Knowledge that Transforms

Depreciation, Income tax, Tax allocation

Although accounting has traditionally assumed a relationship between a firm's historical transaction data and its future performances, there is increasing interest in assessing this relationship directly in terms of specific predictions of the firm's future earnings. The most recent statement of accounting theory published by the American Accounting Association emphasizes the importance of this aspect of accounting in the following remarks:

This paper reports an empirical test of the usefulness of a prediction method for multivariate budgets suggested by Theil.' The method, based on information theory concepts, is described in the first three sections, and results of the test are presented in the remaining sections. These results show that the suggested prediction method outperforms both the actual forecasts made by the firms who provided the data and two naive forecasts.

Depreciation, Accelerated Depreciation, Tax allocation, Deferral Method

Charles R. Purdy, Jay M. Smith, Jack Gray, The Visibility of the Auditor's Disclosure of Deviance from APB Opinion: An Empirical Test, Journal of Accounting Research, Vol. 7, Empirical Research in Accounting: Selected Studies 1969 (1969), pp. 1-18

Allocation problem, Interim reports, Uncertainty

Breakeven analysis, Capital Budgeting, Long-run costs

This study constitutes an attempt to determine from empirical data the effects of one set of specific alternative accounting methods on security prices by means of multivariate statistical techniques. After a brief introduction dealing with the accounting process and resource allocation, literature relevant to the study is discussed. The setting of the study is then presented, followed by the conceptual framework, the research design, the results, and the conclusions drawn.

M&A accounting, Earnings management, Pooling of interest method, Purchase pooling