The objective of this paper is to explain the motivation for owners of private companies to voluntarily demand audit (positive) assurance. It is hypothesized that the owner/manager seeks audits as compensatory control systems for the organizational loss of control inherent in hierarchical organizations. Thus, the expected value of wealth at risk due to loss of control sets a lower limit on the amount owners would be willing to pay for audits to compensate for that loss. The hypothesized relationship was tested using information for 103 private companies demanding audit (positive) assurance. The obtained relationships were basically unaltered by the introduction of lenders' requirement of audits (n = 40). Furthermore, the hypothesized compensatory aspect of audit assurance was absent for the demand for negative assurance (reviews) in a sample of 31 companies. This is consistent with the fact that negative assurance is not viewed as a way of providing confidence so as to compensate owners for loss of direct supervision and control.

Abstract. This paper has two objectives: (1) providing a method to evaluate directly the costs (benefits) of knowledge spillovers arising from purchasing MAS from the incumbent auditor, and (2) examining the effect of estimates of the cost of auditor change on clients' ability to capture the resulting cost savings. The first is achieved by using selfselection bias parameters estimated from switching regressions. The latter is based on data generated from clients' assessments of auditor change costs and the related economic conditions. For a sample of 84 companies, the results indicate that purchasing MAS from the incumbent auditor does not have a bearing on audit fees. The paper also provides an application of the Heckman-Lee method of correcting for self-selection bias.Resume. L'auteur vise deux objectifs: 1) presenter une methode permettant revaluation directe des couts (et des avantages) de la mise a contribution des connaissances acquises decoulant du recours aux conseils de gestion du verificateur en titre et 2) analyser l'incidence de l'estimation des couts que suppose un changement de verificateur sur la capacite du client de realiser les economies qui devraient en resulter. Pour atteindre le premier objectif, l'auteur utilise des parametres de distorsion d'autoselection estimes a partir de la commutation de regressions. Pour atteindre le second, il se fonde sur des donnees produites a partir de revaluation par les clients des couts que suppose le changement de verificateur et sur la conjoncture economique qui s'y rattache. Pour un echantillon de 84 entreprises, les resultats indiquent que le recours aux conseils de gestion du verificateur en titre n'a pas d'incidence sur les honoraires de verification. L'auteur applique egalement la methode Heckman-Lee de correction de la distorsion d'autoselection pour evaluer les avantages de la mise a contribution des connaissances acquises.

JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org. This content downloaded from 141.210.2.78 on Tue, 09 Jun 2015 12:52:33 UTC All use subject to JSTOR Terms and Conditions * Professor, University of Florida. I wish to express my appreciation to two anonymous reviewers for their constructive suggestions and to the participants at workshops and seminars held at the University of Alberta, the 1983 Meeting of the Canadian Academic Accounting Association, the University of Illinois, the University of Wisconsin-Madison, Case Western Reserve University, Michigan State University, and the AAA Western Meeting in Tucson. The specific comments of G. Barone-Adesi, T. Bell, T. Frecka, P. Healy, R. Kaplan, J. McKeown, W. Messier, P. Tiessen, S. Tinic, and J. Waterhouse are particularly appreciated. Data collection and computing assistance were provided by R. Chen (Florida), Y. Chin (Alberta), and C. Chi (Illinois). [Accepted for publication October 1984.] ' Congress has recently simplified "LIFO computations" in order to allow more firms to take advantage of the attendant tax savings. Even with such simplifications the IRS reports that the majority of firms have not changed to LIFO (Daily Tax Report [October 5, 1983]), even though most FIFO firms would have benefited from the switch to LIFO.

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