Showing papers on "Audit published in 1982"

An Assessment of Laboratory Experiments in Accounting

Abstract: A reading of back issues of the major academic journals in accounting suggests an increasing number of laboratory experiments. Since 1970, the results of over 100 experiments have been published in Accounting, Organizations and Society, The Accounting Review, and the Journal of Accounting Research. These experiments have focused on the behavior of subjects in response to a wide variety of settings and stimuli. Our intent here is to provide an assessment of laboratory experiments in accounting. We do not intend to provide a review of these experiments, since several reviews of experimental research in accounting are available. Dyckman, Gibbins, and Swieringa [1978] review and evaluate experimental and survey research in financial accounting, Gibbins [1977] reviews behavioral research in auditing, and Ashton [1982], Libby [1981], and Libby and Lewis [1977; 1982] review human information processing research in accounting. Also, a review of the diverse accounting experiments would have to be very general. For example, Berelson used to summarize Berelson and Steiner [1964], which contained 1,045 established propositions about human behavior, with three propositions: (1) some do, some don't; (2) the differences aren't very great; and (3) it's more complicated than that. These propositions also may provide more than a casual summary of results from laboratory experiments in accounting.

Audit Industry Dynamics: Factors Affecting Changes in Client-Industry Market Shares

Abstract: Recently, there has been some interest in various aspects of the market for audit services in the United States. One of these is the extent to which we can explain shifts in market shares of audit firms within the context of generalized economies of scale (Arnett and Danos [1979]). This paper provides results from the application of Stigler's [1958] "survivorship" approach to the detection of economies of scale, based on changes in CPA-firm market share positions over a seven-year period (1972 to 1979). The following section briefly outlines the "survivorship" approach and considers plausible sources of economies of scale in the provision of audit services. Subsequent sections specify the model and data employed in statistical tests and provide both formal test results and descriptive data. The tests indicate that the audit industry is characterized by scale effects which favor CPA firms which are large overall and, on a client-industry basis, those with heavy involvement in regulated client industries. Firms with very large market shares in nonregulated client industries experience erosion of their market shares over time. This erosion was not observed in the sampled regulated industries. The research opportunities suggested by this research are discussed in the final section of the paper.

"Subject to" Audit Opinions and Abnormal Security Returns-Outcomes and Ambiguities

Abstract: This paper provides results on the association between abnormal security returns and "subject to" (hereafter ST) audit reports in which an auditor expresses the opinion that the financial statements are fairly presented conditional on the outcome of some uncertainty(ies). Empirical evidence regarding these opinions may be useful to policymakers who are currently reevaluating the ST opinions as one element in a portfolio of standardized, graded opinions available to the auditor (see section 2). Such evidence is also of interest to theorists who seek to develop more complete models of auditor behavior and/or of the role of the audit in information flows in security markets. The primary conclusions of this study are: (1) ST opinions are issued in conjunction with several different types of uncertainties of differing economic significance. (2) Significant negative abnormal returns are observed in the 45-week period before the ST opinion is released, suggesting that certain uncertainties have economic significance but market participants learn of them and assess their implications for firm valuation using information which is available before the auditor's opinion. (3)

Obtaining Responses to Sensitive Questions: Conventional Questionnaire versus Randomized Response Technique

Abstract: Recently, Rhode [1977] provided some empirical evidence concerning the "integrity" of CPAs as part of his survey for the American Institute of Certified Public Accountants' special Commission on Auditors' Responsibilities (called the Cohen Commission, after its chairperson).' Specifically, he reported that about 60 percent of the respondents to the mail questionnaire admitted that they had falsely signed-off on required audit procedures; that is, they reported having performed certain audit procedures that in fact they had not completed (Rhode [1977, p. 170]). Time pressures and client-imposed deadlines were the main reasons given for the false sign-offs. Although such practices produce misleading audit

