Abstract The article examines the factors and relationships which explain the auditing process. The first relationship above is really a statement of the raison d'etre for both accounting and auditing in our present socio-economic environment. A basic tenet of current accounting theory is that the measurement of income is one of the primary bases for the allocation of resources. The received wisdom includes corporation managers utilize resources more or less efficiently. The efficient managers produce relatively higher incomes. The accounting measurement of income, attested to by the auditor, is reported to the capital market. The capital market, in turn, assigns favorable prices to the securities of the more efficient managements, thus enabling those managements to secure additional resources at favorable terms. When footnotes and other elements of financial statement presentation are considered, the number of different possible opinions on the scale becomes virtually infinite. The seven grades listed above are only the major ones, and other subsets may be distinguished without limit.
Anderson et al. (Wed,) studied this question.