Managerial auditors (MAs) are frequently relying on mistaken mixed costs (MC) forecasting assumptions. Two such assumptions are that MC are linear within the relevant range and variable costs vary proportionately with activity levels. Departure from these assumptions can lead to understating expenses, overstating profits, and even to fraud, litigation, and mounting professional liability risk. Develops a forecasting model of mixed cost error estimates, or error difference (ED). MAs can reduce the risk of litigation and professional liability by including such an ED in the internal control structure of a company. Uses Sensormatic Corporation and the electronics security industry as sample case because of the recent prominence of litigation and professional auditor liability verdicts. Focuses on the electronics security industry, but some of the findings may apply to other industries.
- Electronics industry
- Security firms
- Top management
ASJC Scopus subject areas
- Business, Management and Accounting(all)
- Economics, Econometrics and Finance(all)
- Organizational Behavior and Human Resource Management