Knowledge that Transforms

Abstract Reviews the book "Capital Expenditure Planning for Growth and Profit," by Pierre G. Bergeron.

Abstract Five years ago, Congress established The Commission on Private Philanthropy and Public Needs to study public philanthropy in the U.S. One of the Commission's most significant findings was that accounting methods employed by nonprofit organizations were not codified, were outdated, and could result in abuses of financial disclosure. In response to these findings, the American Institute of Certified Public Accountants established a group to study the problem and ultimately to codify new rules of accounting and disclosure. This group, the Non-profit Organizations Subcommittee of the Accounting Standards Executive Committee, published a discussion draft in February 1977. The Subcommittee received and reviewed some 300 responses from individuals and organizations to the discussion draft. An exposure draft containing revisions of the original discussion draft was published in April 1978. Some may wonder why accountants had not written such rules earlier. It was because most attention had been focused on commercial enterprise accounting. Also, the nonprofit area was not recognized as large enough to warrant attention, nor was it perceived that significant abuses could occur or were occurring.

Abstract ABSTRACT: The role of accounting data in the formation of security prices in general, and the process by which such prices adjust to the announcement of external accounting numbers in particular, has attracted considerable attention. Extending the research conducted by Ball and Brown, this paper examines the degree to which earnings yields of corporate equities affect the association between annual income numbers and security prices. The propositions of two alternative views on this association are analyzed in the context of a normative model of investor expectations and security price behavior. The empirical evidence reported in this paper leads to the conclusion that, by and large, the level of association between annual income numbers and security prices is not independent of the earnings yields of common stocks. This finding indicates that either there exists frictions in the security price adjustment process or the extant two-parameter model of market equilibrium is mis-specified. Finally, some important implications of these results for capital market researchers, as well as for investors are provided.

Abstract ABSTRACT: There are several aspects of the international business environment which affect the setting of a transfer price. These items include the various methods and rates of income taxation; quotas and duties imposed on imported materials; capital flow restrictions and currency regulations imposed by a host government; and managerial preferences for risk avoidance through consideration of risks associated with foreign exchange rate fluctuations, rates of inflation and nationalization. Also, the behavioral dimension of managerial rewards and controls must be considered in the transfer pricing problem. Since transfer prices usually cannot be set to accomplish all of these goals simultaneously, some means must be devised by which the firm's multiple objectives are optimized, In this vein, the transfer pricing problem is formulated in both a single-objective and a multiple-objective approach for comparison purposes. Specifically, the transfer pricing problem is couched in both a linear programming and a goal programming framework to allow for the optimization of differing tax rates, profit requirements, and exposure and nationalization risks around the world.

Abstract ABSTRACT: Much of the complexity of our federal income tax laws is due to the intricate treatment of gains and losses upon dispositions of property. Flow charts and examples are employed here to delineate the tax nucleus of this area. They can be used to increase the comprehension of students, the efficiency and effectiveness of services provided by tax professionals, and the quality of tax decisions by lawmakers.

Abstract The article presents the author's reply to comments on his paper "Misleading Tax Figures--A Problem for Accountants." According to the author, ideally, a single, theoretically defensible allocation formula would be prescribed for financial reporting. This method might be incorporated into the tax law. This does not suggest that allocation methods used for tax purposes should conform to GAAP. It was commented that where a consolidated tax liability is allocated for tax purposes in one way, but actual payment reflects a different allocation, the one which is used for payment purposes determine basis. This determination is unclear to the author. Presumably, the commentator is referring to payments among affiliates pursuant to the agent corporation paying the consolidated tax. The commentator seems to be saying that the allocation is ignored when it differs from the payment where both the allocation and payment arise from the group's consolidated tax liability. The commentator correctly observes that where a subsidiary is to be sold, the parent will generally try to minimize the taxable gain on the sale by maximizing its basis in the subsidiary.

Abstract Reviews the book "Business Systems Techniques for the Systems Professional," by J.N. Chapple.

Abstract Reviews the book "Quantitative Methods in Budgeting," edited by C.B. Tilanus.

Abstract Reviews the book "Phantasmagoric Accounting: Research and Analysis of Economic, Social and Environmental Impact of Corporate Business: Studies in Accounting Research No. 14," by Robert E. Jensen.

Abstract The article presents the author's reply to the comments made by Associate Professors in Accounting, Peter Tiessen and J.H. Waterhouse on his paper "The Contingency Theory of Managerial Accounting." With respect to the comments on explanatory variables, Tiessen and Waterhouse make a number of points, some of which the author has difficulty in following. As noted by Tiessen and Waterhouse, the budget and financial variables are perceptual in nature; their intent was to elicit perceptual data on the ability of such measures to reflect performance. Interpreting them as inputs or determinants of effectiveness may be stretching a point, but it was difficult to obtain data on relative explanatory abilities in another way. Their second point with respect to the classification of these variables, that there is confusion between an implied surrogation of performance explanators and categorization only as internal variables, indicates confusion on the part of commentators between normative and descriptive statements. With respect to the factor analyses, the points made by Tiessen and Waterhouse are well-taken. The author recognizes, as they do, the problems in its utilization and interpretation.