Optimal contracts with a utility-maximizing auditor

Article Abstract:

The contractual relationships involved in auditing situations are analyzed. There are three main players: the contracting principal, the principal's agent, and the auditor. The addition of a utility-maximizing auditor alters the relationship of principal and agent when that relationship is suboptimal. This analysis assumes an even probability of various outcomes, and does not apply to generalized situations. This hypothesis also allows the auditor's work to be imperfect, allowing the agent's transfer of information to be equally imperfect. The hypothesis also assumes that the agent will not take productive action with imperfect information which would create more work for the auditor.

Standards, Auditing, Contracts, Outsourcing

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An independent auditor's ex post criteria for the disclosure of information

Article Abstract:

Auditors' assent to management decisions, even in cases where disclosure of financial information can result in a decrease in share price, is not necessarily indicated by a nondisclosure of reportable information. The vital factor that led to this finding is that a reportability limitation on financial information. The nonreportability of information in relation to the suitability of decision weight to reportable information, and the real valuation of firms' as a function of reportable information that may be disclosed, is illustrtated in a proposed model of financial reporting.

Commercial Banks, Accounting and auditing, Corporation reports, Company reports

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Conservatism and auditor-client negotiations

Article Abstract:

The conservative nature of financial reports comes as a consequence of negotiations between auditors and their clients. There is a commonly held notion that financial statements are reflective of management's decisions. This notion should not be given too much significance since financial statements, in actuality, should be regarded as mutual assertions of auditors and managers. The negotiated character of the auditing process is evident in the compromises and revisions made in financial statements.

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