Académique Documents
Professionnel Documents
Culture Documents
Wallin, 1992
Legal Recourse
The Demanding for
Auditing
Hidayah Asfaro
Saragih
1606939072
Kenny Fernando
1506810036
Nadia Fitriati
1606939103
Accounting Information
Economic
Transcastions
Reports
Assertions about
Past Performance,
Current Conditions and
Future Prospects
Important Role in
Decentralized Economiy
Jensen &
Meckling,
1976
Wallin
Dye 1985,
Dopuch & King 1991, 1992
Grissman 1982,
1992, Wallin 1990
Baiman 1979;
Hart 1980,
Baiman et al
Miglrom 1981,
1987;. Blazenko Robert 1986
dan Scott 1986;
Evans 1980;
Scott 1984
Research: Fraudulent
Disclosures when unknown
Need Auditing to Provide
Value to The Economy
Divergent Preferences
Previous Research
Research at Glance
How Legal Recourse and Auditing reduce
frequency of manipulation and fraudulent of
reports
Auditing:
Legal Recourse:
Purported to
provide value to
economy
Reduce divergent
preference of
management
Provide Credibility
to Managerial
Disclosures
Expected to
improve firms
prospects
Allowing investors
to sue when
disclosures are
believed to have
been fraudulent
Threat of lawsuit
will cause less
frequent
fraudulent reports
Managerial Disclosure
(Accounting Information & Firm
Information)
Effective Allocation of Resources
Theory in Case:
Some theories which apply in the research include when:
A
No Auditing/
No Legal
Recourse
B
Auditing
Available/ No
Legal Recourse
C
No Auditing/
Legal Recourse
Available
D
Auditing
Available/
Legal Recourse
Available
No Auditing/ No
Legal Recourse
In
this
situation,
two
decisions
managers
can
make: 1) effort and 2)
disclosure.
However,
investors can anticipate that
managers would select the
disclosure
that
produces
largest p* regardless of q
the
disclosure
becomes
uninformative and ignored,
resulting dominant strategy
to shirk (e0).
Investors
anticipate
price firm by:
and
X1 =
High
X0 = Low
50%
PROBABILITY
Releas
e
Purchase audit, cost
Dont
release
Investors are
informed
No Auditing/Legal Recourse
Available
Managers always disclose d=q1 when q=q1 but there is a
probability of managers disclose d=q1 when q=q0.
There is a probability of for purchasing investor consider
bringing suit when the manager issues d=q 1 and s0
obtains. If the investor sues and the manager has lied,
investor is awarded damages = p*-qo.
At equilibrium, the manager and investors will know , the
range of , and . The threat of a lawsuit both reduces the
frequency of lying (since 0 < 1) and allows the manager to
reap the entire benefit of higher effort (net of expected
legal costs). The manager will exert higher effort.
Auditing Available/Legal
Recourse Available
The solution and conclusion depend on the
relative levels of their cost. The general
observation is:
When ; the manager is better off with
no
audit purchases.
Method
Experimental Design
Method
Instruction
s and
training
The first
market
Instruction
s and
training
for the
second
market
The
second
market
The postexperimen
tal phase
Hypotheses
Effort selection
H1a
:The proportion of high effort is greater when auditing is available than when it is
not.
H1b
:The proportion of high effort is greater when legal recourse is available than when
it is not.
H1c
:When both auditing and legal recourse are available, the proportion of high effort is
no greater
than when auditing alone or legal recourse alone is available
Audit purchases
H2a
:When no legal recourse is available, auditing is purchased when available.
H2b
:When auditing is available, the proportion of audit purchases is less when legal
recourse is available than when it is not.
H3a
:When no legal recourse is available, the proportion of high effort is greater when
auditing is purchased.
H3b
:When legal recourse is available, the proportion of high effort is unaffected by the
presence of
auditing.
H4
H5a
:Economic efficiency is higher when auditing is available than when it is not.
H5b
:Economic efficiency is higher when legal recourse is available than when it is not.
H5c
:When both auditing and legal recourse are available, economic efficiency is no
higher than when
auditing alone or legal recourse alone is available.
A, B, C, D
Resul
t
Effort Selection
Over Time
Statistical Result
Summary of Result
Economic Efficiency
Formula to calculate
MB =
GB =
NB = C(vi) C(li)
MB = Maximum Benefit
GB = Gross Benefit
NB = Net Benefit
e = Effort
HRV = Highest Redemption Value
WRV = Redemption Value of Winning
C = Cost
v = Auditing
l = Legal Cost
160
160
200
200
40
40
Economic Efficiency
00
km/h 240
240
9 9 9 9 9
Conclusio
n
No Auditing/ No
Legal Recourse
One Available
of Auditing/ Legal
Recourse
Low Cooperation
Lowest Effort of Sellers
Overbidding by Buyers
Truthfulness of Disclosure
Increase Effort
Auditing and
Legal Recourse
Available