- (i) When your request covariance are mild , upcoming NAS constraints so you’re able to review website subscribers don’t have any influence on auditor 2’s review high quality, .
- (ii) If you don’t, if for example the demand covariance try strong , after that NAS constraints in order to audit subscribers fall off auditor 2’s review high quality, .
Having a poor relationship anywhere between NAS consult and you will audit consult, the fresh new representative becomes an excellent monopolist for higher-risk members you to put a lower life expectancy worthy of for the NAS. The remaining consumer(s) will get NAS regarding the seller one charges the lower payment, in a manner that auditor dos is only able to secure NAS rents if auditor dos charges below the newest natural-gamble agent.
Otherwise, in the event the request covariance are good , following NAS limitations to all clients improve
The consequences from NAS limitations in order to review readers on the auditor 2’s audit high quality trust the fresh request covariance in accordance with the company exposure heterogeneity regarding buyer companies and you may . When auditor 2 brings audit qualities so you’re able to clients and you will , the agent must like whether or not to costs a decreased NAS fee and offer functions so you can one another website subscribers otherwise fees a leading percentage and you can suffice just visitors , which towns and cities a top value into NAS because the need is actually adversely synchronised. Having a mild demand covariance, the fresh consultant is best regarding helping both customers, since their determination to cover NAS aren’t also various other.