Journal article
Informational Issues in the Financial Reporting Process
Journal of accounting research, Vol.23(1), pp.240-255
04/01/1985
DOI: 10.2307/2490917
Abstract
Characteristics of the financial reporting process are derived using a simple principal-agent model. It is found that there are 2 important sources of information in the financial reporting process: 1. a representation by the agent (manager) of the firm's outcome, and 2. a verification technology employed by the principal (owner). It is demonstrated that a strict demand can exist on the part of the principal for both representations and verifications of outcome. The 2nd major finding involves the ability of the contracting parties to declare bankruptcy. It is shown that, when a constraint exists for the agent, nontrivial conditions exist under which a large group of feasible financial reporting systems have no value. Included in this group are financial reporting systems that are informative about both the agent's decisions and the firm's outcome. It is shown that this result can be reversed when the verification technology is altered to attain a special kind of precision - the ability to verify perfectly that the agent is not insolvent with some strictly positive probability.
Details
- Title: Subtitle
- Informational Issues in the Financial Reporting Process
- Creators
- Mark Penno
- Resource Type
- Journal article
- Publication Details
- Journal of accounting research, Vol.23(1), pp.240-255
- DOI
- 10.2307/2490917
- ISSN
- 0021-8456
- eISSN
- 1475-679X
- Publisher
- Blackwell Publishing Ltd
- Language
- English
- Date published
- 04/01/1985
- Academic Unit
- Accounting
- Record Identifier
- 9984963086402771
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