This paper provides a model in which audited reports are valuable to entrepreneurs who have private information and seek to share risks with investors. A distinctive feature of the model is that the choice of auditor and the resulting audited report provide partial information about the entrepreneur's private information, and he resolves all remaining investor uncertainty by signalling with retained ownership. The value of an audit is increasing in audit quality and the firm-specific risk faced by the entrepreneur and is a nondecreasing function of the entrepreneur's expectations about the future value of the firm.

Conventional management accounting principles used to evaluate relevant costs have been developed under the assumption of deterministic manufacturing settings. Manufacturing operations, however, are complex and stochastic. In this paper we examine the impact of stochasticity in the production process on relevant costs based on a dynamic assessment of capacity constraints. We develop a model to analyze the behavior of relevant costs with respect to changes in the expected duration and variability in set-ups and processing. An implication of this analysis is that for profit maximization capacity will exceed expected demand if production rates or demand are stochastic.