Contracting frictions, regulation, and the structure of CPA firms

Article Abstract:

The contracting frictions resulting from the private information on the costing of auditing and accounting services for specific clients kept by accounting firms are presented as potential sources of economies of scope. An agency framework-based model is used to illustrate a client with requirements for both auditing and management consulting services. The account-holding firms have an edge since they have an informational advantage over other firms with regards to their clients. The regulation feature of the audit setting can serve to increase auditing and consulting's economies of scope.

Management consulting services, Finance, Services, Auditing, Business consultants, Management consultants

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Performance measure garbling under renegotiation in multi-period agencies

Article Abstract:

A two-period model during which there is no mid-game renegotiation of a cntractural arrangement is presented. Institutionally, parties can always agree to renegotiate, and the friction studied can induce endogenous manipulation of performance measurements. Commitment is emphasized. The study finds that inducing a garbled or manipulated self-evaluation is generally optimal. Most analytical explanations of accounting manipulations and garbled performance measures rely on blocked communication, signaling effects or nonoptimal contracts.

United States, Services information, Psychological aspects, Research, Contracts, Interpersonal communication

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Efficient manipulation in a repeated setting

Article Abstract:

The optimal behavior of an organization when its employees can manipulate the organizations accounting system to their private advantage is analyzed. The different ways of limiting losses from agent manipulation of the accounting system are described.

Legal issues & crime, Accounting & Auditing Services, Accounting, Tax Preparation, Bookkeeping, and Payroll Services, Police Protection, Fraud, Company legal issue, Investigations

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