Auditor Consensus in Internal Control Evaluation and Audit Program Planning

Abstract: Auditors generally perform an evaluation of internal control as a basis for determining the extent of audit work necessary for a particular client engagement. Prior studies on auditors' assessments of internal control systems generally found high consensus among auditors (e.g., Ashton [1974]), while those involving auditors' decisions on audit program planning tasks found low consensus (e.g., Joyce [1976]). Joyce [1976, p. 33] explained these differences in consensus as follows: "It is conceivable that different auditors might generally agree on the quality of internal control in a given subsystem yet disagree on how much audit work should be devoted to that subsystem. This is not an unreasonable proposition in view of the fact that characteristics of sound internal control are well defined (and presumably widely known), while the basis for the selection, timing, and extent of audit procedures to apply in a given situation seems to be more ambiguous." However, Joyce's explanation has not been empirically tested. Most research has focused on either internal control or audit planning judgments, but not on both. Thus, when studies reveal high consensus in internal control evaluation (e.g., Ashton [1974], Hamilton and Wright [1977], Ashton and Brown [1980], and Ashton and Kramer [1980]), it is not known if the subjects would have subsequently agreed on the extent of substantive testing.

Probability Assessment by Individual Auditors and Audit Teams: An Empirical Investigation

Abstract: Formal models of the audit decision process often require the quantification of auditors' subjective beliefs as prior probability distributions (PPDs). Up to now, studies of how well practicing auditors can specify PPDs have concentrated on individual specification for attribute sampling (Corless [1972], Felix [1976], and Crosby [1981]) or variables sampling (Solomon et al. [forthcoming]). None of the studies has assessed how well teams can specify PPDs relative to individuals.! This is the main purpose of the present study. Somewhat related is the question of the "empirical validity" of account balance PPDs. Hence, in addition to consensus, two aspects of empirical PPD validity (extremeness and calibration) are investigated.2 The individual auditor/audit team comparison was motivated by the

Private shareholder response to corporate annual reports

Abstract: Private shareholder response to annual reports of Australian public-listed companies was investigated via postal questionnaires in 1979 and 1980. Approximately 2000 usable replies indicate that although annual reports are ranked third to stockbroker advice and newspapers as sources of corporate information, two-thirds claim the report is of some importance and one-quarter would buy it and pay up to $2 per copy. Readership behaviour reveals that whereas the chairman's review is the most read item, traditional financial statements are more important in influencing equity decision-making. The auditor's report, statistical data and notes to accounts are least read and least important. Such evidence has implications for report preparers, auditors, accountancy professional bodies, financial journalists and educators.

Auditor Association with Quarterly Financial Information: An Empirical Test

Abstract: Recently, recommendations have been made that the traditional role of CPAs be expanded to include association with additional types of information and to include association short of full audits for financial information of interim periods (e.g., American Accounting Association's Committee on Basic Auditing Concepts [1972], Carmichael [1974], and American Institute of Certified Public Accountants' (AICPA) Commission on Auditors' Responsibilities [1978]). The public accounting profession has responded with new forms of auditor association with quarterly financial information (AICPA [1975; 1976; 1979]) and with financial forecasts (AICPA [1980]). These new forms of auditor association call for procedures which are more limited than those performed for traditional audits. For this reason we might expect reports issued with these varying forms of auditor association to provide less assurance than do regular audit reports. While auditors are well aware of the limits of less than full audit procedures, it is not known whether users of financial information discern such limits. Carmichael [1974, p. 69] suggests that: "Doubts about the ability of users to distinguish among different forms of assurance have slowed acceptance by auditors of the concept of levels of assurance. Many fear that users might not recognize the distinctions and would assume that the auditor was accepting the same degree of responsibility as he does for audited annual financial statements." The SEC [1975, p. 357] noted, but rejected, the notion that investors would be unable to distinguish appropriately between different types of reports.

Auditing : perspectives from multiperson decision theory

Abstract: : This paper reports a layman's speculations on what appear to be fruitful directions for research in accounting theory. I have been invited to use the perspective from my research in multiperson decision theory to see whether it throws any light on the problems you view as important. I have selected three issues on which to comment. The first, is the role of reputations. The second issue concerns the strategic factors that influence the choices of what kinds and how information is revealed in financial statements. The third issue, is the role of accounting conventions and generally accepted principles in establishing a language or code that enables users to interpret financial statements.

