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- Publisher
- Wiley
- Copyright
- University of Chicago on behalf of the Institute of Professional Accounting, 2002
- ISSN
- 0021-8456
- eISSN
- 1475-679X
- DOI
- 10.1111/1475-679X.00082
- Publisher site
- See Article on Publisher Site
Abstract
We emphasize the role of accounting policies, and their audit, in an earnings management setting. We use a two–period agency in which three frictions interact: the agent privately observes action (or effort) supply and output, and the initial contract is subject to renegotiation. This creates a setting in which both players’ behavior is of concern, and, importantly, information rationing is efficient. Moreover, this information rationing is directly interpretable as being produced by an accounting policy whose application is ensured by an auditor.
Journal
Journal of Accounting Research – Wiley
Published: Sep 1, 2002