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The study examines how different audit fee structures influence accountants' effort levels and reveal their integrity under asymmetric information.

Designing Incentives for Audit Effort: Dynamic Signalling under Asymmetric Information

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The study examines how different audit fee structures influence accountants' effort levels and reveal their integrity under asymmetric information.
Developed a dynamic signaling model
Analyzed audit contracts combining fixed salary and performance-based pay
Derived perfect Bayesian equilibria for various scenarios
Identified conditions for distinguishing between rigorous and fraudulent accountants
High performance-based pay deters fraudulent accountants from mimicking rigorous types
Inadequate salary differences lead to pooling equilibria with potential collusion
Calibrated incentives are crucial for preserving audit quality and integrity

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A dynamic model investigates how audit fees affect accountants' effort and integrity, suggesting implications for contract design.

Chun-Hung Chen (2026) studied this question.

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