Haijin Lin

Competitive Procurement of Auditing Services with Limited Information

We analyse the auditing procurement process when the client is initially uncertain about her/her auditing needs and when she/he cannot discern the level of assurance provided by the auditor. The clients limited information can lead to under-auditing and substantial rent for auditors, despite the presence of ex ante competition among auditors. The information asymmetry can also make it difficult for new auditors with superior auditing technologies to displace incumbent auditors. In addition, the asymmetry can limit the incentives of auditors to improve their technologies.

Asset Revaluation Regulations

GAAP mandates a variety of departures from historical cost valuation. We consider a simple model that produces corresponding variety, depending on prevailing regulatory objectives and economic conditions. The model entails entrepreneurial investment in an asset followed by private information about asset value that cannot be communicated. A lemons problem arises in the asset resale market, creating a role for mandated disclosure in the form of audited asset revaluation.

Is Accounting an Information Science

Abstract The central result is an equality connecting accounting numbers with information. ln1+incomeassets=rf+IX;Y \ln \left( 1+\frac{income}{assets}\right) =r_{f}+I\left( X;Y\right) , rf r_{f} is the risk free rate, ln ln is the natural logarithm, Y Y is the outcome of interest, X X is the information signal about Y Y , and I(X;Y) I(X;Y) is a Shannon information measure. The equality is derived using economic income accounting; it is shown to hold, under appropriate conditions, for declining balance and straight line depreciation methods. Some social welfare implications are explored.