Abstract. Standard statistical auditing procedures rest upon the assumption that statistical nonsampling errors do not exist. Three distinct types of statistical nonsampling errors have been identified in the literature. This paper presents new theoretical results regarding the problem of audit sampling in the presence of nonsampling errors of the first type. When nonsampling errors of the first type exist, standard statistical auditing procedures yield a negatively biased estimate of the true number of errors and dollar amounts associated with those errors. A double‐audit sampling plan is introduced here and provides an unbiased estimate of the true number of errors and dollar amounts of those errors in the presence of nonsampling errors of the first type. A new concept of auditor reliability also is defined, and results analogous to those in classical measurement theory are developed for the case of nonsampling errors of the first type. The multiple auditor results reported in a previous study are reanalyzed to give an estimate of the true number of problems and an estimate of auditor reliability in a complex auditing task. Résumé. Les procédés de vérification statistiques standard reposent sur l'hypothèse selon laquelle les erreurs non dues au sondage statistique n'existent pas. Trois catégories distinctes d'erreurs statistiques autres que celles d'échantillonnage sont identifiées dans la documentation existante. Les auteurs proposent de nouveaux résultats théoriques concernant le problème de vérification par sondages en présence d'erreurs non dues au sondage appartenant à la première de ces trois catégories. Lorsqu'il existe des erreurs non dues au sondage appartenant à cette première catégorie, les procédés de vérification statistiques standard livrent une estimation négativement biaisée du nombre véritable d'erreurs et des valeurs monétaires associées à ces erreurs. Le double plan de vérification par sondages proposé ici offre une estimation non biaisée du nombre d'erreurs véritable et des valeurs monétaires correspondant à ces erreurs en présence d'erreurs non dues au sondage appartenant encore une fois à la première catégorie. Les auteurs définissent également une nouvelle notion de fiabilité du vérificateur et mettent au point des résultats analogues à ceux que permet d'obtenir la théorie classique de mesure, pour les cas d'erreurs non dues au sondage appartenant à ladite première catégorie. Ils procédent à une nouvelle analyse des résultats multiples dont il est fait état dans une étude effectuée par d'autres auteurs, cela afin d'obtenir une estimation du nombre de problèmes véritable et une évaluation de la fiabilité du vérificateur dans une tâche de vérification complexe.

This paper estimates the systematic risk of the debt in public leveraged recapitalizations. We calculate this risk as a function of the difference in systematic equity risk before and after the recapitalization. The increase in equity risk is surprisingly small after a recapitalization, ranging from 37% to 57%, depending on the estimation method. If total company risk is unchanged, the implied systematic risk of the post-recapitalization debt in twelve transactions averages 0.65. Alternatively, if the entire market-adjusted premium in the leveraged recapitalization represents a reduction in fixed costs, the implied systematic risk of this debt averages 0.40.

[In this article, we characterize economies in which both cash flows and forward prices follow random walks. We show in the case of geometric random walks that the preferences of the representative investor are of the constant proportional risk-aversion type. We also show the conditions under which spot prices follow random walks and under which the equivalent martingale measure is non-state-dependent.]

Results of tests contrasting tax-loss selling with intertemporal information variation as explanations of the January seasonal in stock returns are reported. Closed-end fund shares display the typical size-related January seasonal while their net asset values do not. Interpreting the net asset value return as a proxy for information about underlying assets, this result indicates information variation is not a necessary condition for the January effect in stocks. The share returns at the turn of the year are negatively related to their mean preceding year returns and positively related to the standard deviations of their preceding year returns. These results are consistent with tax-loss selling.

[Results of tests contrasting tax-loss selling with intertemporal information variation as explanations of the January seasonal in stock returns are reported. Closed-end fund shares display the typical size-related January seasonal while their net asset values do not. Interpreting the net asset value return as a proxy for information about underlying assets, this result indicates information variation is not a necessary condition for the January effect in stocks. The share returns at the turn of the year are negatively related to their mean preceding year returns and positively related to the standard deviations of their preceding year returns. These results are consistent with tax-loss selling.]

Taxation, Tax complexity, Tax-reporting positions

[The choice of the appropriate actuarial cost method was an important issue considered at the different stages of the process that led to the promulgation of the SFAS No. 87, "Employers' Accounting for Pensions." Actuarial cost methods have been used by firms for accruing periodic pension expenses and determining the funding of defined-benefit pension plans. These methods have been classified by actuaries into cost-allocation methods and benefit-allocation methods. This study identifies and evaluates some possible determinants of the switch from a cost-allocation actuarial cost method to a benefit-allocation actuarial cost method. The primary effects of this switch are a decrease in pension expense and in the amount funded to the pension plan. The decreases in pension expense and funding arise because benefit-allocation methods have lower pension liabilities than do cost-allocation methods. This study hypothesizes that the primary reasons for the switch in actuarial cost methods are: a reduction in contracting costs, a decline in the taxpaying status and the earnings performance, and a preference for internal over external sources of funds for financing investment outlays. In addition, the study examines whether an actuarial alignment of pension assets to the reported present value of the accumulated plan benefits motivates the switch in actuarial cost methods and controls for the effect of differing interest rates in the computation of the accumulated plan benefits. The hypotheses are tested by comparing switch firms to industry-matched nonswitch firms and using proxy measures to operationalize the theoretical concepts. The comparisons are performed in the year prior to the switch, the year of the switch, and the year following the switch by relying on multivariate logit models. The primary advantage of logit models is the presence of consistent coefficient estimates whenever choice-based sampling is involved. Univariate matched-pairs t-tests and Wilcoxon sign-rank tests are also performed in the year of the switch. The empirical findings suggest that financial statement considerations and reduction in pension funding appear to be the primary reasons associated with the switch in actuarial cost methods. The reduction in pension funding is first accomplished by the use of higher interest rates, which decrease pension liabilities, and then by the switch into a benefit-allocation method, which provides an additional decrease in the pension liabilities. The last step is used if firms have limited freedom to make further increases in interest rates as unreasonably high interest rates are not permissible under ERISA. Empirical evidence based on multivariate logit models reveals a lower current assets to current liabilities ratio, a slower rate of investing into new projects, and a higher long-term debt to total tangible assets ratio for switch firms in comparison to their nonswitch counterparts for the year of the switch. To the extent that these relationships reflect a higher probability of technical default for switch firms, the findings are consistent with both the pension funding literature (Francis and Reiter 1987) and the accounting method choice literature (Holthausen and Leftwich 1983). In addition, this study points out the importance of an interactive effect between working capital ratio and rate of undertaking new investments in that increasing levels of working capital are needed to sustain higher rates of new investments.]

Abstract Identifies and evaluates potential determinants of the switch from cost-allocation actuarial method to a benefit-allocation actuarial cost method. Effects of the switch; Causes of the decrease in pension expense and funding; Reasons for the switch in actuarial cost methods.

Unexpected earnings, Intraindustry information transfers, Disclosures, Market reaction

A fixed-rate deposit insurance system provides a moral hazard for excessive risk taking and is not viable absent regulation. Although the deposit insurance system appears to have worked remarkably well over most of its 50-year history, major problems began to appear in the early 1980's. This paper tests the hypothesis that increases in competition caused bank charter values to decline, which in turn caused banks to increase default risk through increases in asset risk and reductions in capital.