INCENTIVES FOR CORRUPTIBLE AUDITORS IN THE ABSENCE OF COMMITMENT*

Fahad Khalil and Jacques Lawarree

Journal of Industrial Economics, 2006, vol. 54, issue 2, 269-291

Abstract: In the absence of commitment to auditing, we study the optimal auditing contract when collusion between an agent and an auditor is possible. We show that the auditor can be totally useless if the auditor's independence can be compromised with relative ease. Even very stiff sanctions on fraud will be unable to make auditing optimal. We then derive a demand for independent external auditing. We endogenize collusion cost as the cost from the risk of future detection. We also derive a justification for the focus of the recent audit reforms on penalties on CEOs in cases of audit fraud.

Date: 2006
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (40)

Downloads: (external link)
https://doi.org/10.1111/j.1467-6451.2006.00283.x

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:jindec:v:54:y:2006:i:2:p:269-291

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0022-1821

Access Statistics for this article

Journal of Industrial Economics is currently edited by Pierre Regibeau, Yeon-Koo Che, Kenneth Corts, Thomas Hubbard, Patrick Legros and Frank Verboven

More articles in Journal of Industrial Economics from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().