Knowledge that Transforms

Abstract Almost four decades ago, the application of statistical techniques to auditing problems was advocated in accounting literature. Despite the fact that theoretical arguments and debates on statistical sampling, as opposed to judgment sampling, have frequently appeared in professional journals, empirical research on the subject is, indeed, meager. It is the purpose of this paper to report and discuss the results of an empirical investigation in the alternative sampling techniques, statistical versus judgment, in auditing the accounts receivable of a small industrial-supply-retail store. In so doing, it is organized around four sections, statement of the problem, research design and procedure, discussion of the results and findings, and finally implications for future research on the subject. In terms of implications for further research, this study is only a first step towards more complete empirical tests and verifications on the subject. Replicating the research not only to different size firms but also to different industries is essential for drawing generalizations on personal versus statistical sampling.

Abstract Reviews the book "Financial Accounting: A General Management Approach," by Almand R. Coleman.

Abstract The article compares Opinion 15 with a financial reporting method for convertible debt. Corporate capital structures often include such securities as convertible debentures, convertible preferred stocks, and stock warrants. In many cases, these instruments possess a dramatic potential for suddenly creating a huge in crease in the number of outstanding common shares and a severe dilution in earnings per share (EPS). In 1969 the Accounting Principles Board of the AICPA issued its lengthy Opinion 15, which utilized the common stock equivalent concept in prescribing when and how the dilutive effects on EPS in such cases should be shown on the face of the income statement. In order to illustrate some of the implications of this controversial Opinion and to offer a solution to the complex problems of satisfactorily reporting convertible securities in the financial statements of issuers, this article focuses on convertible debentures (CVDs). CVDs are unsecured bonds that may be exchanged for common stock of the issuer at the option of the holder at a certain ratio and during a specified period.

Abstract This paper summarizes the extent and types of coverage of cost accounting topics in the ten CPA exams during 1966-1970 inclusive. Comparisons are made to my earlier study covering the period 1956-1965.

Abstract Reviews the book "Organizing, Operating, and Terminating Subchapter S Corporations," by D. Larry Crumbley and P. Michael Davis.

Abstract This article presents an overview of a report on accounting by the Committee on Behavioral Science Content of the Accounting Curriculum. The charge of this committee was to formulate a statement indicating the general scope of behavioral science material, which should be included in the accounting curriculum, and to suggest methods of incorporating such material into the curriculum. In developing this report, the committee operated within the context of two fundamental assumptions. First, it was assumed that accounting is action oriented; that most accounting reports are intended to provide information for decision-making. Unless accounting reports have the potential to influence decisions and actions, it is difficult to justify the cost of their preparation. For example, the standard of relevance as discussed in "A Statement of Basic Accounting Theory" requires that information must bear upon or be usefully associated with the action it is designed to facilitate or the result it is desired to produce. This requires that either the information or the act of communicating it exert influence or have the potential for exerting influence on the designated actions.

Abstract The article discusses some of the theoretical problems of the cash yield (CY) and prime rate index (PR) of convertible bonds. Since most convertible bonds currently being issued are offered to investors at prices around par, differences between cash yields and yields to maturity tend to be rather insignificant. Accounting Principles Board (APB), attempted to justify its choice of the CY/PR index on the grounds first that it represents a practical, simple and readily calculable basis for making decisions, and, second, that it has a sound empirical basis founded on a relatively high degree of correlation between the prime rate and alternative yield indices. In essence, the Board recommended an eminently operational procedure having several obvious, serious theoretical flaws and questionable predictive ability. The APB's decision to compare cash yields on risky securities with an essentially riskless rate not only creates the relative bias but also tends to reduce absolutely the probability that any convertible issue will be classified as the equivalent of common stock.

Abstract The article presents some empirical evidence on the influence of one kind of contemporary accounting message on investors' actions. Investors' actions result from investors' directed thinking processes. The objective of such processes is the construction of transformational strategies, each of which is a behavioral scheme that has some probability of transforming a problematic present state of affairs into a more desirable future state of affairs. The nature of the transformational strategies formulated by investors will be determined by the present beliefs, motives, attitudes, and expectations of investors. The transformational strategies formulated by an investor represent schemes for intervening in an empirical process in order to control his future experiences. During the construction of such strategies, events are predicted and the dimensions and scope of the control over empirical events that may be exercised by the investor are defined and evaluated. An investor's perceptual system is the medium with which the phenomena of the environment are noticed and registered in accordance with the network of concepts that governs the investor's perceptual processes.

Abstract Reviews the book "Analysis and Terminology of Financial Statement Items for Highway-Heavy Contractors," by Felix P. Kollaritsch.

Abstract Reviews the book "Risk, Return, and Equilibrium: A General Single-Period Theory of Asset Selection and Capital-Market Equilibrium," by Bernell Kenneth Stone.