The evolution of corporate financial reporting

Abstract: @contents:Part 1: Illustration of Corporate Financial Reporting Developments. Introduction. 1. Accountancy Developments in a Public Utility Company in the Nineteenth Century N. K. Hill 2. Company Financial Statements: An Essay in Business History 1830-1950 T. A. Lee 3. Unilever - the First 21 Years P. Hodgkins 4. Evolution of Corporate Reports: Observations on the Annual Report of United States Steel Corporation R. S. Claire 5. A Historical Overview of Depreciation: U.S. Steel 1902-70 R. Vangermeersch Part 2: Specific Developments in Corporate Financial Reporting. Introduction. 6. The Accounts of British Holding company Groups: Development and Attitudes to Disclosure in the Early Years J. Kitchen 7. Explaining National Differences in Consolidated Accounts R.H.Parker 8. Notes on the Evolution of the Statement of Sources and Application of Funds K. Kafer and V. K. Zimmerman 9. A Brief History of Company Audits: 1840-1940 T. A. Lee 10. The Auditor's Report: Its Evolution in the U.S.A G. Cochrane Part 3: Influences on Financial Reporting Developments Introduction. 11. Chronology of the Development of Company Financial Reporting in Great Britain, 1844-1977 C. W. Nobes and R. H. Parker 12. Chronology of Significant Developments in the Establishment of Accounting Principles in the United States, 1926-1978 S. A Zeff 13. Company Accounting in the Nineteenth and Twentieth Centuries H. C. Edey 14. The Development of Company Accounting Conventions B. S. Yamey 15. The Origins of Modern Financial Reporting J. L. Carey 16. The Influence of Pressure Groups on Financial Statements in Britain N. Aranya 17. The Accounting Profession and Disclosure in Published Reports, 1925-35 J. R. Edwards. References. Index.

Municipal Market Measures and Reporting Practices: An Extension

Abstract: In a recent paper, Wallace [1981] reported the results of her study on the effects of accounting and auditing practices of municipal bond issuers on their borrowing costs and bond ratings. The study concluded that "interest costs reflect cross-sectional differences in accounting variables and bond ratings reflect cross-sectional differences in auditors and audit reports." However, the sample was constrained to municipal issues within the state of Florida, so she was unable to generalize beyond this sample. Our study provides an extension of Wallace's research by (1) examining a more representative sample of United States municipalities, (2) employing alternative measures of bond risk and return, and (3) focusing on state-mandated accounting, auditing, and financial management practices. The magnitude of municipal bond risk and return measures is hypothesized to be associated with state-mandated practices. Our findings confirm those of Wallace in that we also found accounting and auditing practices to be associated with the interest cost and risk of municipal bonds. In particular, more stringent accounting and auditing requirements were associated with lower interest costs and risk measures.

Perceptions of auditor independence: Its perceived effect on the loan and investment decisions of German financial statement users

Abstract: Recent research in the United States and the United Kingdom investigated the effect of the perceived independece of auditors on the financial decisions of financial statement users. This paper is an extension of that research, reporting the results of a mail survey of two groups of German users of financial statements audited by German auditors. The survey was undertaken to investigate the user' perceptions of auditors' independence for a number of auditor-client relationships and to determine how those perceptions would affect their financial decisions.

Medical audit cycle. A review of methods and research in clinical practice.

Abstract: The aim of medical audit is to improve the effectiveness and efficiency of medical care Achieving this aim may involve a cycle of activities: (i) observing practice; (ii) setting a standard of practice; (iii) comparing the observed practice with the standard; (iv) implementing change; and (v) re-observing practice This paper reviews those methods which have been used and tested in clinical practice at the various stages of the cycle Some principles involved in the choice of what to audit are also described As definite cost effective methods of auditing have not yet emerged, further initiatives and experimentation are required in clinical practice

Medical audit cycle

Abstract: 1. Summary The aim of medical audit is to improve the effectiveness and efficiency of medical care. Achieving this aim may involve a cycle of activities: (i) observing practice; (ii) setting a standard of practice; (iii) comparing the observed practice with the standard; (iv) implementing change; and (v) re-observing practice. This paper reviews those methods which have been used and tested in clinical practice at the various stages of the cycle. Some principles involved in the choice of what to audit are also described. As definitive cost effective methods of auditing have not yet emerged, further initiatives and experimentation are required in clinical practice.

