Knowledge that Transforms

Abstract ABSTRACT: It is uncommon for non-discretionary accounting changes to increase reported income. An earlier study by Harrison [1977] concluded that the stock market reacted favorably to such changes. This study reexamines the market's reaction to a change from the cost to the equity method of accounting for long-term investments. Evidence is found to support the view that earnings adjustments precipitated by the change contained new information. However, no market reaction was detected in weeks containing public announcements leading up to and including the Accounting Principles Board's adoption of the change.

Abstract Reviews the book "Accounting Information Systems," by John F. Nash and Martin B. Roberts.

Abstract Reviews the book "Modern Accounting Research: History, Survey, and Guide," by Richard Mattessich.

Abstract Reviews the book "Consolidated Balance Sheets," by George Hillis Newlove.

Abstract Reviews the book "Auditing: An Integrated Approach," 3rd ed., by Alvin A. Arnes and James K. Loebbecke.

Abstract Reviews the book "An Income Tax Planning Model for Small Businesses," by David H. Butler.

Abstract Reviews the book "The Merchant's Magazine," by Edward Hatton.

Abstract ABSTRACT: This paper takes a Bayesian approach to incorporate auditors' prior information in constructing error bounds for the proportion of dollar amount overstated (equivalently, the total amount overstated) in an accounting population. The multinomial distribution model within the dollar-unit sampling framework suggested by Fienberg, Neter, and Leitch [1977] is used, and the prior distribution belongs to the class of Dirichlet distributions. The properties of the resulting Bayesian bounds are discussed. Some comparisons of tightness of bounds are made with the multinomial and the modified multinomial bounds [Leitch, et al., 1982]. Simulation results suggest that some of the Bayesian bounds have good repeated sampling properties, in particular, in repeated sampling, a Bayesian bound gives a significance level close to the nominal level for many typical accounting populations. Another advantage of the suggested approach is computational efficiency which is independent of the sample size and the number of errors found in the sample.

Abstract Reviews the book "Planning for the Internal Audit Function," by Efrim Boritz.

Abstract ABSTRACT: Little is known about the speed and accuracy of aggregate taxpayer response to an income tax law change. Using a multiple time series model, it was found that individuals and corporations quickly and relatively accurately adjust their income tax prepayments in response to a tax increase.