Knowledge that Transforms

The article is a reply to a comment by the researchers Michael L. Moore and Stephen Buzby on the author's work, published in the July 1, 1972 issue of the journal "The Accounting Review." According to the authors, Moore and Buzby have made several comments on the index of disclosure, which was used in the authors' research to measure the quality of disclosure in annual reports. To test the effectiveness of their index, the authors compared their results with those of the twenty-sixth annual survey by "Financial World." Moore and Buzby noted that the test is somewhat misleading because "Financial World" only punishes the list of award winning companies and the failure of some of the companies in the bottom 23 percent of our sample to win an award may only mean that they were not among the reports surveyed. As mentioned in the authors' article, only 9 of the bottom 23 percent of their sample companies received merit certificates from "Financial World." One of the comments by Moore and Buzby deals with the index's inability to discriminate. This is not true since variable weights were used in scoring annual reports.

The article discusses a university accountant trainee program. There are three major aspects in the development of a person as an accountant--education, training and experience. For classroom work is designed to provide the first of these three. Many colleges and universities have looked for alternatives to the internship program since they have neither compatible academic schedules nor a sufficient number of conveniently-located intern sponsors to allow the operation of an internship program. One such alternative is a university accountant trainee program. Under such a program the university and the department of accounting of the school of business work together to select undergraduate accounting majors to work part-time in professional accounting jobs in the central business administration. Students selected for the program would typically begin their employment at the start of their junior year, having completed three accounting courses. These students would work approximately fifteen hours per week during their junior and senior years and forty hours per week during the summer between their junior and senior years.

Reviews the book "Accounting Principles for Management: An Introduction," by Robert E. Seiler.

The article discusses the need for a senior level theory seminar in accounting education. The author believes that a senior level theory seminar is a must for the accounting major. Discussion and correspondence with former students and with their employers in public accounting tend to support this opinion. The accounting practitioner is the one who decides upon implementation of change in accounting. Intense exposure to accounting theory increases the probability that the practitioner will initiate needed change. In establishing the classroom atmosphere, two approaches are available: provide direction for the class by having the professor serve as a discussion leader or leave the direction to the students by having the professor--serve as a moderator. Two requisites for the course are class size and room arrangement. A small class size is conducive to achievement of the course purposes. However, some minimum parameter probably is beneficial also. The room arrangement should be one in which the students face one another, enabling the class to quickly overcome the tendency for the student to address the professor rather than his peers.

Reviews the book "Modern Research for Administrative Decisions," by Louis Hough.

The results of this study indicate that a significant part of the variation in changes in performance not explained by the other variables in the model is explained by changes in productivity for the three firms studied. To the extent that the particular specification of variables is successful, this relationship indicates that the expected relationship between technical change and performance can be discerned empirically. Also, it appears that on the average the expected positive effects on earnings due to management decisions to make technical changes are being realized. While this favorable result is encouraging, it does not mean that this result can be extended to other firms even if they are drawn from the same industry. Several additional favorable replications of the experiment in the electric power industry chosen to include firms that used hydro-generated power, that are from other geographical regions, and that are of different sizes than the firms included in this study would be required to make generalized statements about the industry as a whole. An extension of this study that would make its results potentially useful for evaluating technical change decisions would be to develop a means of estimating the relationship between these decisions and measured technical change. This extension may be relatively difficult because of the likelihood of considerable time lags between the decisions and their physical outcome. If successful, a manager might then be able to evaluate on average both the effectiveness with which the technical change decisions are carried-out and the effect of that outcome on reported earnings.

This article focuses on portfolio theory and company returns. Two topics of recent interest in the literature of accounting and finance are portfolio theory and the reporting of segment financial data by large, multisegment corporations. In the paper an integration of the two areas will be explored by examining the relationship between the covariability of segment earnings of a sample of multisegment firms and the covariability of the returns of these shares with the market. The purposes are to present an ex post accounting measure of diversification and apply the measure to existing accounting data and relate this accounting measure of diversification and risk to the market determined risk measure in order to provide some empirical evidence as to the market evaluation of diversification at the company level. As early as 1952, researcher Harry Markowitz suggested a portfolio context in which the expected risk of an investment is considered in an investment decision as well as the expected return from the investment. An "efficient" portfolio is one for which the expected risk is minimum for a given expected return.

This article presents information on the undergraduate auditing course at Indiana University. One of the departures is in the computer work, which is included. The School of Business has instituted a new required computer course for sophomores, but the problem orientation of the experience is likely to remain predominant In the auditing course. In an effort to make the computer lecture material meaningful to the students, a data processing computer problem was developed and used this past semester. The computer problem is used as an aid in teaching data processing controls, test decks and flowcharting. The problem employs a payroll processing routine to illustrate the various types of controls. The payroll example was selected because most of the students are familiar with computerized payroll checks and the program offers the student personalized feedback in the form of a simulated paycheck. The feedback feature encourages the students to try to "beat the system," and in so doing explore the controls built into the program.

The article discusses the study of partnership accounting through role playing. Learning from traditional pedagogical methods the author has in their stead attempted a role-playing sequence in teaching partnership accounting. The motive was threefold: to test a different, and hopefully more effective, teaching method; to stimulate students at the semester's start to a level of concentrated effort, and; to quickly generate the harmony that comes about when students in a class get to know each other. The results of this role-playing technique, has been excellent. Examination results appear to have improved, thus alleviating any concern that coverage of the material might suffer. Because students have to learn about partnerships without formal instruction, the important process of self-learning is stimulated. An ancillary benefit of this technique was the rapprochement that ensued, both between students, as well as between students and teacher. The professor's part is one of a silent on-looker who is present for consultation on knotty problems that may arise during the simulation.

The article discusses the use of mathematical models across a variety of disciplines and practices. Mathematical models, naturally, are represented by means of mathematical relations. The mathematical models which will be of interest in this article generally proceed via the special kinds of mathematical relations called "functions," which are used to represent some or all of the relations. Double-entry accounting has been used as a basis for planning and control at both economy-wide and individual-enterprise levels. This is to say that double-entry accounting provides a tool of great utility which can be employed in a variety of ways and contexts. Beyond the convenience of moving back and forth between accounting and interindustry analyses, the mathematics associated with this modeling has permitted a variety of other uses and extensions. The examples in this article should make it clear, however, that this is not the end. Still more may be available from further research in model equivalences and related explorations. Indeed the "models" definition we introduced in the first section of the preceding paper is designed to underscore the potential value of such continuing explorations.