Abstract Investigates the effects of the auditor's penalty, auditing standard requirements, quality of the internal control structure and audit fee on tests of transactions and detailed tests of balances, fraud detection and incidence. Experimental economics; Game theory; Theory development.
Abstract Relates belief functions to the structure of audit risk and provides formulas for audit risk under certain assumptions. Review of literature; Structure of audit evidence; Control factors and accounting systems; Plausibility interpretation of audit risk; Limitations in the application of the models; Derivation of audit risk formulas.
Abstract Investigates the demand for auditing in environments both with and without legal recourse. Important role of accounting information in a decentralized economy; Review of related literature; Results showing that there is a demand for disclosure in auditing regardless of whether legal recourse was present.
Abstract The results of prior research on Statement of Financial Accounting Standards No. 33 (FASB 1979) and the effects of required disclosure of inflation have been mixed. Many studies report little or no information content for such disclosures (Beaver and Landsman 1983), although more recent studies (Bublitz et al. 1985; Lobo and Song 1989) report evidence of stock price reactions to releases of information on current cost. These studies were conducted at the aggregate level of the market and did not examine the trading behavior of particular classes of market agents. In contrast, this study focuses on the trading behavior of corporate insiders, and, instead of the commonly used security returns, a non-price variable is the dependent variable of interest. Managers (insiders) could have information about how disclosure might affect the value of a firm through political and contracting costs borne by the firm (Smith and Warner 1979; Holthausen 1981) well in advance of other traders (Jaffe 1974; Larcker et al. 1983). In conformance with their fixation on reported income and their general skepticism of market efficiency (Mayer-Sommer 1979), managers might perceive that investors would react negatively to the new information required by SFAS No. 33, especially when current-cost adjusted income falls below historical-cost income. As a consequence, they would be expected to sell their stocks in anticipation of a negative stock market reaction. For a sample of 441 firms, this study investigates the relation between the initial release of inflation-adjusted information and the trading behavior of insiders. Specifically, it is hypothesized that the expectation that disclosure income will be lower than historical-cost income leads to net selling by managers prior to the initial disclosures under SFAS No. 33. The results are generally consistent with the hypothesis. The analyses show results that are statistically significant (at conventional levels) for both the independent variables in this study-a proxy for income shrinkage and a proxy for earnings change in the expected direction. But one must keep in mind the limitations of inferences from analyses of insider-trading data (Larcker et al. 198;j). Specifically, since there is no comprehensive theory of insider trading, it is difficult to interpret insidertrading activity, and the results of this study must be kept in perspective as additional evidence on the effect of SFAS No. 33 disclosures.
Abstract Presents a tribute to William A. Paton, founder of `The Accounting Review' and was its first editor. Studies conducted on Paton; Paton's boyhood in Wisconsin; Educational attainment; Professional career.
Abstract According to the December 1991 issue of the Survey of Current Business, expenditures of state and local governments account for more than 11 percent of the U.S. gross domestic product. Moody's 1991 Municipal Manual indicates that these govern- mental entities have an outstanding debt now approaching $800 billion, and a report by the Public Securities Association (1987) indicates that this debt grew at a compound annual rate of 12 percent from 1966 to 1986. State and local governmental activities continue to increase in magnitude, and evidently form an important part of the political and economic environment in which accounting operates. Important accountability issues distinctive to these organizations need accounting research attention. The articles by Feroz and Wilson and Deis and Giroux in this issue, which we have been invited to review, address some of these topics. The study by Feroz and Wilson can be regarded as an extension to the public sector of capital-market-based research that examines the effects of financial-accounting disclosures on security prices and returns. They hypothesize segmentation of the market for municipal obligations along national and regional lines and study the effects of differential information disclosure on borrowing costs. In the other study, Deis and Giroux utilize quality reviews that were conducted by the Texas Education Agency to evaluate and rate the audits (by public accountants) of public schools' financial reports. They test hypotheses about audit quality that were originally developed in the context of commercial firms. Both studies thus represent extensions of theories and methods used in research of private- sector accounting and auditing issues. The contributions of the two articles are discussed, and modifications that consider the unique aspects of governmental accounting are presented in sections I and II. Other possible avenues for research are discussed in section III.
Abstract Argues that investors choose an inventory accounting method to optimize the trade-off between incentive effect and tax gain. Role of manager in choosing the accounting policy; Description of setting; Analysis of cost trade-off between incentive effect and tax gain; First in, first out (FIFO) versus last in, first out (LIFO).
Abstract Reviews the book `1991 Tax Penalties: The Complete Guide to Penalties Under the Internal Revenue Code,' by Pauline White and Consuelo M. Ohanesian.