Internal Control and External Auditing for Incentive Compensation Schedules

The article refers to regulatory agencies' scrutiny of relations between the management and accounting professions and focuses on internal controls and the use of external auditing for incentive compensation schedules. Certified public accountants or independent auditors, who are responsible to shareholders and boards of directors and rely on management controls, are only required by the Foreign Corrupt Practices Act to have reasonable assurance of compliance for their auditing reports. A 3-party, information economics framework is used to analyze management controls and external auditing. Agency theory, compliance testing with costs, moral hazard, and game theory are mentioned, as well as using the report to assess managerial performance.