An Empirical Investigation of Auditor Involvement in Non-Audit Services

Abstract: Public accounting firms' involvement in non-audit services for audit clients has been the subject of recent congressional hearings and discussions in the financial literature. Our purpose here is to determine the extent to which large public accounting firms provide different quantities and types of non-audit services to audit clients. This will allow us to infer the potentially different effects of prohibiting firms from providing specific non-audit services to audit clients. While summary statistics for total non-audit services are available,' these statistics include non-audit services for both audit and non-audit clients. Providing non-audit services for non-audit clients does not present an audit independence problem, which was the major concern of congressional hearings and discussions about non-audit services. Since available literature' indicates that non-audit services for non-audit clients can be large, an examination of non-audit services to audit clients seems useful. Furthermore, available summary statistics aggregate different types of services, some of which may have a greater impact on auditor independence than other services. The first section of this paper provides a description of current disclosure requirements for public accounting firms' involvement in non-audit

Residential Home Audits: An Empirical Analysis of the Enersave Program

Abstract: The purpose of residential home audit programs is to encourage energy conservation by providing homeowners with information concerning retrofit actions which are economically feasible. One particular type of home audit program, the Class B audit, is based on a computerized analysis of the home. This study examined the impact of one Class B audit, the ENERSAVE program operated by the Canadian federal government. A longitudinal analysis of approximately 1400 households, a majority of whom participated in the program, concluded that the ENER$AVE program had little or no effect on homeowners' conservation activities. These results coupled with other findings question the effectiveness of Class B audits in general. To combat rising energy costs many homeowners consider improving the energy efficiency of their homes through retrofitting. One of the barriers they may face is a lack of knowledge as to what actions should be taken. Government departments, utilities, and others have recognized this and have offered home audits as a means of reducing or removing this knowledge barrier and encouraging 265 © 1983, Baywood Publishing Co., Inc. doi: 10.2190/8H0K-D3QC-TGY8-9YCJ http://baywood.com 266 / G. H.G.McDOUGALL, J. D.CLAXTON AND J.R. B. RITCHIE energy conservation. Home audits can generally be described as a service which, based on an assessment of the energy integrity of a dwelling, provides the user with a number of recommendations concerning retrofit actions. A wide variety of home audit programs have been implemented in the United States and Canada. For example, in one review, twenty-two different home audit programs were identified and they represented just a small fraction of those in existence [1]. The programs range from home planning kits which provide the \"do-it-yourself consumer with ideas and guidelines for energy savings to formal home energy audits conducted by a trained energy evaluator who makes specific recommendations and, in some instances, helps the homeowner find contractors and funds to complete the recommended retrofit actions. One issue with these programs is their effectiveness in achieving energy conservation by homeowners. While the cost-per-household of providing information can be determined (in some cases less than $1.00 per household for simple \"do-it-yourself information kits to over $125.00 per household for an inspection by a trained auditor), the effectiveness in terms of energy conservation actions and actual energy saved is far less certain. The objective of this article is to examine the effect of a computerized audit, the ENER$AVE program, operated by the Canadian Federal Government. Since the inception of the program in 1977, a personalized computer home energy audit has been provided for over 300,000 households in Canada. Through an analysis of a sample of 1,451 households, some of whom participated in the ENERSAVE program, and all of whom were questioned two years later concerning conservation actions taken, an assessment of the ENERSAVE program will be presented. Specifically, the analysis will consider: • if households who participated in the ENERSAVE program were more interested in conservation; • if completion of the ENERSAVE questionnaire itself acted as a stimulus for conservation activities; and • if conservation recommendations received by households via ENERSAVE acted as a stimulus for conservation activities. The article begins with a discussion of the homeowner's decision to retrofit and how the different types of home audit programs might influence the decision. This is followed by a description of the ENERSAVE program, the research design, and analysis. Conclusions are then drawn based on the preceding discussion and analysis. BACKGROUND The homeowners decision to improve the energy efficiency of the dwelling is somewhat complex because of the technical expertise required and the number of actions that could be taken. For example, insulation can be installed in a RESIDENTIAL HOME AUDITS / 267 number of areas, weatherization can be done, and furnace improvements can be made. The homeowner cannot determine which actions are economically worthwhile without some specific information on the condition of the dwelling and possibly some rank ordering of the economic payoffs from various actions. Home audits are designed to provide part or all of this information depending on the class of audit undertaken. As shown in Table 1, there are three general classes of home audits, the simplest being a do-it-yourself audit (Class C), a second level audit where the homeowner completes the home description information and the analysis is done with the aid of a computer program (Class B), and the most sophisticated (Class A) involving a home inspection by an energy auditor. The major variations occur within Class A audits where \"packages\" may be introduced which provide the homeowners with a complete insulation service including financing and guarantees for both workmanship and materials. Further, the individual conducting the energy audit may act merely as an information provider or as a salesperson who encourages the homeowner to invest in the recommended conservation actions. There has been no systematic study of the relative effectiveness of the three classes of programs. Class B and C audits have been criticized because the analysis of the heating system is often based on inadequate information. In particular, because of underestimating by-pass heat losses, do-it-yourself handbooks (Class C) or computer programs (Class B) will usually fail to give people advice that will minimize the cost of improving the energy performance of the house [2]. Further, Class B and C audits seldom make recommendations concerning improving the air tightness of the home, the factor some consider most critical in home energy efficiency [3]. These audits have also been criticized because of their failure to recognize that each house is, to some extent, unique and requires some degree of individual attention. Another problem is that Class B audits base their recommendations on the heating cost estimates provided by the homeowner. Unfortunately, many homeowners' estimates of these costs are frequently incorrect [4]. On the other hand, while Class A audits can be tailor-made for both the home and homeowner, the cost is considerably higher than either a B or C audit. There is no empirical evidence to show that Class A audits have achieved greater homeowner conservation actions or energy savings than either Class B or C audits. Of particular interest would be a cost/benefit analysis across the three types of audits to determine the proportion of homeowners among a target population who had an audit conducted and, of these, the proportion who engaged in conservation actions and the savings in energy that resulted. The fundamental question to be answered is whether or not any type of home audit can be a cost-effective means of promoting retrofits of homes [5]. Only limited research is available on the evaluation of home audit programs and usually only one type of program was examined. For example, study of 268 / G . H . G . M C D O U G A L L . J . D. CLAXTON AND J. R. B. RITCHIE

