John Cumming, An Empirical Evaluation of Possible Explanations for the Differing Treatment of Apparently Similar Unusual Events, Journal of Accounting Research, Vol. 11, Empirical Research in Accounting: Selected Studies 1973 (1973), pp. 60-95
David J. Cherrington, J. Owen Cherrington, Appropriate Reinforcement Contingencies in the Budgeting Process, Journal of Accounting Research, Vol. 11, Empirical Research in Accounting: Selected Studies 1973 (1973), pp. 225-253
Application of choice theory to the selection of an appropriate accounting method has been dealt with in a number of recent publications.' Difficulties in pursuing this approach arise, however, when we introduce a number of users of accounting information. We cannot, in general, ascribe a group utility, or social welfare, function to a set of multiple users. As a result the notion of identifying the appropriate accounting system by maximizing some conceptually well specified objective function is often inappropriate in a multiperson setting.2 Nevertheless, there are numerous special cases which do admit to a group utility function. Obvious examples include a team and deferral to an expert (or dictator). More significant is the fact that similar results are achievable when the risks and returns of a cooperative decision are shared among the cooperating individuals in a Pareto optimal manner. For example, under suitable conditions, a partnership will admit to a group level or partnership utility function. The purpose of this paper is to demonstrate that it is possible to view the problem of accounting method choice in a partnership as a formal, welldefined optimization problem. This has the theoretical advantage of explicitly linking the accounting choice to the partnership's economic situation, as well as opening up the possibility of studying optimality existence and characterization. Moreover, it provides a juxtaposition with extant accounting prescription. In particular, I shall demonstrate that, within the framework adopted, existing concepts of partnership accounting are in-
Statistical models for accounting numbers, particularly income-related numbers, have attracted considerable interest. Some reasons for this interest are: (1) the potential use of forecasts of accounting numbers as inputs to decision models; (2) the need to secure proxies for unobservable expectations in order to test economic theories; (3) the need to use such statistical models within the context of studies dealing with the predictive ability or information content of accounting numbers, subjects that have been receiving increased attention during the past few years;' (4) the growing interest in examining the forecasting success of, for example, managers and financial analysts relative to statistical models that are appropriate for the accounting number series of interest;2 and (5) the need to use accounting numbers in testing hypotheses regarding industrial organization (e.g., market concentration), profitability,3 and the growth and decline of firms.4 The interest in statistical models for accounting numbers obviously induces a need for model-formulation efforts and empirical results regarding the properties of alternative statistical models. If, in fact, a statistical model used in a given study suffers from important misspecifications or if
The primary purpose of incorporating a set of internal controls in the financial information system is to enhance the system's reliability-i.e., to maintain a high probability of preventing, detecting, and eliminating errors, irregularities, and fraud in the financial information system. The demonstrated reliability of the system provides evidence as to the quality of the output of the system. It is well accepted that the effectiveness of internal controls must be taken into account in determining the extent and nature of the audit procedures appropriate in a given examination.' The more reliable the system, the less extensive the tests the auditor need conduct. Recognizing this inverse relationship between effectiveness of internal control and audit scope, the American Institute of CPAs requires all auditors to initially evaluate the reliability of internal controls as a matter of audit standards.2 Recently, the Committee on Auditing Procedures of the AICPA released several statements on the subject of internal controls which re-emphasize the importance of the study of their reliability.3 But, despite this emphasis, the auditor currently does not possess a means to objectively evaluate the reliability of the internal control system. Conventionally, the auditor uses questionnaires, flow charts, and tests of transactions for evaluation pur-
Solomon and others' have examined the relationship between the book yield on assets using conventional depreciation method and the cash-flow yield or internal rate of return of the assets. A substantial discrepancy between these two yields is often observed. Of course, if firms used the internal rate of return method of depreciation recommended by Anton2 and Reynolds,3 there would be no discrepancy between the expected book yield and the expected cash-flow yield. Unfortunately, these are practical and institutional considerations which often prevent the accountant from implementing an internal rate of return method of depreciation. Bierman4 and Shwayder5 (hereinafter referred to as the previous papers) explored the effect of price-level adjustments on the book rate of
Shyam Sunder, Relationship between Accounting Changes and Stock Prices: Problems of Measurement and Some Empirical Evidence, Journal of Accounting Research, Vol. 11, Empirical Research in Accounting: Selected Studies 1973 (1973), pp. 1-45