Abstract
This study tests the competitive equilibrium predictions of a multi-period model of audit pricing and independence in two sets of laboratory markets: a control set consisting of human subjects in the role of auditors contracting with robot clients, and a treatment set in which both auditors and clients are human subjects. The results in all the control-set markets and some of the treatment markets support the predictions of "lowball" pricing and that heterogeneous beliefs among auditors regarding the treatment of a client-reporting issue is a necessary condition for independence impairment. By contrast, several treatment-set markets exhibit cooperative behavior between auditors and clients to achieve jointly beneficial outcomes. This behavior deviates from the price-independence relationship predicted in the competitive equilibrium, exhibiting instead a price-independence relationship that is characterized by an absence of lowballing and frequent independence impairment, even when auditors have homogeneous beliefs.
Original language | English (US) |
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Pages (from-to) | 255-275 |
Number of pages | 21 |
Journal | Accounting Review |
Volume | 73 |
Issue number | 2 |
State | Published - Apr 1998 |
Keywords
- Auditing
- Competitive equilibrium
- Cooperation
- Independence
- Pricing
- Signaling
ASJC Scopus subject areas
- Accounting
- Finance
- Economics and Econometrics