Evaluation of a Wisconsin Utility Home Energy Audit Program

Abstract: In February 1978, the Wisconsin Power and Light Company (WPL) offered its residential gas-space-heating customers free on-site energy audits. Between then and June 1980, they audited about 19,000 homes. In September 1979, WPL decided to evaluate their audit program. The data they assembled included natural gas consumption records, the need for specific weatherization measures (as determined during their energy audits), and customer reports of their demographic characteristics and recent energy conservation practices and measures. This information was available for samples of customers that had received an audit in 1978 and for samples of customers that had not participated in the WPL program. Comparison of the data across the two groups showed considerable similarity. Program participants and nonparticipants were much alike in terms of pre-audit gas consumption, demographic characteristics, adoption of conservation practices, and attitudes on energy issues. The two groups differed significantly only with respect to conservation measures; this difference was probably due, in part, to the 1978 audits. These findings are somewhat weakened by the low response rate to the mail survey among nonparticipants. Regression equations were developed to explain natural gas use for the two heating seasons after the 1978 audit The results showed the importance of floor area, age of house, household income, number of occupants, and temperature setting on gas use. The equations also showed that the 1978 audits had a statistically significant effect on annual gas use. Households that had an audit in 1978 reduced their consumption by 8 MBtu/year (8%) because of the audit. However, a regression equation estimated for the heating season before the audit showed that the audit group consumed 7 MBtu less than did the nonaudit group, which suggests that the audit only saved about 1 MBtu/year. ♦Research sponsored by the Office of Conservation and Renewable Energy, U.S. Department of Energy, under contract W-7405-eng-26 with Union Carbide Corporation.

