Principles of Auditing by Walter B. Meigs; O. Ray Whittington; Robert F. MeigsReview by: Howard M. SchilitThe Accounting Review, Vol. 57, No. 4 (Oct., 1982), pp. 841-842Published by: American Accounting AssociationStable URL: http://www.jstor.org/stable/247435 .

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Book Reviews 841

"hodge-podge," defined by my dictionary as "a heterogeneous mixture often of incongruous or ill-suited elements." Of some 30 authored pieces, at least 12 appear to be merely extracts from recent MBA theses . .. from Pace University. The remainder are taken from various account- ing and non-accounting journals, sometimes with and sometimes without a complete citation as to source. Of these journals, Management Ac- counting is rather heavily represented, whereas academic journals are rare.

The book is organized into four sections of readings: Inflation Accounting in the United States, General Price-Level Accounting, Current Value Accounting, and Inflation Accounting in Other Countries.

The first section purports to contain, among other things, a history of American inflation accounting, but that history is curiously lacking in academic references and extremely heavy in narratives of the contents of such documents as ARS No. 6 and APB Statement No. 3. It also contains, for some reason, articles on inflation- ary capital budgeting and inflationary dividend policy. There is no reference to any theory or model, thus no way for readers to assess whether the various pronouncements were "worth it" or "improved upon" preceding documents.

The second section, on what we now call con- stant dollars, is largely descriptive and pro- cedural, with the curious exception of a refined little theoretical piece by Bailey and Jensen, for which the reader is ill-prepared, given the highly procedural nature of its companions.

The current-value section ranges from a short description of how one company's management accountants coped with ASR 190 to a rather long article by R. J. Chambers. This latter piece, taken from The Singapore Accountant, of all places, contains the vigor and biting wit of many of Chambers' other articles advocating continu- ously contemporary accounting; unfortunately, few readers of this book will have been given the background to fathom the subtleties of Chambers' advocacy of one system of current value vs. another.

The section on foreign inflation accounting looked particularly inviting, since it contains three articles on Argentina and Brazil, nations which have long had to cope with severe infla- tion. But two of these articles are not about accounting at all, and none of them contains a single footnote or reference. The remainder of this section surveys inflation accounting in various British Commonwealth nations without ever really comparing the similarities and differences among them.

The book is too simplistic and jumbled to appeal to most academics or their university libraries. Practitioners who must deal with man- datory inflation accounting can surely find easier-to-use cookbooks published by their own firms or by the FASB. And the uninstructed reader who wants a simple overview of inflation accounting will be put off by the discontinuity of this approach, and likely won't avidly read, for instance, the piece about inflation accounting in New Zealand. A nit-picker might also quibble with the usage of "True" in the title or with the very first sentence in the introduction, which alleges that Pacioli "formulated the first balance sheet."

As Casey Stengel once said of an anonymous player, "Although he can't hit, he can't field either."

PAUL FRISHKOFF Associate Professor of Accounting

University of Oregon

WALTER B. MEWGS, 0. RAY WHITTINGTON, and ROBERT F. MEIGS, Principles of Auditing, Seventh Edition (Homewood, IL: Richard D. Irwin, Inc., 1982, pp. xiii, 657, $23.95).

The arrival of the seventh edition of Principles of Auditing by Meigs, Whittington, and Meigs provides few surprises. Similar to the sixth edition (ACCOUNTING REVIEW, April 1978), the authors continue to emphasize a conceptual approach to ". . . enable the student to under- stand the philosophy and environment of auditing."

The text, which is designed for a one-semester auditing course, contains 18 chapters. Twelve of the chapters are conceptual in nature, providing an overview of the public accounting pro- fession, with attention to auditing standards, pro- fessional ethics, legal liability, study and evalua- tion of internal control, the nature of evidence, the use of audit sampling, and the impact of electronic data processing. The other six chapters emphasize audit procedures, describing auditing techniques for cash and marketable securities, accounts and notes receivable, inven- tories, plant and equipment, accounts payable and other liabilities, debt and equity capital, and revenue/expense.

