3 principals and agents the demand for auditing can

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Unformatted text preview: ly traded companies in the United States, 82 percent of the companies on the New York Stock Exchange were audited by independent auditors.3 Principals and Agents The demand for auditing can be understood through the need for accountability when business owners hire others to manage their businesses, as is typical in modern corporations. Until the late 18th and early 19th centuries, most organizations were relatively small and were owned and operated as sole proprietorships or partnerships. Because businesses were generally run by their owners, accountability to outside parties was limited. The birth of modern accounting and auditing occurred during the industrial revolution, when companies became 1 See G. L. Sundem, R. E. Dukes, and J. A. Elliott, The Value of Information and Audits (New York: Coopers & Lybrand, 1996), for a more detailed discussion of the demand for accounting information and auditing. 2 G. J. Costouros, “Auditing in the Athenian State of the Golden Age (500–300 BC),” The Accounting Histori...
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