Evolutionary game research on multi-agent collaboration within financial reporting internal control

Area of Science:

• Behavioral Economics
• Financial Reporting
• Game Theory

Background:

• Internal control over financial reporting (ICFR) is vital for preventing financial scandals and economic losses.
• Effective ICFR depends on coordinated cooperation among all involved entities.
• Understanding multi-agent behavioral dynamics is key to achieving robust internal controls.

Purpose of the Study:

• To model the internal control system using evolutionary game theory to understand multi-agent collaboration.
• To analyze the evolutionary strategies and influencing factors of the board of directors, management, and employees.
• To investigate the impact of reward-punishment mechanisms, cost inputs, and rent-seeking on system evolution.

Main Methods:

• Application of evolutionary game theory to model the internal control system.
• Dynamic modeling involving the board of directors, management, and employees.
• Jacobian matrix analysis and numerical simulations to explore agent strategy evolution.

Main Results:

• Reward-punishment mechanisms, cost inputs, and rent-seeking significantly influence agent strategies and system evolution.
• Well-designed incentives and constraints enhance proactive engagement and mitigate rent-seeking behavior.
• Insufficient incentives or lax supervision increase the risk of internal control deficiencies.

Conclusions:

• Cooperative pathways among key agents in financial reporting control are clarified.
• Targeted practical recommendations for fostering multi-agent collaboration in ICFR are provided.
• Incentive and constraint mechanisms are crucial for guiding the internal control system toward a positive equilibrium.