Knowledge that Transforms

Abstract Harvard Business School, Cambridge, Massachusetts gave its students of graduate business administration access to special time-sharing computer programs to assist them in preparing for financial accounting case discussions. The preliminary results of this experiment indicate this use of computers can lead to a more through understanding by the students into a greater number of possible alternative solutions to case problems. Significant improvement in the performance of the less quantitatively oriented students. Heightened student interest and increased motivation toward the course. The case studies are based on actual business situations where a management faces a decision involving alternative accounting policies, such as whether a company should account for a merger on the "pooling" or "purchase" basis. A large number of the cases deal with the very controversial areas of financial reporting such as pensions, leases, business combinations, deferred taxes, etc. These cases are approached from a management point of view giving consideration to the potential investor, the public interest, the present stockholders, and the company's independent auditor.

Reviews the book "Concepts for Management Accounting," by Walter B. McFarland.

Reviews the book "Cost Analysis for Product Line Decisions."

Reviews the book "College Accounting- Intermediate/Advanced," by Horace Brock, Charles E. Palmer and Fred Archer.

Abstract The article stresses that accounting for values should be viewed as reliable if it is accomplished within the framework of the same basic requirements, which have contributed to the reliability of cost data. In accounting for values to be realized by the specific enterprise, the continuity assumption renders irrelevant any value, which does not relate to managements plan, normal operations, and the specific market commanded by the firm. Hence, it is value to the owner, not value in general, that is of interest in this proposal; and this value is the amount, which the owner will realize from his assets in their planned use, not the amount for which others in the industry are buying similar or identical assets. Therefore, valuations based on economy or industry indexes are irrelevant to this analysis. The most vital issue in selecting a valuation basis is, therefore, one of determining whether the particular valuation basis depends on information to which we have present access that presumably holds the most valid relationship with the future flow of revenue.

Abstract This article focuses on a study which investigated the implications of behavioral science for managerial accounting. Accountants have been involved with the behavioral dimension of accounting problems for quite some time. The management information system of any firm is not solely a technical communication system, one designed only to permit data to flow from one point in the system (i.e., the firm) to another. Very little research has been done on the form of the relationships between the organization and the individual and its implication for accounting data. A more decentralized form of organization would, he conjectured, ease many of the accounting problems by refocusing the attention of supervisors to other, less arbitrary sets of data. The study of management control systems has progressed in three areas: the problems in standard setting, the impact of the audit function, and the reporting of relevant data.

Abstract This article presents questions and answers related to the November 1996 certified public accountant (CPA) examination. For the past five years a CPA has audited the financial statements of a manufacturing company. During this period, the examination scope was limited by the client regarding the observation of the annual physical inventory. Since the CPA considered the inventories to be of material amount and he was not able to satisfy himself by other auditing procedures, he was not able to express an unqualified opinion on the financial statements in each of the five years. In his short-form report the CPA should mention his lack of observance of the January 1, 1965, inventory and his lack of application of other procedures to satisfy himself. He would then issue an unqualified opinion only as to the balance sheet at December 31,1965, and issue an unqualified opinion only as to the balance sheet at December 31, 1965 and disclaim an opinion on the results of operations.

Abstract This article presents a quantitative model for accounting control which is an important function of accounting. It is defined as that process which discovers and reports information enabling managers to correct or prevent unfavorable conditions. This article also examines the basic control aspects of three control models, (1) the traditional accounting model employing standard costing, (2) an accounting model based on classical statistical theory, and (3) an accounting control model based on modern decision theory. Two criteria are currently used to decide whether to investigate deviations from standard. They are, the absolute size of a deviation or the relative size of a deviation, unfavorable or favorable. The magnitude of these criteria depend upon management judgment and experience. The accounting control model based on classical statistics assumes that standard cost is equal to the mean of a normal probability distribution, standards are developed as ranges, not as point-estimates.

Reviews the book "Real Estate and the Federal Income Tax," by Alan R. Cerf.

Abstract This article focuses on the issue of use of current prices in financial statements by accountants. Most of the discussion over the use of current prices versus historical costs has been at a theoretical level, and relatively few studies have been published on the practical implementation and use of current price valuation. Since generally accepted accounting principles do not include price adjustments in the primary financial statements, it is not surprising that practical examples of price adjustments are seldom seen. In the valuation of the net utility plant, price adjustments are made by some regulatory agencies. The alternative rate base evaluation methods in general use are, original cost, the historical dollar cost of utility plant when first put into public service. Reproduction cost, the dollar cost at current prices of reproducing the existing depreciation. Fair value, a composite of original cost and reproduction cost. Thus, reproduction cost method and fair value method take into account current prices.