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The article reports on the paper, "Audit Recommendations and Management Auditing: A Case Study and Some Remarks," by Neil C. Churchill and empirical research of the audit process. The author feels that there are generalizations in Churchill's paper that came outside of the empirical research he did. Also, the samples used to generate a description of general auditing were so limited that the definition of auditing is not as general as it was intended to be. Churchill bases his study on an internal auditing situation rather than an independent audit which presents a rather substantial difference.

The article reports on auditing procedures and discusses the paper, "Audit Recommendations and Management Auditing: A Case Study and Some Remarks," by Neil C. Churchill. Churchill's paper is based on internal auditing which is where a review and evaluation of financial and other activities is done on a firm by members of that same firm. He also categorizes audits into 3 types when a normal audit includes actions from all three different types. The author also mentions that the controversy over an auditor's independence is different than what Churchill puts forth in his paper.

In this paper, we considered four objectives that we believe an auditor has in mind when he samples a population. We indicated how measures for each of these objectives can be formulated so that a proposed sampling plan can be evaluated in terms of satisfying each of these diverse objectives. A simple procedure for developing a comprehensive plan was described that incorporated an auditor's prior knowledge about both the estimated dollar value of an item and its probability of being in error. In order to achieve a more efficient sampling plan, detailed mathematical models were developed to describe how each sampling objective is affected by sample allocations. With these models, it was shown how nonlinear programming algorithms could be used to minimize total sample size while satisfying prespecified goals for each sampling objective. Alternatively, goal programming was proposed when a fixed total sample size had to be used to satisfy each sampling objective as well as possible. We hope that the analytical presentation of these multiple sampling objectives will stimulate further discussion and research on this unique statistical requirement for auditing. We have tried to show why traditional statistical methods are not adequate in this application, and we feel that this may explain some of the reluctance of auditors to give up their judgmental sampling approach in favor of the random sampling plan required for representative sampling. [ABSTRACT FROM AUTHOR]

This note comments on an article by James A. Knoblett which presented an interesting application of the Bayesian decision model to auditing, published in the second issue of the periodical "Decision Sciences." Questions which arise when studying Knoblett's paper are discussed. It is noted that Knoblett appears to have placed too many restrictions upon the auditor in the problem. The author concludes by implying that Knoblett has not recognized that an assessed probability distribution should incorporate all relevant information available to the assessor regarding the likelihoods of occurrence for possible values of the state variable.

The article reports on the results of research designed to determine an informativeness ranking among positive, negative, and blank forms in accounting. In expressing an opinion on financial statements, independent auditors conduct inspections, observations and confirmations. Confirmations utilize positive, negative, and blank forms, and constitute alternative information systems. Each form represents a system which generates messages indicating the respondent's opinion as to the correctness or incorrectness of individual accounts. This ranking was based on the statistical concept of sufficiency. The results of the study suggest that negative confirmations are least informative and that positive and blank confirmations are equally informative.

The article focuses on the application of statistical sampling to auditing with auxiliary information estimators, and explores the role of the auditor in creating sample surveys when the auditor possesses more information about his sample than the social scientist does about his. The article examines the statistical estimators which use all available auxiliary information, and demonstrates how the standard distribution theory is often not applicable to statistical inference. The article further demonstrates how new sampling methods may be necessary for statistical sampling in auditing.

This article presents comments in response to the article "An Experiment on Nonsampling Errors," by Eugene H. Sauls. The author broke his comments up into three sections, including how the sampling plan was designed, the conclusions that were drawn and how general recommendations fail to summarize the specific results of the experiments. The author claims that the sampling pool used was too small and homogenous in nature, which gave skewed results during the study. It is due to these flaws with the way in which the study was conducted that has led the author to refute the results that Sauls presents.

