Auditing in the Presence of Outside Sources of Information

Mark Bagnoli, Mark Penno and Susan G. Watts

Journal of Accounting Research, 2001, vol. 39, issue 3, 435-447

Abstract: We examine how an auditor’s ability to terminate a multi‐period client relationship provides the auditor with a real option whose value depends on the nature of informational asymmetry between the incumbent and other potential auditors. In particular, we isolate conditions under which the auditor’s private and public sources of information behave as complements rather than substitutes. In such circumstances, increasing the likelihood of publicly provided information induces the auditor to expend more (rather than less)resources in private information gathering activities.

Date: 2001
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Persistent link: https://EconPapers.repec.org/RePEc:bla:joares:v:39:y:2001:i:3:p:435-447

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Journal of Accounting Research is currently edited by Philip G. Berger, Luzi Hail, Christian Leuz, Haresh Sapra, Douglas J. Skinner, Rodrigo Verdi and Regina Wittenberg Moerman

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