In addition to the increased emphasis on the conceptual approach and less emphasis on auditing procedures, this edition provides several significant additions and revisions, including

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842 The Accounting Review, October 1982

increased emphasis on planning the audit, more attention to transaction analysis, increased use of flowcharts and graphic illustrations, a revision of the chapter on audit sampling, and a new chapter on reports on compilations/reviews and opinions on the adequacy of internal controls.

This text has several pedagogical features which enhance its usefulness. Each chapter con- tains a glossary of key terms introduced, a series of review questions, several questions requiring analysis, and problems. There are also six case studies in the text which could be used at strategic intervals during the course. Teaching aids include a solutions manual, three achieve- ment tests, and a comprehensive examination.

In summary, this edition of Principles of Auditing continues to provide a comprehensive and lucid discussion of auditing theory with sufficient coverage of auditing procedures. This text is suitable for either an undergraduate or graduate auditing course.

HOWARD M. SCHILIT Assistant Professor of Accounting

American University

M. J. MEPHAM, Accounting Models (Stock- port, Great Britain: Polytech Publishers Ltd., 1980, pp. 624).

This text represents the author's attempt to integrate and incorporate the use of mathematics and management science models into an ac- counting framework. The author takes the posi- tion that since accounting systems provide information for management of economic re- sources, and because accounting systems are based on models of economic activity, it is there- fore important to incorporate recent develop- ments in management science into accounting models. Thus, the author cites three objectives for this book: (1) to encourage the greater use of mathematical techniques and modeling method- ology in accounting; (2) to fill a gap in accounting theory where attention has focused mainly on valuation and income measurement, with little effort being given to the underlying framework of the models used, and (3) to integrate certain aspects of accounting considered compatible with economic theory (preface).

Throughout the book, the development of mathematical models is emphasized. As one would expect, the focus is on deterministic, linear models since many techniques used by accountants are based on a linearity assumption. The overall strategy of the book appears to be one of first defining the linear models presently

used by accountants. From this base, the models are progressively refined through adoption of extensive mathematical symbolism and tech- niques.

The first two chapters of the text serve as an introduction to the users and the potential for modeling in accounting, and how those models can be properly constructed. The third chapter presents a discussion of cost models and their dependence on the linearity assumption. A com- parison of the economist's model and the ac- countant's model is also presented. The fourth chapter is a basic discussion of parameter estimation and regression analysis.

The breakeven analysis model is the basis for the discussion in Chapters 5, 6, and 7. The con- tribution-margin approach, cost-volume-profit analysis, and joint-product costing are all treated as extensions of the basic breakeven analysis model. Chapter 8 continues the same theme and discusses cost systems for both single-product and multi-product firms.

The budgeting model provides the discussion in Chapters 9, 10, and 11. In Chapter 9, a mathe- matical approach to the formulation of the budget is emphasized. Motivation and analysis of cost variations from the budget are presented in Chapter 10, with the emphasis being placed on a mathematical formulation of cost variances. Chapter 11 is concerned with capital budgeting. The remainder of Chapters 12-20 all deal with specific management science techniques which have some application to accounting. These include PERT and network models, matrix algebra and its applications, and linear pro- gramming.

The text is heavily oriented toward mathe- matical development and application. In that sense, it does achieve the stated objective of integrating and incorporating the use of mathe- matics and management science models into the accounting system.

In each chapter, there are numerous illustra- tions and exhibits to amplify the material. In addition, many of the chapters contain one or more appendices. At the end of each chapter, there are five problems for assignment, and no exercises or other form of problem material.

There are places in the text where it is very difficult to read because of the heavy use of math symbols and notation. The author tries to assist in one chapter by including an appendix of symbols used.

This book may be suitable for use in a graduate-level managerial course. It could be used as either a supplement to other material in a seminar or as the main text. If used as the main

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