The basic purpose of this study was the investigation of the usefulness of Bayesian statistical techniques to problems of estimation in the field of auditing. By using subjective probabilities the auditor can explicitly bring prior knowledge to bear on his problem by incorporating his feelings in the sampling process and thus obtain an efficient method by which refined estimates can be obtained. The results of the study strongly support the premise that the auditor can obtain superior results from the Bayesian model in estimating unknown quantities as opposed to those obtained through either the non-statistical approach or the classical statistical approach. [ABSTRACT FROM AUTHOR]

This article discusses the response of the Australian accounting profession to company failures during the 1960s. The appropriate response of the profession to the criticism following company failures was, to R. A. Irish that of educating the public in the proper use and significance of public accountants. Some members of the profession, in papers at later conferences, engaged in postmortems on company failures, but evidently saw no problem in relation to accounting practices. The professional competence and integrity of the chartered accountant was, to Irish, without question the degree of chartered accountant was only earned after passing stiff examinations.

The article examines the ramifications of accounting researcher Lyle Jacobsen's hypothesis which states that the quipu, an artifact of the Incan civilization, was used to keep records on a double-entry basis, and that if the quipu was a double-entry device, then the Incans were the first to use a double-entry accounting system. The use of the quipu by Incan civilization as a counting and recording device may have predated the first documented use of double-entry bookkeeping in the Italian city-states of the fourteenth century. Study of Jacobsen's arguments indicates that there is inadequate evidence to support his theory about the quipu being used as a double-entry device as all of the cultural factors concerning the Italian city-states at the time of the first known use of the double-entry system were also present in the Incan civilization.

The article examines the practice of independent auditing, and present research findings concerning auditors' judgments. The AICPA stated that judgment is the most important factor in the making of any audit, but there is no specific language assigned to designate how auditors apply judgment. Internal control was considered as auditors judged an internal control subsystem (payroll) with two major aspects of internal control judgments being studied, consistency of judgments and the perceived importance of the various indicators to the judgments of particular auditors. These two aspects were studied since the degree of judgment consistency among auditors is influenced by their agreement concerning the perceived importance of the various indicators.

The article discusses the application of Bayesian statistical decision theory to the entire problem of asset valuation and audit design faced by the accountant acting in the role of auditor of published financial statements, and discusses the fact that there is no formal mechanism that links the auditor's prior assessment of internal control and his sample design. This lack is a defect of the classical approach to statistical sampling in auditing. The article analyzes the Bayesian statistical theory and reveals how statistical sampling techniques for auditors offer only piecemeal approaches to the problems of audit size and asset valuation. The article shows how this statistical theory offers help with accounts receivable or inventory, but offers little insight into the real conceptual problems of asset valuation and optimal audit size.

A stochastic model has been proposed for variables estimation in auditing. This model can be used in conjunction with classical estimation techniques to predict what sample sizes will be necessary to obtain a desired standard error of estimate. The sample sizes will be a function of the auditor's estimates of the error rate and the first two momenta of the error distribution, as well as the distribution of book values which is known at the time of audit. The model can also be used with a Bayesian analysis, but more research is needed in this area before it is feasible to implement such an approach. The model focuses attention on the need to estimate two different parameters in an audited population-the error rate and the distribution of errors for items found to be in error. Techniques which fail to recognize this underlying structure (e.g., simple mean per unit estimation using sample values only) will probably not be of much value for auditors. [ABSTRACT FROM AUTHOR]

The article discusses the methodology of professional auditors' procedures and the purposes audits serve as well as the end results achieved by them with commentary on previous studies done on these topics. The purpose of studying auditing is to increase its usefulness as a management tool in compliment of other management tools. Two aspects of the audit are examined: operational or management auditing and the recommendations made as part of an audit. Management is concerned with these aspects because they can have a direct effect on the organizational behavior of a corporation being audited.

The article looks at the form of the accounts of the City of Bristol, England, from 1532 until the reform of the Corporation in 1835. The author focuses on the form and content of the account books and indications of the uses to which they were put. An examination of the Audits reveals that they were written up after the accounting period had ended. The author assumes that there must have been books of original entry and a record of the funds not contained in the Mayor's Audits, as none prior to 1615 remain. Reports found dated past 1615 have made it possible to trace the efforts of the mayor and commonalty in obtaining effective financial control.

