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Auditing in an Agency Setting

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Agency Theory, Information, and Incentives

Summary

Agency theory is concerned with contracts which lead to optimal incentives and risk-sharing. The purpose of this paper is to examine the influence of auditing on both aspects, when audits are performed (i) by an owner of a firm (who is a principal) and (ii) by an auditor in order to motivate the firm’s manager (who are both agents). We especially ask, under what conditions the owner can expect truthful financial reporting from the manager and a truthful report by the auditor. We further ask, whether it is likely to expect coalitions of the manager and the auditor against the owner. Since all results are gained in one-period agency models with at most two agents, the stability of results and the practical relevance of the models are discussed. Though the models, up to now, have no decision-supporting function they tell us that coalition-forming of agents against the principal seems to be likely if there are no other factors which are neglected in agency theory so far.

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Authors
  1. Wolfgang Ballwieser
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Editors and Affiliations

  1. Lehrstuhl für Statistik, Universität Augsburg, Memminger Straße 14, D-8900, Augsburg, Germany

    Günter Bamberg

  2. Abteilung Wirtschaftswissenschaften, Universität Ulm, Oberer Eselsberg N25, D-7900, Ulm, Germany

    Klaus Spremann

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© 1987 Springer-Verlag Berlin · Heidelberg

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Ballwieser, W. (1987). Auditing in an Agency Setting. In: Bamberg, G., Spremann, K. (eds) Agency Theory, Information, and Incentives. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-75060-1_17

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  • DOI: https://doi.org/10.1007/978-3-642-75060-1_17

  • Publisher Name: Springer, Berlin, Heidelberg

  • Print ISBN: 978-3-540-51675-0

  • Online ISBN: 978-3-642-75060-1

  • eBook Packages: Springer Book Archive

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