Knowledge that Transforms

The article presents problems and their solutions prepared by the Board of Examiners of the American Institute of Certified Public Accountants, for the auditing section of the November 1965 Uniform Certified Public Accountants examination held on November 04, 1965. The first question deals with auditing procedures to be followed for auditing of a shopping center with 30 store tenants, and the preparation of an auditor's report under certain given conditions. All leases with these store tenants provide for a fixed rent plus a percentage of sales, net of sales taxes, in excess of a fixed dollar amount computed on an annual basis. Each lease also provides that the landlord may engage a certified public accountant to audit all records of the tenant for assurance that sales are being property reported to the landlord. The second question deals with the issue of auditing financial statements that have been prepared using electronic data processing equipment, and the accountant has found that his traditional audit trail has been obscured.

Reviews the book "New Perspectives in Organization Research," by W.W. Cooper, H.J. Levitt and M.W. Shelly.

Reviews the book "Executive Decision Making Through Simulation," by Douglas C. Basil, Paul R. Cone and John A. Fleming.

The article reviews the book "Management Accounting for Profit Control," second edition, by I. Wayne Keller and William L. Ferrara.

Reviews the book "Development of Accounting Thought," by Harvey T. Deinzer.

It would seem, therefore, that statements based on historical cost are best because they are the most useful, provided that a suitable analysis of the income statement is made. This analysis can easily be made on internal statements prepared for management because no problems arise from the fact that current-cost figures cannot be obtained by purely objective methods. Such statements would be based more on objective data than budgets now widely used by management, because they would be based on assumptions as to current economic conditions only, whereas budgets are based upon assumptions as to future economic conditions as well. Statements for stockholders and the public are more of a problem because of the lack of objectivity in current-cost data. However, statements based upon historical cost obtained in the usual manner, analyzed as described above, are more objective than statements which have been completely recast. It may soon be possible to extend the concept of objectivity enough to encompass the kind of income analysis suggested above, since it would be tied into an income statement based on objectively determinable historical cost.

Curvilinear break-even analysis is made more meaningful to accounting student if analytical and mathematical procedures used can be related to a simulated real world situation. To do this it is necessary to ascertain cost and revenue data of a non-linear character, and then to derive cost and revenue equations that will form the basis of mathematical analysis. The article illustrates the derivation of such equations and their subsequent use. A benefit in presenting such an example to students is that those whose mathematical background is weak often gain a greater insight into the concept of the derivative and its applications to real world situations. Caution should be exercised in discussing results of any mathematical analysis involving cost and revenue data. The complexity of the mathematical process often tends to imply a greater precision than actually exists. No accounting or mathematical results can be better than the raw data used. If that data has been determined by subjective judgments as may be the case with cost and revenue information, results cannot be invalidated.

The article focuses on the formats of certified public accountants (CPA) commercial law examination. The author suggests that the examination should be designed to evaluate the candidate's analytical ability to recognize legal problems, his knowledge and understanding of basic rules of law, and his ability to express his reasoning and conclusions in clear and concise language. Two times each year, in May and November, prospective candidates take the uniform examinations for the designation of Certified Public Accountant. One of the five examinations given is in commercial law. The author recommends that the commercial law paper should be strictly composed of a series of six to eight essay questions, secondly, the design and format would consist of four to six factual problems in each question. These problems would deal with the various areas of law in which the accountant is faced on an everyday basis. Third, the candidate would not be told what the problems are. He would therefore be required to first analyze the facts to determine the problem and then to write a clear and concise reasoning, using basic rules of law in arriving at a logical conclusion.

The article focuses on the application of multiple correlation analysis in multiple product costing. The allocation of costs assumes that the products should receive costs relative to the benefits that the products received from the production process. The authors conclude that multiple correlation analysis frees the accountant from making the assumption that marginal costs per product are always too difficult to unearth. For products that have an output proportion that is variable, multiple correlation allocates costs in a method valuable for decision-making.

In the article, the author presents information on the methods used for evaluating an accounting literature. In his early days as an accounting professional, he devotes his time searching someone else's method to evaluate accounting literatures, as a part of his assignment. However, the search hasn't provide him any positive results. Possible explanations, as cited by the author, are, lack of interest; lack of money; lack of criteria for evaluation; or the sheer size of the task. Another, question which has been cited relates to the magnitudenal difficulty. To improve a literature, it has been suggested that publishers and editors should be careful while examining articles, and check for any sort of redundancy, if present, by implementing annual or biennial review policy. It seems logical to say that "scholarly" articles without footnotes are either built on common knowledge or represent "original" contributions; original, at least, as perceived by their authors. To be or not to be original is a question which we leave to others to resolve. It has been suggested that if accounting literature has to grow properly, must in part results from research in kindred fields for correlative materials.