The article looks at the scarcity of authoritative guidelines for judging materiality and examines how materiality decisions are reached in the absence of specific guidelines. Materiality is indispensable to the preparation and examination of financial statements with anything approaching reasonable economy. Materiality decisions of independent accountants which determine how they conduct their audits take place at the levels of planning, execution and reporting. The author notes that determining the materiality of something is a matter of judgment. The consideration of materiality in auditing is also discussed. Problems surrounding disclosure in materiality issues are reviewed.

This article discusses the reasons for the inclusion of Management Advisory Services (MAS) in the auditing functions provided by accountants. One of the main developments in the auditing profession in recent years has been the increasing tendency on the part of accountants to add MAS to the auditing functions they provide. These include managerial services such as: the design and installation of cost accounting and budget systems, sales forecasting, computerized information, and inventory control systems; the evaluation of the financial conditions of a prospective merger partner and the recruitment of financial accounting and general management personnel. These services are provided by accountants in addition to the strictly auditing functions forming the recognized base of this profession.

This article deals with propriety of an accounting firm performing both auditing and management advisory services for the same client. The propriety of an accounting firm performing both auditing and management advisory services for the same client has been widely discussed since the early 1950s when accountants first began to extend their services on a large scale into areas previously untapped by accounting firms. In recent years, the discussion of this issue has intensified. Though the professional accounting literature on the subject is lengthy, discussion of the problem from the sociological perspective of role confiict cannot be found. It is interesting, however, to note that the popular press, as exemplified by the above quotation from Business Week, has alluded to the problem in terms of role conflict.

This article introduces some central concepts in the discipline of sociology and relates these concepts to the field of auditing. Specifically, the subculture of the auditing profession in the U.S. is explained and the problems of entrance to the profession, departures from the profession, and conflicts between small and large practitioners are briefly explored. The subculture of auditing profession is composed of all the norms and values which guide the behavior of individuals acting in the capacity of independent auditors. These norms are: accounting norm complexes, auditing norm complexes and relational norms. To succeed in the profession of public accounting the novice must assimilate this normative structure.

This article presents the views of U.S. businessmen to the income reporting preparation of conglomerates. In recent decades mergers in the U.S. have resulted in creation of multi-market or multi-industry corporations. Such entities are loosely called conglomerates. This type of business organization has emerged chiefly as a result of acquisition and merger as opposed to expansion through internal development. The conglomerate enterprise has been defined as one that sells commodities and services bearing no functional relationship to one another. That is, they are neither produced from a common raw material nor by the same equipment or technology. Further, the commodities and services are not sold through the same market channels or to the same customers or for the same end uses. Thus, conglomerates show no internal coherence of activity or function. Since products of a wholly incoherent conglomerate bear no logical relationship to one another, their sole obvious connection is that they are offered by the same firm. It has been alleged that failure of the conglomerate to issue separate income statements for its diversified economic activities results in disappearance of financial data about the industry in which the absorbed company operates.

This article comments on the article An Axiomatic Approach To National Accounting: An Outline, By Odd Aukrust which was published in the September 1966 issue of Review of Income & Wealth. Aukrust in his axiomatic approach aims at observing, classifying and measuring economic objects whereas the author aims at observing, classifying and measuring transaction flows and internal bookkeeping entries and the stocks of related assets and liabilities. This, of course, is a little more than the recording of economic transactions with which he identifies the traditional approach. It would seem that Aukrust's approach has the edge over the author since he starts off with just one broad category whereas the author has to distinguish straightaway two categories of flows and stocks. But the difference, not surprisingly, turns out to be more apparent than real for he finds pretty soon than not all national accounts entries can be defined as classes of economic objects and neither can he escape the distinction between assets and liabilities.