Knowledge that Transforms

Abstract Reviews the book "Objectives of Financial Statements: Selected Papers," vol. 2, edited by Joe D. Cramer and George H. Sorter.

Abstract One way to gain insight into the vexing and unsettled questions connected with the responsibility of accountants is to approach the subject from an historical perspective. In this article, the author examines nineteenth and early twentieth century thought on various topics which have been, and continue to be, of concern to accountants. It will become evident that history repeats itself and that most of the basic problems considered by accountants now are also those which have perplexed the profession for nearly a century. Thus despite all the changes in the business environment, controversy within the accounting profession today has remarkable similarities to the discussion taking place decades ago, as of April 1975. The article is divided into three sections. The first surveys accounting thought on the subjects of disclosure and alternative techniques and questions concerning the scope of audit and audit certificate. In the second section, the attitude toward the accountant's responsibility for forecasts and estimates is examined. The third section concludes that the emphasis on the past rather than the future conflicts with the idea of profit as a return for risk bearing.

Abstract Reviews the book "Stockholders' Equity," by Beatrice Melcher.

Abstract Discusses a possible use of Human Resource Accounting for tax purposes in a service-related firm. Method of optimizing the distribution earnings in a closely held corporation; Standard format for determining the reasonable working capital needs for a corporation; Application of the mathematical Bardahl formula in the case Simons-Eastern Co. v. U.S.; Human Resource formula for service organizations.

Abstract This article presents a comparative analysis of the earnings characteristics of firms electing to make an accounting change and a similar group of firms not electing to make a change during the same period. The manipulative aspect of alternative methods of accounting for the same events has received significant attention in recent years. The apparent increasing frequency of reported accounting changes, or switching methods, has raised the question of potential abuses by company managements of the opportunity to switch to alternative accounting methods. In the present study, the reported earnings of a sample of 80 companies electing to make accounting changes in a year are contrasted with those of 80 companies not disclosing any accounting changes during the period. A dual analysis is presented. First, the pattern or trend of the companies' earnings per share is examined. The second approach is to compare the magnitude of the reported return on common stockholders' investment of the firms in the two groups.

Abstract This article presents the author's comments on the criticism of his article "Transfer Pricing for Divisional Autonomy," published in an earlier issue of the journal "The Accounting Review," as of April 1975. The author's article suggested a transfer pricing system that achieves the goal of profit maximization for the firm as a whole. The author claimed that by employing the concept of a transfer price plus subsidy or tax to account for transactions between divisions of a decentralized firm, he had shown how the divisional managers can make decisions which maximize corporate profits. Moreover, with this transfer pricing system, divisional profits reflect divisional contribution to corporate profits. The criticism of the article stated that the divisional managers will not accept the accounting reports produced as a result of transfer-pricing system as measures of autonomous divisional interaction. It also stated that the system causes inefficiencies of one division to be passed on to the selling division in terms of lower average revenue, price and profits. Therefore, the selling division may ask for the right to audit the cost records of the buying division.

Abstract Illustrates the effects of both the purchase and pooling of interests methods of accounting for business combinations on post-combination financial statements. General rule for combining stockholders' equity accounts under the pooling of interests method; Exceptions to the general rule.

Abstract Reviews the book "Basic Accounting Concepts," by Hershel M. Anderson, James W. Giese and Bernard A. Coda.

Abstract Features the accounting profession, Modern Internal Auditing. Signs which herald the advent of the profession; Analysis of the fields covered by Modern Internal Auditing; Career opportunities for Business Administration graduates; Pressures for formal education in Modern Internal Auditing.

Abstract Comments on the research efforts concerning income smoothing practices, as reported by Carl R. Beidleman. Assumptions considered in the defense of income smoothing; Market model referred to in the defense of income smoothing; Discretionary items examined in the study.