By analyzing the performance of various alternative approaches under a set of reasonable criteria, this paper demonstrates that, contrary to popular implications, direct simulation is the superior approach for stochastic CVP analysis. Also presented are simple formulas for controlling and determining the accuracy of simulation results. Besides being relevant to practitioners seeking an efficient approach for stochastic CVP analysis and other similar problems, this study should also affect the future direction of stochastic CVP research.
Three comprehensive models exist by which general price level statements can be approximated. They are the programs developed by Petersen, by Davidson and Weil, and by Parker. The methods are first compared and contrasted. After that, they are tested for their validity, it is concluded that each of the models is appropriate for empirical research in the area.
The article deals with the concept of within-item variation, given by Arnold Barkman, in both sampling and non-sampling audit situations. It argues that results, which are similar to and perhaps, more appropriate than Barkman's heuristic formulation for within-item variation have been developed previously, the consequence of ignoring correlation among the individual account items is likely to be underestimation of within-tem variation and use of suggested technique for estimation of parameters seems questionable, and perhaps unnecessary. Barkman has incorrectly defined the relationship between the true account value and a current measurement of that account value. It is more proper to consider the true value as a fixed constant and the current measurement as a random variable equal to the sum of the true value and a random error term. The true value may be difficult or impossible to measure with certainty when the audit is performed. An account receivable balance will be fully or partially collected, or fully or partially written-off at some future date. An inventory item will or will not have a market value lower than its cost when it is sold. It is, therefore, appropriate to consider this current period measurement as the value of a random variable whose variability depends on factors such as economic conditions, type of account, and auditor experience and judgment.
Using an information economics framework, this paper provides an explicit conceptual characterization of the financial reporting process. Based on this characterization, analytical results are derived which help to explain the role of GAAP in financial reporting, clarify the function of external auditing, and explain why there exists an incentive for the owner of a firm to acquire auditing services.