Knowledge that Transforms

Human resources, Input prices, Financial reporting, Accounting Choices

J. Rose, W. Beaver, S. Becker, G. Sorter, Toward an Empirical Measure of Materiality, Journal of Accounting Research, Vol. 8, Empirical Research in Accounting: Selected Studies 1970 (1970), pp. 138-148

Tax allocation, Taxation, Opinion No. 11, Investment credit

Net realizable value as a basis for inventory valuation has been advocated and adopted in practice under the following circumstances: 1. When estimates of cost are arbitrary and a ready market exists for the goods, as is typically the case in the extractive industries; 2. When joint products are prevalent, as in the meat packing industry, and 3. When the expected proceeds from the sale of the inventory items are below historical costs because of price changes, damage, or obsolescence. These circumstances represent cases in which valuation on a historical cost basis breaks down either because of the infeasibility of determining meaningful cost estimates or because historical cost overstates expected value. However, beginning with Canning,1 many have advocated using net realizable value for inventory valuation on its own merits and not just because of the shortcomings of the historical cost basis. When future cash flows could be estimated or approximated, Canning favored direct valuation of inventories, his terminology for net realizable value. According to Canning:

John Leslie Livingstone, Gerald L. Salamon, Relationship between the Accounting and the Internal Rate of Return Measures: A Synthesis and an Analysis, Journal of Accounting Research, Vol. 8, No. 2 (Autumn, 1970), pp. 199-216

The time series behavior of earnings is an important area for empirical research because of its implications for related research in several areas of and finance. Although many other examples could be provided, three accounting issues immediately come to mind: (1) income smoothing, (2) the relative forecast ability of alternative income measurements, and (3) interim reporting. The hypothesis that management uses discretionary practices to smooth income was first posited by Gordon [21] and later tested by Gordon, Horwitz, and Meyers [22] and by Copeland [14] among others. As stated by Gordon, smoothing involves minimizing the deviations of reported income from some standard, where the standard is defined in terms of normal income. Normal income has never been precisely defined at the conceptual level, but in many cases it appears to have been used in the sense of the expected value of the process at a given point in time. A variety of models could be used, and in fact have been used, to assess the normal or expected value of income for a given period. Each model makes specific assumptions about the process generating income numbers. Any inferences drawn from empirical evidence regarding the existence of income smoothing (or the lack of it) are dependent upon the validity of the assumptions made about the underlying earnings process. Moreover, as shown later in the paper, for certain processes attempts to smooth income can have exactly the opposite effect. Yet the models used in the smoothing literature represent only a narrow range of the possible alternatives, little justification (either a priori or empirical) has been offered in their behalf, nor has there been any direct, rigorous investigation of the underlying nature of the earnings process itself.

One purpose of an accounting system, or any information system, is to provide a set of signals designed to communicate descriptions of certain past phenomena believed to be decision relevant in the future.' However, it is difficult to evaluate a given or proposed information system because of its complexity. This complexity arises in part because of the interrelated problems of which phenomena to describe and how best to describe them. Since complexity hinders information system evaluation, decomposition of the total interrelated system into a number of less complex subsystems for evaluation purposes is often desirable. Unfortunately, most decomposition will introduce errors into the analysis. But if we can predict the resultant errors, decomposition can still provide a useful surrogate evaluation method. The purpose of this paper is to explore the decomposition approach to information system evaluation, at the conceptual level, relying heavily on Feltham's recently proposed model for predicting the value of information in the single decision case.2

Financial statement consolidation, Aggregation, Informational approach

Liquidity, Financial Ratios, Liquidity-flow index