Planning Assurance Services

OLIN-96-51

Posted: 30 Nov 1998

See all articles by Rachel Schwartz

Rachel Schwartz

affiliation not provided to SSRN

Ronald R. King

Washington University in St. Louis - John M. Olin Business School

Multiple version iconThere are 2 versions of this paper

Date Written: January 1997

Abstract

Our purpose in this paper is to investigate optimal planning strategies for the provision of assurance services. Specifically, we have two objectives. The first is to explore the extent to which planning strategies that are employed in the provision of traditional auditing services (e.g., conservatism) carry over to assurance services. The second is to determine the optimal planning strategies for assurance services in order to determine the level of quality that can be expected from auditors.

We present six results, three of them are especially noteworthy. We find that conservatism is not desirable as a general requirement in assurance services. Thus, assurance services do not compel a universal role for conservatism, unlike audit services where conservatism can play a critical role. We also employ numerical solutions and show that investors want either high levels of service quality or no service at all. We refer to this result as ?Only high quality service is demanded.? Our last numerical result is labeled ?The 95% rule of thumb.? This result shows that assurance services that detect conditions with probability of 95% perform almost as well as an optimally refined system, even if the user does not know the actual probability of the underlying conditions.

An important implication of our results relates to the debate in the industry as to whether assurance service will reduce the reputations of audit forms. Our results indicate the auditors who supply assurance services (of the variety we model) will not compromise their reputation as high quality auditors because assurance service will be provided at a high quality for economic reasons, not because of regulator restrictions. In this way, our results are consistent with the arguments made in the literature that auditors can provide assurance services without lowering the value of the audit services.

JEL Classification: M49, D83

Suggested Citation

Schwartz, Rachel and King, Ronald R., Planning Assurance Services (January 1997). OLIN-96-51. Available at SSRN: https://ssrn.com/abstract=141148

Rachel Schwartz

affiliation not provided to SSRN

Ronald R. King (Contact Author)

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States
314-935-6385 (Phone)
314-935-6359 (Fax)

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
959
PlumX Metrics