Knowledge that Transforms

The question I am concerned with in this paper is the following: Is it possible to predict whether a merger will be accounted for as a purchase or as a pooling? Different predictors have been suggested in accounting literature; how do they compare in terms of their forecasting ability? If the accounting treatment is predictable, it may be possible to infer the decision rule that underlies the choice of treatment. Such knowledge would facilitate the interpretation of accounting data and suggest criteria to appraise auditing procedures. The question is important for the public accounting profession. Let us consider two possibilities: suppose we examine the population of reporting decisions made by business firms and find that the distribution behaves as if decisions were generated by a random process. One possible explanation would be that business men, as a group, do not really consider reporting decisions to be important, and accountants would then have to reconsider their own basic assumption, that reporting decisions have a discernible influence on the behavior of capital markets. Alternatively, let us assume that capital markets impose severe penalties upon firms which do not their reported income. Then, we would expect executives to behave accordingly and we should be able to uncover evidence of such smoothing behavior. Recommendations leading to an increase in the variability of reported earnings would have little chance of being followed.' It has been argued that managers of large firms smooth reported income in order to keep the stockholders happy.2 Such behavior has been

Books partly or wholly devoted to giving instruction in the art of keeping accounts date from 1494 when Luca Pacioli's Summa was published in Venice. It is reasonable to suppose, however, that manuscript expositions of bookkeeping were in existence before then, for use within commercial schools, by individual instructors, or possibly for circulation among those interested in acquiring mercantile knowledge. Several early manuscripts on other aspects of mercantile practice have survived,' but only one which includes some discussion of bookkeeping is known to us, although not in its original form. Manuscripts on bookkeeping continued to be written and presumably used even after the first books on the subject had been published. It may be assumed that these were compiled by their writers for the limited purpose of instructing their own pupils, though no doubt they came to the notice of others. In this article the various manuscripts on mercantile accounts of the fifteenth and sixteenth centuries are described and discussed.2 Its scope

Debt accounting, Liquidity, Uncertainty, Present value of Debt

Investment credit, Taxation, Income tax, Institutional environment

Inventory, Inventory valuation, Quantity and Price effects, Inventory write downs

R. P. Manes, J. M. Samuels, D. J. Smyth, Inventories and Sales: A Cross Section Study, Journal of Accounting Research, Vol. 5, Empirical Research in Accounting: Selected Studies 1967 (1967), pp. 139-156

Learning curve model, Capital Budgeting, Productivity, Innovation