A theory of evidence based on audit assertions

Abstract. This paper refines a theory of audit evidence in light of recent research in philosophy of science. We improve the definition of confirming evidence and relate it to various audit opinions. Specifically, we identify explanations as a critical component linking evidence to audit assertions. An implication of our work is that professional audit standards setting should put increasing emphasis on the explanations underlying audit assessments. Résumé. Les auteurs perfectionnent une théorie relative à l'information probante à la lumière des travaux de recherche récents en philosophie de la science. Ils raffinent la définition de preuve de corroboration et la relient à diverses opinions du vérificateur. De façon précise, ils traitent les explications comme un élément critique reliant l'information probante aux assertions auxquelles s'intéresse le vérificateur. Leurs travaux les mènent entre autres à la conclusion que les normes professionnelles de vérification devraient accorder une place de plus en plus grande aux explications sous-jacentes à ces assertions.     

The Choice of Issuance Procedure and the Cost of Competitive and Negotiated Underwriting: an Examination of the Impact of Rule 50

Previous research suggests that firms choose negotiated issuance over competitive despite its apparently higher net interest cost. This result is shown to arise partly from failure to correct for a selectivity bias in the choice of issuance procedures. Two stage analysis is used in a model that includes qualitative and limited dependent variables to re-estimate the net interest cost difference between competitive and negotiated issues. Results support the hypothesis that the choice of issuance procedure is consistent with shareholder wealth maximization. Examination of debt issues subject to Rule 50 of the Public Utility Holding Company Act indicates that the regulation, as applied, is not effective.     

Stock Price Volatility,Ordinary Dividends,and Other Cash Flows to Shareholders

This paper shows that the results of variance-bound tests depend on how cash distributions to shareholders are measured. As in prior studies, we find apparent evidence of excess volatility when a narrow definition of cash flow (dividends only) is applied. However, we are unable to reject the hypothesis of market efficiency when the cash flow measure also includes share repurchases and takeover distributions in addition to ordinary cash dividends.