, Opportunity cost, Opportunity costs

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Variable cost allocation in a principal-agent setting

Article Abstract:

A principal-agent relation where the agent chooses an unobservable level of effort and an observable level of utilization of a resource supplied by the principal is analyzed. The optimal compensation function must include the resource level as an argument when the agent has private information about the usefulness of the principal's resource. In other words, part of the optimal solution to the principal's problem is some form of 'cost allocation'. The agent's choices may not be efficiently motivated by standard cost allocation techniques.

Analysis, Cost (Economics), Costs (Economics)

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