A Study of Auditor''s Conservatism

• Main Authors: Shengte Chou, 周盛德
• Other Authors: Taychang Wang
• Format: Others
• Language: zh-TW
• Published: 1998
• Online Access: http://ndltd.ncl.edu.tw/handle/98522622335154226337

碩士 === 東吳大學 === 會計學系 === 86 === Financial accounting information is communicated through the financial reports prepared by the manager. Under Generally Accepted Auditing Standards, the literal claim is that financial statements are the representations of management. Auditors must report professional opinion for financial statements fairly and independently. In current society, however, auditors strike a bargain with client by way of guidance and assistance (counseling). Hence, financial statements should be read as a joint statement from the auditor and manager.Perhaps the character of the auditor-client negotiations leads to the perception that auditors are conservative. While the users of financial reports see only the final negotiated outcome, it is less clear whether conservatism reigns. The pretrial negotiation model of Antle and Nalebuff [1991] contains cost-sharing arrangement; however their mechanism orientation precludes loss-allocation in the joint venture of maximize auditor-client welfare.This paper examines an auditor*s conservatives that relate neither cost-sharing nor loss-allocation to maximize joint auditor-client surplus. We demonstrate that when client emphasizes current financial reports, the loss-allocation rate is always downward. Furthermore, when the operation risk of business is outstanding, the loss-allocation rate is always upward. Interestingly, we show that when auditing contracts are designed to maximize joint auditor-client surplus, contracting should consider trade-off between cost-sharing and loss-allocation.