The Role of Auditing in Buyer-Supplier Relations

Hui Chen and Debra Jeter

Journal of Contemporary Accounting and Economics, 2008, vol. 4, issue 1, 1-17

Abstract: Supply chain management has emerged as one of the more important topics in managerial accounting. The importance of information exchange between parties involved in supply chains has also been well documented. By addressing the value of audits in this setting, this theoretical paper serves to link two strains of accounting research: the managerial topic of supply chain effectiveness and the value of the audit function, in particular audits of the suppliers conducted by the buyers. We analyze the role of supplier audits with long-term, profit sharing contracts between the buyers and suppliers. Through a stylized model, we demonstrate that when random supplier audits are conducted, the buyer can effectively leave zero informational rents to the supplier, regardless of the supplier's cost type.

Keywords: D80; M40; M21; M11; supply chains; profit sharing contracts; supplier audits; informational rents; random audits (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jocaae:v:4:y:2008:i:1:p:1-17

DOI: 10.1016/S1815-5669(10)70027-8

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