An Analysis on the Optimality of Wavering or not Wavering Auditing Collusion

The main reason for the auditing collusion is that it involves three parties consisting of principal, auditor and manager in auditing practice. Because of information asymmetrical and moral hazards, it is possible that the agents bribe the auditors for collusion, the principal must decide whether or not to allow collusion. Either allowing or deterring collusion is costly, but an analysis and reasoning an optimal scope of allowing or deterring collusion is offered to provide reference for the principal policy maker.