An analytical model predicts that cross‐sectionally (1) the marginal cost of auditor quality is inversely related to the strength of client companies' internal control. (2) In the short run, clients with stronger control, lower business risk, or less complex audits choose higher quality auditors; but whether they pay higher audit fees is indeterminate. (3) In the long run, client companies have both lower quality auditors and weaker controls as risk or complexity increase, so less precise financial reporting is expected from them. (4) The effects of risk and complexity on fees are indeterminate, because the price and quantity components of fees tend to vary inversely as risk or complexity change. The predictions are consistent with findings that have been viewed as empirical anomalies.

This study presents a framework for choosing between depreciation methods when future cash flows from operations are not assumed known with certainty but only in probabilistic terms. Specifically, the accelerated depreciation method and the straight-line depreciation method are compared and mathematical conditions are derived for the depreciation method that should be adopted in different circumstances and under different tax systems. It is shown that, contrary to conventional wisdom, the straight-line depreciation method is the preferred method for lowering the company's present value of tax liability in various realistic situations.

Abstract. The purpose of this paper is to model the legal expostire of auditors and to study the extent to which limitations on this exposure affect auditors' chosen audit intensity and collusion with management.Resume. L'article qui suit a pour but de mod61iser les dsques auxquels sont expos6s les vdrificateurs de par la loi et de voir dans quelle mesure les limites de ce risque influent sur l'intensite de la verification dont ddcident les verificateurs et sur la collusion avec la direction.

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