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Auditing in the Presence of Outside Sources of Information
Author(s) -
Bagnoli Mark,
Penno Mark,
Watts Susan G.
Publication year - 2001
Publication title -
journal of accounting research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 6.767
H-Index - 141
eISSN - 1475-679X
pISSN - 0021-8456
DOI - 10.1111/1475-679x.00021
Subject(s) - audit , private information retrieval , business , information asymmetry , value (mathematics) , accounting , public information , auditor independence , internet privacy , finance , computer science , computer security , joint audit , statistics , internal audit , mathematics
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.