The Role of Auditing in Buyer-Supplier Relations

Journal of Contemporary Accounting & Economics Vol. 4, No. 1, June 2008

Posted: 5 May 2008

See all articles by Hui Chen

Hui Chen

University of Zurich

Debra C. Jeter

Vanderbilt University - Accounting

Abstract

Supply chain management has emerged as one of the more important topics in managerial accounting. The importance of information exchange between parties involved in supply chains has also been well documented. By addressing the value of audits in this setting, this theoretical paper serves to link two strains of accounting research: the managerial topic of supply chain effectiveness and the value of the audit function, in particular audits of the suppliers conducted by the buyers. We analyze the role of supplier audits with long-term profit-sharing contracts between the buyers and suppliers. Through a stylized model, we demonstrate that when random supplier audits are conducted, the buyer can effectively leave zero informational rents to the supplier, regardless of the supplier's cost type.

Keywords: supply chain management, supplier audits, profit sharing, informational rents

JEL Classification: D82, M40, M46, M49

Suggested Citation

Chen, Hui and Jeter, Debra C., The Role of Auditing in Buyer-Supplier Relations. Journal of Contemporary Accounting & Economics Vol. 4, No. 1, June 2008, Available at SSRN: https://ssrn.com/abstract=1127857

Hui Chen

University of Zurich ( email )

Plattenstrasse 14
Zurich, CH-8032
Switzerland

Debra C. Jeter (Contact Author)

Vanderbilt University - Accounting ( email )

Nashville, TN 37203
United States

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