Reviewed by Joyce C. Lambert University of Nebraska—Lincoln
This volume contains the papers for the 1978 auditing symposium at the University of Kansas. Eight papers were presented along with responses from six discussants.
The first paper was “Internal Auditing—A Historical Perspective and Future Directions” by Victor Z. Brink. Accounting historians will find this first paper interesting. Brink discusses the historical development of modern internal auditing. He starts in 1941 with the founding of the Institute of Internal Auditors (of which Brink was actively involved) and with the publication of his Internal Auditing, Principles and Practices.
He traced the development of internal auditing from its emphasis on compliance with lower-level accounting, operational procedures, protection of assets and detection of fraud through its operational auditing emphasis to the contemporary scene. He sees internal audit departments having primary responsibility to management and secondary responsibility to the Board of Directors—via the audit committee, with the internal auditor reporting to the chief executive officer or the senior vice president and working closely with the external auditor.
The discussant’s response was by Lawrence B. Sawyer. Sawyer’s response was interesting as he takes Brink’s historical development of internal auditing back in antiquity to the Mesopotamian civilization about 3000 B.C. where scribes summarized lists of transactions. He discusses the Greeks’ preference for slaves as auditors because they considered a tortured slave’s testimony more trustworthy than a free man’s oath.
Sawyer discusses the dual responsibilities of the internal auditor to management and to the board. He concludes by recommending a degree in internal auditing or an MBA with a major in manage-ment-oriented auditing along with a worldwide certification program and continuing education requirements.
The second paper is ”Analytical Auditing: A Status Report” by Rodney J. Anderson. Anderson is a pioneer in analytical auditing. He discusses the historical development of analytical auditing in the early 1960s. Analytical auditing takes a systems-oriented approach using flow charting, limited tests of transactions, internal control evaluation, and appropriate compliance and substantive verification procedures. Later, EDP applications were incorporated in the process.
“Sampling Risk vs. Nonsampling Risk in the Auditor’s Logic Pro-cess,” by William L. Felix, Jr., is presented next. Felix contends that the risk of nonsampling errors in statistical sampling applications is of equal or greater significance in evaluating the results of the auditing procedures. The discussant of Felix’s paper was Robert K. Elliot. His discussion emphasized that the concepts of sampling and nonsampling error apply equally to statistical and non-statistical sampling. Elliot explained a statistical sampling pilot test conducted by PM&M in 1968-1969. The results led to procedures for eliminating nonsampling errors through the use of computers, the use of hypothesis testing, and a quality control program using statistical audit specialists trained to monitor each statistical appli-cation.
The fourth paper is “Third Party Confirmation Requests: A Third New Approach Utilizing An Expanded Field” by Horton L. Sorkin.
Sorkin discusses the use of an expanded field accounts receivable confirmation technique which listed three different figures for the current balance. The respondent would be forced to select one balance as the correct balance. This method was designed to reduce the Type II errors associated with traditional confirmations.
The fifth paper is “Has the Accounting Profession Lost Control of Its Destiny?” by D. R. Carmichael. Carmichael discusses the accounting profession in the age of consumerism and notes the effect of consumerism on the courts.
“The Role of Auditing Theory in Education and Practice” by Robert E. Hamilton presented auditing theory from a very different viewpoint. He parallels auditing theorists with theorists in finance and concludes that a theory of auditing would seek to explain how solutions to problems faced in allocating resources through time are facilitated by the existence of auditors, audit firms, and auditing in-stitutions.
Fortunately, R. K. Mautz is the discussant on Hamilton’s paper. Mautz discusses the different approaches to auditing theory by Hamilton and himself. Mautz stated that his micro approach to auditing theory offers immediate possibilities for improvement in auditing education and practice. Mautz also expressed concern over the widening gap between academics and practitioners.
Richard H. Murray presented “Resolving the Auditor Liability Prob-lem—An Appraisal of Some Alternatives.” He questions whether the risk of liability has improved auditing performance and whether the risks are more detrimental to the public than the benefits. He states that insurance does not provide adequate protection to the profession and suggests several alternatives to insurance.
“Observation on the State of Shareholder Participation in Corporate Governance” by Barbara Leventhal concluded the symposium. Leventhal cites calls for reform in corporate governance due to a decline in public confidence and a rise to Congressional concern.
Accounting historians will find the first two papers of particular interest. The other papers are still of interest even though they were written In 1978.
