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How Well Does a Single Index Represent the Nineteen Sandilands Plant and Machinery Indices?

Ken V. Peasnell; Len Skerratt
Journal of Accounting Research 1977 15(1), 108
In recent years, there has been a growing recognition of the inadequacies of historical cost accounting and of the need to move toward a current value system. An important development in this process was the publication in the United Kingdom of the report of the Inflation Accounting Committee chaired by F. E. P. Sandilands. This report recommends: Accounts drawn up in accordance with the principles of Current Cost Accounting [CCA] should as soon as practicable become the basic published accounts of companies.' The Committee advocated index numbers as a principal method of revaluing plant, machinery, stocks, and work in progress. The purpose of this paper is to present some empirical evidence concerning the commonality among the set of nineteen official government price indices of capital expenditure on plant and machinery2

Audit Sample Sizes for Aggregated Statement Accounts

Stephen R. Heimann; George Richard Chesley
Journal of Accounting Research 1977 15(2), 193
audit function as it usually relates to public companies culminates in the expression of an opinion on the fairness of the financial statements of an organization. This opinion concerns the financial statement totals, as well as the individual account balances that comprise them. Net income, net assets, and total current assets are examples of aggregated amounts that are often as important as or more important than the accounts comprising them. In addition to this type of aggregation, individual statement amounts - such as cash, accounts receivable, and inventory - are aggregations of related general ledger accounts. Even the individual ledger account may be an aggregation of different groups of elements. These groups may be defined on the basis of a characteristic of the elements. For example, the inventory account may consist of many types of units. Also, the audit sampling process itself may result in a classification system for individual ledger account elements. For example, stratified sampling might be used to preclassify elements by reported dollar amounts. Because of these facts, the auditor should relate his statistical sampling process to testing for fairness of reported amounts at all levels of aggregation. AICPA Auditing Standards Executive Committee recognized this necessity of considering the aggregate effects of statistical testing in its Statement on Auditing Standards: The upper precision limit for errors in an individual substantive test should be established so as to be consistent with the overall audit objective to obtain reasonable assurance that the financial statements taken as a whole are not materially