Knowledge that Transforms

Reviews the book "Computers in Business: A Fortran Introduction," by Robert E. Malcom and Malcolm H. Gotterer.

Reviews the book "Accounting Series: Programmed Instruction," by Robert J. Lewis and Joseph W. Fedor.

Reviews the book "Probabilistic Models," by Clifford H. Springer, Robert E. Herlihy, Robert T. Mall and Robert I. Beggs.

Reviews the book "Sensitivity Analysis in Making Capital Investment Decisions," by William C. House.

In a recent issue of "The Accounting Review," accountant, Joel S. Demski described an extension of variance analysis. This article presents an analysis of some of the assumptions underlying Demski's proposed system and briefly discusses its limitations. This article will provide those interested in conducting additional research in this area with useful insights relative to the most fruitful avenues for such research to take. Demski's article represents a worthwhile and provocative contribution to the managerial accounting literature. The possibility of deriving a control system which would encourage managers to depart from their original production plan when such departure is to the firm's advantage is a highly interesting and potentially important development. Some of the feasibility problems indicated might prove to be insignificant in the presence of computer technology's rapidly expanding capacity to handle data. Thus the author concur with Demski that additional research in this area is justified, and he is hopeful that the discussion will stimulate and provide useful points of departure for such research.

The article reports that product of any managerial accounting system, like that of all other information systems, is information. The nature of accounting is that of an information system. As an information system, accounting deals selectively with problems of the same order as more general information systems. Managerial accounting systems are comprised of eight functional elements: Perception, recordation, storage, retrieval, processing, transmission, presentation, and decision making. Like general purpose information systems, the output of accounting systems purport to educate the recipients of that output. One of the early effects of the information systems syndrome on managerial accounting was produced as a secondary result of computer-induced changes in the organizational structure of the enterprise. Many lower-level clerical and middle-management jobs have disappeared, and activities formerly performed at these levels have been "taken over" by the computer. In other organizations, middle-management positions have assumed even greater importance than before as planning and control functions have been moved to lower organizational levels.

The article reports that accounting is a response to needs, and particular accounting activities are a response to particular needs. A study of accounting practice will make apparent the progression from needs to objectives to methods and rules. In a simple, slowly changing, but competitive society, the process of evolution is likely to bring forward an appropriate set of accounting methods and rules. But in a complex, rapidly changing, and highly competitive society, there is a need for a short-circuiting of the evolutionary process and for a recognition of its limitations. An accounting system accumulating, classifying, analyzing and relating both financial and statistical data is the major source of managerial information. In the first place there is the value of the record itself. What is applied in administrative accounting is relevant also to external reporting. For effective definition of objectives, and therefore rules, it is necessary to specialize, concentrating on the shareholder as primary addressee of the financial report. The methods and rules should be based on objectives, after due regard for practicality and for presently acceptable standards, and the objectives should extend from needs.

The article presents information about various universities related to accounting, as of October 1968. Professor E.B. Smyth was visiting professor at the University of New South Wales from January until April, 1968, he addressed the Florida Accounting Association at its annual banquet at Apollo Bay. R.K. Jaedicke was visiting professor at the Stanford University in the spring, 1968. Joel Demski, formerly of Columbia University, joined the Stanford faculty as Assistant Professor of Accounting, effective September 1, 1968. Visiting professor Curtis H. Stanley of Ohio State University has been appointed an Associate Professor of Accounting. He was formerly on the faculties of the University of Minnesota and Yale University. Professor Vern Odmark will be a visiting Professor during the 1968-69 year. Professor Yu-ku Li from the University of California joined the faculty as an Assistant Professor of Accounting in January, 1968. William Bentz has accepted appointment as Assistant Professor of Accounting at the University of Kansas.

Reviews the book "Accounting Systems: Design and Installation," 3rd ed., by J. Brooks Heckert and Harry D. Kerrigan.

Considerable variation and disagreement have characterized the accounting for, and the rationalization of, differences between financial and tax depreciation. Specifically, the writer believes that the reporting of a deferred income-tax liability and additional income-tax expense for book-tax differences in depreciation is an ad hoc solution that will not stand close theoretical analysis. A difference can be said to exist between financial depreciation and tax depreciation whenever the best depreciation for financial reporting varies from the best depreciation for income-tax purposes. For financial reporting, ideal depreciation presumably reflects the annual amounts that best reflect financial status and operating results, including their combined result in terms of the rate of earnings. One of the fundamental issues in the controversy about book-tax differences in depreciation is whether taxes payable in the future from future revenues create a liability prior to the recognition of this future revenue.