Information rents, Information systems, Resource allocation, Private information

Understanding the role of accounting in intrafirm resource allocation problems' requires understanding its substitutes. If accounting is viewed as information production arising in response to inefficiencies caused by information voids,2 then substitutes for accounting are alternative ways to reduce these inefficiencies. The purpose of this paper is to explore the power of commitment to reduce inefficiencies in a repeated intrafirm resource allocation problem. In this way, we hope to take a step toward understanding commitment as a substitute for accounting. We build a model with inefficiencies due to information voids by assuming an owner of an investment project, who knows only a distri-

The familiar decision analysis setting in accounting, such as a cost‐volume‐profit analysis setting, is modeled as arising in a “larger” context in which subsequent choice is also contemplated. We then ask when this “larger” context decomposes in a manner such that the immediate problem of interest can be modeled as an expected utility maximization problem that is completely divorced from the subsequent choice problem. Outcome and taste independence conditions are the key ingredients in being able to model the immediate problem as having no link whatever to its successor. Résumé. Le contexte dans lequel les techniques d'analyse de décision comme par exemple l'analyse coĉt‐volume‐profit est utilisée est un cadre d'un modèle élargi qui tient compte du choix subséquent. On se demande en quelles circonstances ce contexte élargi peut‐il se décomposer de façon telle que le problème d'intérêt immédiat en soit un de maximisation complètement séparé du problème du choix subséquent. Le résultat et des conditions d'indépendance de préférence sont les ingrédients clés pour modeler le problème immédiat comme n'ayant aucun lien avec son successeur.

Describes a model where an endogenous demand for cost reports exists, and characterizes optimal contracts. Achievement of cost report perspective; Necessary conditions for communication; Incorporation of cost reports within an optimal contract; Costs and benefits of communication-based two-period contracts.

Models that characterize Pareto-efficient sharing of joint venture profits or constrained Pareto-efficient sharing of income in principal-agent contracting problems have ignored tax considerations. We extend the theory by showing that the effect of taxes on optimal contracting (both in the face of and in the absence of moral hazard problems) is related to the effect of changes in risk attitudes towards lotteries over pre-tax income. For example, optimal contracts will reflect the tax-induced demand for insurance of a risk-neutral individual who faces a progressive income tax schedule; that is, the risk-neutral individual will not bear all the risk, and in the face of moral hazard on the act selection of a risk-neutral agent, demand for monitoring will be created where none existed in the absence of the progressive tax. We also show that Pareto-optimal risk-sharing contracts do not generally result in expected tax minimization, even when taxes are modeled as a deadweight loss to the system.

A simplified audit setting is used to illustrate the crucial nature of strategic interactions in audit planning and in assessing audit risk. Unlike single-person decisiontheoretic models which essentially represent games against nature, the model developed here allows a prospective audit to influence the behavior of the auditee. We reformulate the problem in a game-theoretic framework with rational players which (1) encompasses strategic factors for both the auditor and auditee, (2) is consistent with behavioral hypotheses regarding the effect of an audit, and (3) is consistent with certain audit phenomena such as randomized strategies. An illustration is provided which demonstrates several points. First, both the auditor and the auditee may frequently use a randomized strategy. Second, the auditor's strategy depends on the interaction between the accounting control system and the auditee's actions. In addition, the use of traditional single-person decision theory may frequently cause errors in estimating audit risk because it fails to consider audit influences on the auditee. Settings in which decision theory may serve as an adequate model simplification are also considered.

Partnerships, Tax incentives, Investment decisions, Transaction costs

This paper adopts a valuation perspective within an asymmetric information setting and explores properties of economic income. The optimal intertemporal contract induces an accrual component of income which would not exist absent the information problem. The contracting solution introduces a dampening effect—if cash flow increases by one dollar, income increases by less than one dollar. Thus, the accrual is inversely related to cash flows. Further, this dampening is greater for more favorable cash outcomes. Résumé. Les auteurs adoptent la perspective de l'évaluation en situation d'asymétrie de l'information et explorent les propriétés du bénéfice économique. Le contrat intertemporel optimal fait intervenir une amplification du bénéfice qui n'existerait pas si ce n'était de la présence du problème d'information. La solution contractuelle amène un effet atténuateur — c'est‐à‐dire qu'à une augmentation du flux monétaire de un dollar correspond une augmentation du bénéfice de moins de un dollar. Ainsi, l'amplification est en relation inverse avec les flux monétaires. En outre, l'atténuation est plus marquée dans le cas de résultats monétaires plus avantageux.

In a team setting, wherein only group performance is tracked, we show that muted incentive contracts may be sufficient to motivate team members. By having the team repeat a task, explicit (contractual) incentives can be substituted by implicit incentives team members provide to each other. We also study an example in which, despite uncorrelated individual performance measures being available, it is optimal to condition each manager's pay on both managers' performance. This can be viewed as creating a group performance measure. Using a group performance measure provides each manager with incentives to monitor and a means of punishing other managers.

Financial statements summarize a firm's fiscal position using only a limited number of accounts. Readers often interpret financial statements in conjunction with other information, some of which may be aggregated in a different way (or not at all). This paper exploits properties of the double‐entry accounting system to provide a systematic approach to reconciling diverse financial data. The key is the ability to represent the double‐entry system by network flows and, thereby, access well‐recognized network optimization techniques. Two specific uses are investigated: the reconciliation of audit evidence with management‐prepared financial statements, and the creation of transaction‐level financial ratios.