Business Commons^™

We report results of a field study of the process by which a Canadian publicly-traded company and prospective auditors acquire information about each other and enter an engagement. We obtained documents from the company (including a request for proposal and minutes of audit committee meetings) and bids submitted by audit firms. We also interviewed senior company officers and all prospective audit partners to learn what each party wanted to know about the other, and how they obtained the information they sought. We observed: (1) the audit committee was involved in the process, but management effectively controlled the selection of the …

In seeking to replace accounting ‘conventions’ by ‘concepts’ in the pursuit of principles-based standards, the FASB/IASB joint project on the conceptual framework has grounded its approach on a well-known definition of ‘income’ by Hicks. We welcome the use of theories by accounting standard setters and practitioners, if theories are considered in their entirety. ‘Cherry-picking’ parts of a theory to serve the immediate aims of standard setters risks distortion. Misunderstanding and misinterpretation of the selected elements of a theory increase the distortion even more. We argue that the Boards have selectively picked from, misquoted, misunderstood, and misapplied Hicksian concepts of income. …