Knowledge that Transforms

The article highlights the report of the Committee on Junior (Community) College Curriculum in Accounting of the American Accounting Association. The charge of this committee is to examine and report on accounting instruction at two-year colleges, with particular emphasis on the appropriate scope of a two-year college's accounting curriculum and the problems of coordination and integration with four-year college curricula. Calling attention to the fact that about two out of seven college students are now enrolled in two-year institutions, the original committee recognized the need for closer communication between the two-year schools and the four-year schools. Simulating the medical model, the committee unanimously agreed to concentrate on the student as an individual. Universities should make an all-out effort to reach the students where they are when they reach the senior institution rather than where they should be based on prior course work or experience. Characteristically, participates extensively in broad company management processes by providing accounting advice, interpretations, or recommendations based on data accumulated in the accounting system and on his professional judgment and experience. The organization which the accounting program serves puts a heavy demand on the accounting organization for specialized and extensive adaptations of the basic system to meet management needs.

This article presents information on the smoothing hypothesis in accounting. This hypothesis assumes that managers perceive their performance measure to be a decreasing function of earnings variability. Based upon this assumption, managers could be expected to make accounting policy decisions which tend to smooth reported earnings. The focus of this paper is on the differential impact of the cost versus the equity method of accounting for unconsolidated subsidiaries. Assuming that dividends typically fluctuate less than earnings, one might reason that the cost method would generally result in smoother reported earnings for the parent. However, closer examination shows that even if subsidiary dividends fluctuate less than subsidiary earnings, the equity basis can still result in smoother reported earnings. The least squares criterion was used to develop a linear relationship between earnings and time on each basis. The slope co-efficient of the line was used as an estimate of the rate of growth in before-tax earnings. Thus, each firm had a growth rate estimate for each valuation basis. The variability of earnings about the linear trend line described above provided the basis for a measurement of earnings variability. The actual measure of earnings variability used was the mean square error (MSE) of earnings about the linear trend line standardized by dividing by average earnings over the time period considered.

The article highlights the report of the 1969-70, 1970-71 Committee on Managerial Accounting of the American Accounting Association. The charge to this committee is to identify, examine, and report on contemporary problems in developing accounting data for the planning, control, and internal performance evaluation function; to critically appraise proposals for action in these areas, to issue broad position statements in specific areas if appropriate, and to make recommendations for research projects. In general, management's decision problems revolve around the optimal allocation of the resources within its control. These decisions are based on methods of evaluation ranging from intuitive or ill-defined techniques for assessing the expected payoffs from the adoption of various actions to well-structured representations of how decision variables, future events and actions interact to yield various levels of expected payoffs. A related proposal in this area uses information theory as a basis for measuring the significance of variances from standards. The ambiguity of the standards approach to information evaluation has led some financial accountants to embark on still another approach to the problem. Evaluating information proposals constitutes the entire area of research in accounting.

This article presents criticisms of aspects of the major concepts, methods, and implications of human capital measurement and reporting proposed by Baruch Lev and Ada Schwartz. Although Lev and Schwartz do not formally define the concept of human capital, they do state that it is a source of income embodied in a person. Neither the set of services an individual can potentially provide nor the value of those services to an organization are "embodied" or inherent in the person. Rather, an individual's service potential is a function of the interaction between the person's skills and the role or set of tasks he performs in a given situation. A major limitation of the valuation model proposed by Lev and Schwartz is that it ignores the possibility and probability that the individual will exit from the organization for reasons other than death or retirement. Thus the application of the model may very significantly overstate an individual's expected service life, and, in turn, overstate or inflate the value of human capital.

Reviews the book "Electric Money: Evolution of an Electronic Funds-Transfer System," by Dennis W. Richardson.

Reviews the book "EDP Systems for Credit Management," by Conon D. Whiteside.

The purpose of this paper is to clarify and sharpen the distinction between monetary and non-monetary assets and liabilities for general price-level accounting. This is done in several steps. First, the conceptual basis of general price-level accounting is examined and the distinction between general price-level accounting and conventional accounting is discussed. Second, an example is introduced to illustrate the nature of general price-level gains and losses and how these gains and losses differ from gains and losses now reported in general price level-accounting. Third, the definition used by several authorities for distinguishing between monetary and non-monetary items are examined and evaluated critically in the light of the theoretical concepts developed earlier. The paper concludes with proposed new criteria for distinguishing between monetary and non monetary items in general price-level accounting. If financial statements are to be of maximum benefit in providing a starting point for predicting future profits and losses, gains and losses due to one causal force should be reported separately from those due to other forces.

Reviews the book "The Economic Theory of Medium and Small Industries in Japan," by Noboru Inaba.

The purpose of this article is to demonstrate and analyze the differences in accounting method within the three different schools. In addition, the article examines the distinctions among the three approaches as claimed by their respective advocates. In the discrete model, interim reports are prepared on the same basis as annual reports. Full independence is granted to each quarter comprising the year, and no attempt is made to adjust the quarterly report to an annual basis. Each quarter is treated as a "quarterly venture" in much the same way as the annual period is regarded as an "annual venture." The modified discrete approach is an extension of the strict discrete in this model the firm uses a predetermined overhead rate with any variances charged to cost of sales each quarter. Much support appears for this model in practice for studies have indicated that most companies do not inventory any portion of underabsorbed overhead. The basis for the various prediction theories is the assumption that the annual costs are incurred to benefit the entire annual venture, regardless of when production occurs or when costs are incurred. Each quarter of the year should be charged a fair share of annual costs.

Reviews the book "Technical Resource Management: Quantitative Methods," by Marvin J. Cetron, Raymond Isenson, Jacob N. Johnson, Ambrose B. Nutt and Howard A. Wells.