Reviewed by James D. Blum American institute of Certified Public Accountants
Auditing Looks Ahead includes eight invited papers and seven discussants’ responses presented at the first Touche Ross/University of Kansas auditing symposium. Since 1972, these symposia have been held biennially. As of this writing there have been five proceedings published, and with a sixth symposium presented in May 1982. The papers and discussions at the first symposium were concerned with contemporary auditing problems of 1972 vintage. The basic problems presented and discussed at the first symposium are like good wines, in that age (ten years) has not eliminated the problems but has just changed their flavor. Thus, someone involved in a current auditing problem or an historian interested in a quick overview of a problem as it existed in 1972 might benefit from reading one of the presentations or discussions given at the 1972 Touche Ross/University of Kansas Symposium. Because so much has changed in ten years, and these papers cover descriptive research of the state of the art, I have attempted to summarize, sometimes by giving little more than the title of the paper, and only minor evaluation, if any, of the paper’s contribution to the profession, as might ordinarly be done in a book review.
R. G. Brown and Roger H. Salquist in “Some Historical Auditing Milestones; An Epistemology of an Inexact Art” attempt to order the evolutionary process of the history of auditing by describing audit milestones classified by era, e.g., emergence era, and then by socio-econo-technological influences, e.g., industrial revolution. Their objective of attempting to give order to the evolutionary process which has shaped the present state of the art, may have been and still may be an impossible task, especially in a short article. Horace G. Barden, as discussant, correctly pointed out that Brown and Salquist missed some important milestones and different people have different opinions as to the importance of past auditing events. The value of Brown and Salquist’s attempt to pinpoint the milestones in auditing is that it is a springboard that others in the field can use in order to obtain a quick overview of auditing milestones, and a starting point for more comprehensive search for milestones and reasons.
In “What Are the Courts Saying to Auditors?” A. A. Sommer provides an excellent summary of common law developments, statutory laws, and recent important common law cases involving the auditor’s liability, through 1972. Of course, like all problems of 1972 vintage, auditors continue to audit and the courts continue to render opinions concerning the auditors’ duties and responsibilities. Today, updated versions of most of what Mr. Sommer discussed are found in any good auditing textbook.
Kenneth W. Stringer’s paper, “Toward Standards for Statistical Sampling,” summarizes the AlCPA’s Committee on Auditing Procedure work that led to Appendix B of SAP No. 54, which later became codified in SAS No. 1, Section 320, Appendix B, Precision and Reliability for Statistical Sampling in Auditing, and finally has been superseded in 1982 by SAS No. 39, “Audit Sampling.” Discussant James W. Kelley questions the need to perform compliance tests of internal control procedures and implies one might perform a more efficient audit by not relying on the internal control system and using a high confidence level (e.g., 95%) in the performance of substantive tests instead of a lower confidence level, if the auditor were to rely on internal control as SAP No. 54 suggests. Kelly’s point, not performing compliance testing and thereby not relying on internal control, has finally been formally recognized some ten years later (August 1982) in SAS No. 43, “Omnibus.”
In “Future Extensions of Audit Services; Meeting Investors’ Future Needs” Donald J. Bevis discussed the need for public companies to publish forecast data in order to meet investors’ needs. Despite his enthusiasm and cry for speed, implementation of forecasts has not to date emerged. Few, if any, annual reports carry forecast data.
In “Toward Standards for Materiality (?)” William Holmes suggests a practical alternative to defining materiality, which he believes should be left to courts. Mr. Holmes’ alternative to defining materiality is for the profession to establish a standard of “significant distortion.” Significant distortion occurs when financial statements perse might cease to be “fair.” Sam M. Woosley discusses Holmes’ paper by suggesting a framework for defining materiality. Both Mr. Holmes, before the 1972 proceedings, and Mr. Woolsey, after the 1972 proceedings, had articles on this topic in the Journal of Accountancy.
“Toward a Philosophy of Auditing” by R. K. Mautz offers some thoughts on (1) to whom are auditors responsible and (2) for what are auditors responsible. Mautz concludes that neither management nor the general public is the auditor’s client. An auditor should “steer a course that gives proper respect to the relative rights of the several interests in the auditor’s work. . . .” Mautz concludes that the client relationship between an auditor and shareholder is strongest since shareholders have the greatest relative interest, while it is weakest between auditor and the general public. Mautz then discusses for what are auditors responsible by concluding that the auditors are responsible for not only technical competence, but also what he defines as “social competences.”
In “Future Directions for Auditing Research” Douglas R. Car-michael attempts to summarize auditing research as it relates to various research methods, and to give examples of auditing research. He suggests that empirical research with data from real practice situations, excluding surveys, and not abstract data, is most needed in the profession.
He outlines three areas where research in auditing appears to be important. These are: (1) expansion of the attest function, (2) refinement of auditing methods, and (3) professional responsibilities. Frederich Newmann’s response to Mr. Carmichael’s paper is that the usefulness of auditing theory drawn from practice is difficult because of the difficulty of isolating a variable, and may be illusory because practice is inconsistent, unorganized, and unsystematic in its approach to problems. Newmann suggests greater cooperation and joint research ventures between academicians and practitioners.
Finally, Marvin L. Stone’s dinner address, “The Problem with Auditing Is … (The Stuff Dreams are Made Of),” is an entertaining scenario of dreams about Marvin as an expert witness who, in one dream, explains what the SEC and an auditor do by comparing them to football officials, with the SEC having the whistle, and the players being audited public companies.
Since Symposium I is now over ten years old, it gives historians a glimpse at what some of the leading auditing academicians and practitioners of 1972 thought were the contemporary auditing issues then and their opinions as to how these issues might be resolved.
