Law Commons^™

Gatekeeper Incentive Compensation, Sharon Hannes

Sharon Hannes

A massive wave of corporate fraud in the beginning of the 21st century exposed the failure of corporate gatekeepers. The Sarbanes-Oxley legislation therefore targeted gatekeepers, primarily the auditors, by imposing strict regulation and enhanced independence guidelines. This legislative prescription has arguable benefits while its costs are huge. And, it is still extremely hard to determine from the outside whether the financial statements that were produced at the end of the auditor-client negotiations actually constitute a fair representation of the corporation’s financial position. This paper therefore suggests that a certain type of auditor incentive compensation could work better then regulation. Under …