Symbolism and communication in the auditor's report;

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Symbolism and Communication in the Auditor's Report
Lee J. Seidier
New York University
The 1975 annual report of Arthur Andersen & Co. indicated that 6.6% of the firm's total revenue was received from five clients.1 Simple arithmetic applied to the total revenue figure leads to the conclusion that Arthur Andersen had five clients whose annual fees average about $5.1 million each. Using other averages given, the audit fee portion of the total was about $3.4 million for each client. Additional analysis of the data provided in the report suggests that $3.4 million of auditing fees would represent about 95 man years or 128,000 hours of work. Obviously, the precision of these manpower estimates is subject to some doubt, but even with a wide range of possible inaccuracy it is obvious that $3.4 million worth of auditing represents a prodigious expenditure of skilled accounting labor.
Arthur Andersen did not indicate the particular clients that were the benefici­aries
of this lavish scrutiny. One might assume that the group includes Inter­national
Telephone and Telegraph Corporation, and Texaco, Inc., two of the largest corporations in the world that are AA clients. Additional candidates among Arthur Andersen clients, considering size and complexity, might be UAL, Inc. (United Airlines), General Telephone & Electronics, and Occidental Pe­troleum.
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Let us assume, for purposes only of a simple but significant point, that the above five corporations are, indeed, the five large clients referred to in the Arthur Andersen & Co. annual report. Then, approximately 17 million dollars, 475 man years, or about 640,000 man hours were expended in their audits.
The Audit Reports to Five Largest Clients
A brief, but rigidly conducted empirical study indicates that the audit reports to the shareholders of these five companies for the year 1974 (the audits most likely to have been performed in the Andersen fiscal year ended August 31, 1975), include a total of 875 words, or an average of 175 words each.3
Now consider the significance of this arithmetic. Arthur Andersen & Co. was required, within the confines of present, conventional practice, to communicate to tens of thousands of shareholders and other users, the nature, intent, scope, quan­tity
and results of the equivalent work of 95 professionals laboring for a year, in about 175 words—and no pictures.
This, then, is the nub of the problem. Tradition, conventional usage, and ultimately the pronouncements of the American Institute of Certified Public Accountants have developed a scheme whereby the auditor confines the report of
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