Knowledge that Transforms

Holmes' comment was addressed to Dr. Watson who had just expressed astonishment that Holmes was ignorant of the Copernican theory of the solar system. In truth, Holmes' reply to Watson expressed my exact sentiments after reading Ronen's review. Why? Because I found that I would have to answer the following question in the negative after almost every point he made: Would I do anything differently in view of what Ronen has stated?

We do not have any quarrel with the statistical analysis in Kinney's note. In our first paper on this subject, we acknowledged that an auditor may sample high-valued items because of their normal association with high variance.' Similarly, sampling from a high error rate category may be explained as contributing to representative sampling because of the higher degree of contribution in reducing the error of estimate. Finally, random sampling is consistent with the auditor wishing to make statistically valid statements about the population from which a sample is chosen. Our papers,2 however, attempted to point out that there may be nonstatistical reasons which also explain the above set of auditors' behavior; i.e., auditors may sample high-valued items to cover as much of the total dollar value in the population as possible (protective sampling); they may sample high error rate categories to correct as many items as possible; and they may use random sampling to create a greater degree of uncertainty as to the scope of future audits to deter potential errors in the future (preventive sampling).

Financial ratios, Descriptive power, Industry level, Macro outcomes

A mail questionnaire was sent to random samples of members of the Institute of Chartered Financial Analysts, the American Institute of Certified Public Accountants, and the American Accounting Association. The questionnaire asked the respondent to rank the three alternatives in their order of preference. The results of the study show that a majority of the respondents in each group preferred the Arthur Andersen & Co. proposal3

Information, Learning Patterns, Decision making, Value of information

Depreciation, Replacement costs, Asset valuation

Human resources, Human capital, Investments, Financial statements

Stephen A. Zeff, Chronology of Significant Developments in the Establishment of Accounting Principles in the United States, 1926-1972, Journal of Accounting Research, Vol. 10, No. 1 (Spring, 1972), pp. 217-227

Vincent C. Brenner, Ronald M. Copeland, Paul E. Dascher, Arthur J. Francia, Ronald J. Patten, Robert H. Strawser, Trials and Tribulations of the Researcher: A Case Study, Journal of Accounting Research, Vol. 10, No. 1 (Spring, 1972), pp. 195-199

R&D, Materiality, Capitalization, Resource allocation decision