A Co-payment Auditing Scheme For Financial Misreporting
نویسنده
چکیده
The innovative idea of introducing a third party (Ronen,2002) into the agency relationship has motivated our proposal of a co-payment scheme as a solution to financial misreporting. In the co-payment scheme, both the client firm and a third party such as FASB are asked to share the auditing fee. We will demonstrate that the participation of a third party can create an endogenous collusion cost to the client firm, to such an extent that in the equilibrium the client firm will not make any offer of bribery. Most importantly, the total equilibrium auditing fee is the same as in the social optimal contract. JEL classification: M4, D86.
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