An Integration of Internal Control System and Account Balance Evidence

Abstract: An auditor usually finds it necessary to evaluate several different types of evidence in forming an assessment of the validity of stated account balances, including a preliminary examination of a client's information system, the formal review and testing of the client's internal control systems (i.c.ss.), and the substantive samples of account strata. While the diversity of these techniques may increase the effectiveness of the auditor's review process, they also increase the complexity of the auditor's final evaluation. The auditor must aggregate individual assessments and sample evidence drawn from a variety of i.c.ss. and accounts into a final opinion about account balances. Further levels of aggregation of this evidence may then be necessary when the auditor wishes to develop judgments about aggregate values such as total current assets or net income. Analytical methods are developed in this paper for mathematically integrating many of these diverse sources of audit evidence. A logical linkage is developed between this evidence and its implications for account balances. Using these methods an auditor can develop an "evidential integration" model of his uncertainty about a set of account balances. To be more specific, I provide the following five extensions to the

Consensus of Auditors' Materiality Judgments of Internal Accounting Control Weaknesses

Abstract: This paper reports the results of a field study of the consensus of auditors' assessments of the materiality of internal accounting control weaknesses (IACWs). Results from my experiment suggest moderate consensus among subjects overall and subgroups (e.g., between firms), a varying amount of consensus across different IACWs, and a potential need for more structured criteria in this materiality decision. Recent authoritative pronouncements have increased the importance of evaluations of internal accounting control (IAC) by auditors and, especially, the importance of IACWs. Auditors typically review IAC systems and perform compliance tests to the extent that they plan to rely on such controls in their audit of financial statements. Recent AICPA pronouncements (SAS Nos. 20 and 30) have extended the purpose of the IAC review to include consideration of material IACWs. Specifically, SAS No. 20 requires that the auditor consider material IACWs and communicate these IACWs (and their effects) to the client's board of directors, and SAS No. 30 requires the auditor to disclose material IACWs if an opinion concerning the adequacy of IAC is rendered by the auditor. Future amendments to the current Foreign Corrupt Practices Act of 1977 (FCPA) could also add to the importance of formal IACW assessments by auditors. Amendments have been proposed to the FCPA which

The utility for audit of manual and computerized problem-oriented medical record systems.

Abstract: Objective assessment of the delivery of care requires an unambiguous record of all related events and decisions in the care process. Both the handwritten Problem-Oriented Medical Record (POMR) and its computerized successor, the Problem Oriented Medical Information System (PROMIS) have been designed to facilitate audit of care delivery. In this study, a national sample of physicians was asked to determine which of these two record systems best serves the function of audit. The study involves assessment of a sample of 69 matched pairs of patient records drawn from two different ward settings, one of which used the manual POMR, the other, PROMIS. No difference was perceived between the two records with respect to the reliability of information or the analytical reasoning of providers. Information in PROMIS records was judged to be slightly more thorough. The format of the manual record was judged better on the basis of conciseness, accessibility, and organization of record information.

The effect of external reporting on managerial decision making: Some antecedent conditions

Abstract: Behavioral research in accounting has largely been concerned with examining the effects accounting information has on its recipients. One area which has received little attention despite its potential importance, however, concerns the process by which the behavior of the information sender may be influenced by the act of communicating information to recipients. Within this paper, it is hypothesized that the decision impact of the act of communicating information is conditioned by the extent to which information senders perceive external recipients as relying on financial accounting information and by the cognitive style of the information sender. Results obtained from a questionnaire distributed to corporate managers and to independent auditors provide support for accepting both of these hypotheses. Implications for future research are discussed.

Physician performance in a prepaid health plan: results of the peer review program of the Health Insurance Plan of Greater New York.

Abstract: A peer review program to evaluate the quality of medical care was established by the Health Insurance Plan of Greater New York in 1973. Physician performance is assessed through application of explicit process criteria to medical care as recorded in the patient record. A total of 6,788 records were reviewed in terms of the clinical management of acute otitis media, hypertension and breast lesions. Follow-up procedures to bring about positive changes in delivery of health care were integrated into the program at the time of the initial audit. Reaudit of 715 records were used to measure change in physician compliance with medical care standards. Results of this audit/reaudit process demonstrated statistically significant improvement in quality of clinical practice as measured by the assessment parameters.