[In this study, sections of working papers from audits performed by one office of a public accounting firm were obtained and investigated. The working papers contained the information documented from the preliminary evaluation of internal control over the accounts receivable/sales area. Data from the working papers were provided as input, and discriminant analysis was used to construct a descriptive model of the auditor preliminary evaluation judgments. The model correctly predicted about 80 percent of the individual auditor judgments, which is significantly more accurate than a chance model, and the importance of the presence or absence of particular control activities on the auditors' evaluations was investigated from the model.]

In this study, sections of working papers from audits performed by one office of a public accounting firm were obtained and investigated. The working papers contained the Information documented from the preliminary evaluation of internal control over the accounts receivable/sales area. Data from the working papers were provided as Input, and discriminant analysis was used to construct a descriptive model of the auditor preliminary evaluation judgments. The model correctly predicted about 80 percent of the individual auditor judgments, which is significantly more accurate than a chance model, end the importance of the presence or absence of particular control activities on the auditors' evaluations was investigated from the model.

The article comments on a comparative analysis of net realizable value (NRV) and replacement costing, in reference to the article written by Norton M. Bedford and James C. McKeown for the April 1972 issue of the periodical "The Accounting Review." The author agrees that goal congruence aspects of alternative accounting procedures should be considered in evaluating their effectiveness. He also emphasizes the overstatement of the NRV model. However, this should not be interpreted as a criticism of the NRV model.

The SEC currently requires that firms disclose recent disagreements with their auditors over accounting or auditing matters when a change in auditor is reported. The effectiveness and usefulness of requirements to disclose disagreements have been questioned, and previous empirical research on the issue has been inconclusive. This study investigates the information content of disclosure of the auditor-firm disagreements. The analysis indicates a significant negative market reaction in the week that the Form 8-K is filed with the SEC. This finding is consistent with the position that the disclosure provides information useful to investors.

Capital structure, Tax incentives, Dividends, Dividend reinvestment plan

In 1976, the U. S. Senate Subcommittee on Reports, Accounting, and Management (Metcalf Committee) provided data indicating that the eight largest auditing firms in the country (the Eight) are overwhelmingly the major suppliers of audit services to the largest corporations in the United States. The Subcommittee concluded from these data that monopolistic practices by the Big Eight have led to a two-tier structure in the audit industry-one tier consisting of the eight largest auditors and the second tier consisting of all other auditors, with the Big Eight dominating the industry. In the light of these findings, the committee suggested that more activist regulation of the audit industry was needed by the Securities and Exchange Commission. Dopuch and Simunic [1980] examined a wide variety of evidence that might tend to support or refute allegations of a lack of competition in the auditing profession. They (D-S) concluded that the industry was competitive, and in a subsequent paper [1982] they argued that many of the apparent monopolistic characteristics of the industry could be explained by a product-differentiation hypothesis. More specifically, they hypothesized that different auditing firms provide auditing services which are perceived by investors to be different in quality, and in particular, that the Big Eight auditors are perceived as being more credible than non-Big Eight auditors. If this is the case, the Big Eight firms would be

In addition to the recent interest of the Securities and Exchange Commission, executive forecasts of earnings have received a considerable amount of attention in the academic literature (Basi, Carey, and Twark [1976], Lorek, McDonald, and Patz [1976], McDonald [1973], Copeland and Marioni [1972], Kapnick [1972], Daily [1971]). Much of this attention has focused either on the absolute or relative accuracy of such forecasts or on the ethical, legal, and practical problems of publishing and reviewing executive forecasts of earnings in external accounting reports. One aspect that has not been adequately considered is investor reaction to executive long-range forecasts of earnings. The purpose of this study is to investigate the information content of voluntarily disclosed long-range earnings forecasts by executives by determining security return reactions to a sample of such forecasts that were reported in the Wall Street Journal. The inclusion of management estimates of future earnings in annual reports is advocated on the assumption that such forecasts contain information, of interest to investors or other persons outside the firm, not otherwise publicly available. Not only do executives have information about internal and external factors expected to affect future operations and earnings, but they also exert considerable effort evaluating these factors and their impact on prospective operations in the normal planning function. Consequently, executive forecasts of earnings might be of inter-

The auditor's real and perceived independence and autonomy in the performance of the attest function seems universally accepted as a desirable attribute. This study utilizes interpersonal exchange theory to consider in detail some of the factors which may affect the relative power of the auditor to maintain independence in an auditor-firm conflict situation. The term "auditor" refers to a professional accountant who is hired by a company to perform an audit and render an opinion on statements to be provided for a third party. The specific conflict situation occurs when the auditor and firm do not agree on some aspect of the performance of the attest function. Under these circumstances, the firm may attempt to influence the manner in which the attest function is conducted. The firm, in attempting to influence the performance of the attest function, may pressure the auditor to take an action that violates acceptable auditing standards, including the rendering of an inappropriate opinion. Compliance with the firm's demands may lead to violations of professional standards which the auditor wishes to avoid. Failure to comply with the firm's demands may result in sanctions by the firm, including the possibility of termination of the engagement. The equalization of power between the auditor and the firm, resulting in a symmetrical power relationship, could lead to mutual accommodation.

The purpose of this study is to investigate whether the information content of executive earnings forecasts, as measured by changes in trading activity, differed depending on (1) the forecast horizon and (2) the magnitude of the predicted earnings change. The results of the study indicate that the information content of shorter term and longer term forecasts was virtually the same. With respect to the magnitude of the predicted earnings change, the results indicate that predictions of relatively large changes in earnings (greater than 40 percent) were associated with large changes in trading activity. However, no statistically significant relation between predicted earnings change and changes in trading activity was observed.