Managerial auditors’ mixed cost forecasting assumption departure error estimates for litigation and professional liability risk reduction: the electronic security industry

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1 Citation (Scopus)

Abstract

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.

Original languageEnglish (US)
Pages (from-to)285-297
Number of pages13
JournalManagerial Auditing Journal
Volume12
Issue number6
DOIs
StatePublished - Aug 1 1997

Fingerprint

Liability
Litigation
Industry
Auditors
Risk reduction
Costs
Variable cost
Fraud
Expenses
Internal control
Profit
Auditor liability

Keywords

  • Auditors
  • Electronics industry
  • Litigation
  • Multinationals
  • Security firms
  • Top management

ASJC Scopus subject areas

  • Business, Management and Accounting(all)
  • Economics, Econometrics and Finance(all)
  • Organizational Behavior and Human Resource Management

Cite this

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