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records to establish the actual existence of the assets and debts shown on the balance sheet. If the auditors had inspected McKesson & Robbins's inventories, the fraud would have been discovered. Direct mail confirmation of receivables and observation of inventory counts, including physical tests if necessary, should become mandatory audit procedures. When inventories were located abroad, core-spondent firms could make such observations. The committee also recommended changes in the form of the auditor's report, proposed that the audit opinion be addressed directly to stock-holders, and even suggested that auditors be elected by the stockholders.
The McKesson & Robbins fraud forced a long overdue appraisal of audit priorities. In 50 years, American accountants had gone from one extreme to the other. Detailed stewardship audits had been tried and rejected as being too costly and unsuited to local conditions. Then for a generation most American audits had been dangerously superficial credit investigations. Now the profession confronted a problem of finesse: to make an examination comprehensive enough to inform the public and protect the accountant, yet economical enough to justify its cost to the client. The voluntary refund by Price Waterhouse of more than $500,000 in audit fees to McKesson & Robbins indicated the scale of liability faced by auditors who failed to de-tect fraud. The result was a final break with the older British tradition of auditing the accounts instead of the business. The new tendency to seek physical contact with company affairs was part of a general expansion of audit responsi-bility to include long-term as well as current assets, the income statement equally with the balance sheet.
On January 30, 1939, just three weeks af-ter the first SEC hearings on McKesson & Robbins, the American Institute of Accountants formed a Special Committee on Auditing Pro-cedure. Its report, Extension of Auditing Pro-cedure, recommended the physical observation of inventory counts and the direct confirmation of receivables; if either of these tests was omit-ted, an exception must be noted in the auditor's report. The committee also recommended that the auditor's opinion be reworded to emphasize that the extent of audit testing depended on the auditor's review of his client's internal control system.
In 1941, as a final result of its McKesson & Robbins investigation, the SEC issued Ac-
counting Series Release No. 21, amending Regulation S-X to include the following: "The accountant's certificate . . . shall state whether the audit was made in accordance with gener-ally accepted auditing standards applicable in the circumstances."
Michael Chatfield
Bibliography
Carey, J.L. The Rise of the Accounting Pro-fession, vol. 2, To Responsibility and Authority, 1937-1969. New York: AICPA, 1970, pp. 22—41. Edwards, J.D. History of Public Accounting in the United States. East Lansing: Bu-reau of Business and Economic Research, Michigan State University, 1960. Re-print. University, AL: University of Ala-bama Press, 1978, pp. 163-170.
See also AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS; AUDITOR'S REPORT; BIG EIGHT ACCOUNTING FIRMS; CHIEF AC-COUNTANTS OF THE SECURITIES AND EX-CHANGE COMMISSION; EXTERNAL AUDITING; FRAUD AND AUDITING; LAW AND ACCOUNT-ING; LEGAL LIABILITY OF AUDITORS; MACNEAL, KENNETH; NATURAL BUSINESS YEAR; SECURITIES AND EXCHANGE COMMIS-SION; WILDMAN, JOHN RAYMOND
McKinsey, James O. (1889-1937)
James Oscar McKinsey is remembered as the founder of the management consulting firm of McKinsey and Company, but it was manage-ment accounting that first intrigued the man. The first textbook on management accounting and the first book on business budgeting were both written by McKinsey. Before McKinsey, internal users of accounting information were largely neglected by educators. Only through years of experience could an accountant mas-ter the knowledge needed to use accounting information.
In 1912 McKinsey received a bachelor's degree from the State College at Warrensburg, Missouri; a year later he received a law degree from the University of Arkansas. His account-ing career began in 1914 at St. Louis University, where he studied and taught bookkeeping. He later earned both bachelor's and master's de-grees in commerce from the University of Chi-cago. He received his master's degree in 1919, the same year that he passed the CPA examina-
4 1 0 m c k e s s o n & r o b b i n s c a se
Object Description
| Title |
History of accounting: An international Encyclopedia |
| Author |
Chatfield, Michael Vangermeersch, Richard |
| Subject |
Accounting -- History |
| Date-Issued | 1996 |
| Source | Originally published by Garland Publishing, Inc. |
| Rights | Copyright and permission to reprint held by: Academy of Accounting Hitorians |
| Type | Text |
| Format | PDF scanned at 400dpi with corrected OCR |
| Digital Publisher | University of Mississippi Libraries. Accounting Collection |
| Date-Digitally Created | 2011 |
| Language | eng |
| Identifier | vangermeersch |
