Knowledge that Transforms

Abstract Reviews the book "Target Costing and Value Engineering," by Robin Cooper and Regine Slagmulder.

Abstract Reviews the book "The Foundation: A History of the Australian Accounting Research Foundation, 1966-91," by Geoff Burrows.

Abstract Reviews the book "Corporate Collapse: Regulatory, Accounting and Ethical Failure," by F.L. Clarke, G.W. Dean and K.G. Oliver.

Abstract Reviews the book "Auditing Organizations Through a Strategic-System Lens," by Timothy Bell, Frank Marrs, Ira Solomon and Howard Thomas.

Abstract Reviews the book "Intrafirm Trade and Global Transfer Pricing Regulation," by Roger Y.W. Tang.

Abstract Reviews the book "International Accounting and Finance Handbook," 2nd ed., edited by Frederick D.S. Choi.

Abstract Reviews the book "Accounting and Science," edited by Michael Power.

Abstract Reviews the book "Trademark Valuation," by Gordon V. Smith.

Abstract This paper examines the effects of banning contingent fees for tax return preparation services. The paper presents a principal-agent model in which a taxpayer contracts with a tax practitioner to attempt to resolve tax law uncertainty. The optimal contract provides incentives for the practitioner to do research and to choose the tax return reporting position that the taxpayer prefers. Analysis of the model shows that banning contingent fees raises the expected fee of the practitioner. The amount of this increase is increasing in the quality of the practitioner Conventional wisdom holds that contingent fee arrangements will lead to an increase in tax undercompliance. In contrast, we find that undercompliance decreases when contingent fees are allowed.

Abstract This paper investigates the reporting and contracting responses of electric utilities to SFAS No. 106. Expense-increasing accounting standards generally have no direct cash flow consequences for nonregulated firms, but they reduce these firms' reported net income and increase their reported liabilities. Past research documents that managers of nonregulated firms seek to avert potential contracting costs associated with such mandated accounting changes through operating, financing or reporting decisions that mitigate the financial statement impact of the accounting change. In contrast, expense- increasing accounting standards do not usually affect rate-regulated firms' net income, but do have a positive effect on their cash flows because the rate recovery mechanism is based on accounting numbers. Managers of rate- regulated firms therefore have incentives to respond to expense-increasing accounting standards in ways that enhance the financial statement impact of the accounting change. This study documents that managers of rate-regulated firms that face greater uncertainties about future rate recoveries have greater incentives to use discretionary choices that intensify the impact of expense- increasing accounting changes on current financial statements.