Knowledge that Transforms

The article discusses the advantages of using Bayesian statistical methods in audit tests. Bayesian methods accept the "subjective" nature of experience and other collateral evidence and blend it with the "objective" nature of actual sample test results. The auditor is constantly faced with a decision situation common to most economic problems-resource allocation to achieve optimal results. Bayesian statistics are decision oriented, concerned in particular with the economic consequences of making right or wrong decisions based on probabilities. The auditor invariably has a good deal of historical and current collateral audit evidence about the expected characteristics of audit test areas. The auditor should integrate this evidence into the statistical analysis of sample results. Bayesian statistics is the method that integrates such evidence in the form of a priori probabilities. The auditor thus gains the maximum value from the audit sample. The auditor is less likely to over-extend or under-extend audit procedures.

Reviews the book, "Business Schools and the Challenge of International Business," edited by Stephen A. Zeff.

Reviews the book, "One Hundred Questions in Auditing," by Donald Kirkby.

The author of this article is of the views that he has tested his teaching by teaching students what "incremental costing" really means. Several people have asked him why the assumptions of his article on "Transfer Prices: An Exercise in Relevancy and Goal Congruence" included an assumption that none of the computer jobs involved cost-plus or renegotiable contracts. It has come to his attention that many university computer centers perform some government work on a cost-plus basis, mixed with much university sponsored research work. And he has found that their managerial accounting is wrong and wrong in a way that harms the university, the government, and the computer company from which the computer is rented. So this seems reason enough to him to pursue the topic of incremental costs through an elaboration of his previous analysis to include the cost-plus assumption. The author proposes to test the effect of a cost-plus contract in the resulting purified abstract analysis. To simplify the arithmetic a trifle, he will alter his assumptions as to hours and costs a trifle.

Reviews the book, "Tax Factors in Business Decisions," by Dan Throop Smith.

The article discusses the accounting treatment of accelerated depreciation and rate regulation. The Federal Communications Commission has recently been investigating whether or not American Telephone and Telegraph Company should be forced to use accelerated depreciation for tax purposes. There have been drastically different points of view presented as to the consequences that would result if the company were to use such procedures combined with a policy of continuing to use conventional depreciation for rate regulatory purposes. This article compares the "flow-through" and "normalization" accounting methods. The purchase of a long-lived asset gives rise to benefits extending over the future and that these benefits may be measured in terms of cash flows. At any moment in time the present value of all the future cash flows associated with an investment is a measure of the value of the asset. The taxes saved in the early years are likely to be paid in the later years. The advantage of using accelerated depreciation is that the firm may use the funds that are saved in the time periods before the additional taxes are assessed. The use of accelerated depreciation would result in a shift of benefits from the Treasury to the consumers of the services of the public utilities.

The article presents information on simulation on a time-sharing computer utility system. Time-shared simulation is a rather recent possibility and little has yet been published in this area. Therefore, the purpose of this article is to report both the successes and setbacks experienced in the project in the hope that others may benefit from our errors and avoid the pitfalls the authors have encountered. It may be useful to give a brief indication of the reasons for deciding to use a time-sharing system. The simulation program was developed as part of a research project in an area where both authors had been involved in substantial previous research. The prior research had also made extensive use of simulation, and created familiarity with the problem and the nature and importance of its main parameters. Therefore, it was desired to interact directly with the computer in order to change parameters as output emerged and, generally, to be able to intervene with "what if?" questions as the simulation was running. Undoubtedly, time-sharing has great advantages-for instance elimination of card-punching and verifying, fast and simple access to stored programs and data files, and conversational mode. However, in order for these advantages to be secured, it is necessary to achieve substantial improvements in system reliability and in execution time.

During the past few years, a shortage of business systems personnel has developed a shortage at all levels, including operating personnel, programmers, analysts, and managers. This article presents a case history of how the problem emerged in Hawaii, how it was studied, and how a promising solution was developed. The solution, a university course designed for accounting students which utilizes a field-trip format, is presented as an effective method for gaining momentum in business systems education. It is only through strengthened systems education at the college level that the demand for systems practitioners can be ultimately met. To attack the problem of inadequate systems education, late in 1967 the University of Hawaii, local business firms, and several professional societies pooled their resources and efforts. To the educators, business managers, and officers of the participating societies it became obvious that systems education is particularly responsive to cooperative effort, and that the course which evolved could be of interest to many members of the systems profession. Improving the supply of college trained systems recruits is the only long-term solution to the imbalance of personnel supply and demand in systems work. The current dilemma, in Hawaii, involves both inadequate educational offerings and an absence of student interest. Analysis of student needs and abilities resulted in the development of a field-trip format for the introductory systems course. Systems practitioners agreed to take part. The approach proved highly effective for learning, for recruiting students to the promising area of systems and for utilizing valuable field education resources.