Knowledge that Transforms

Reviews the book "Financial Accounting Theory II: Issues and Controversies," edited by Thomas F. Keller and Stephen A. Zeff.

Reviews the book "The Rise of the Accounting Profession," vol. 1, by John L. Carey.

Reviews the book "Depreciation: Accounting, Taxes and Business Decisions," by J.D. Coughlan and W.K. Strand.

Reviews the book "The Design of Computer Simulation Experiments," edited by Thomas H. Naylor.

Objectivity is an amorphous concept, which has permeated accounting literature and continues to present definitional problems to accounting theorists. Current literature has created confusion about the meaning of the term objectivity in accounting. The term has been used in reference to the phenomena which the accountant observes, the methods to be used, his mental attitude and the results or information he promulgates. Objectivity exists at several different levels or in several different degrees in the accounting process. In discussing objectivity writers often do not adequately describe the level to which they are referring. While objectivity is often employed as a buzzword to support theoretical arguments, little certainty exists about its meaning or the level at which it is applicable. As a result, it means different things to different people. This situation inhibits accounting communication and progress toward solutions of accounting theory problems. As measurement techniques, accounting principles and accounting procedures become more refined and precise, their actual application becomes more objective because they depend less upon specific individuals.

The article examines the factors and relationships which explain the auditing process. The first relationship above is really a statement of the raison d'etre for both accounting and auditing in our present socio-economic environment. A basic tenet of current accounting theory is that the measurement of income is one of the primary bases for the allocation of resources. The received wisdom includes corporation managers utilize resources more or less efficiently. The efficient managers produce relatively higher incomes. The accounting measurement of income, attested to by the auditor, is reported to the capital market. The capital market, in turn, assigns favorable prices to the securities of the more efficient managements, thus enabling those managements to secure additional resources at favorable terms. When footnotes and other elements of financial statement presentation are considered, the number of different possible opinions on the scale becomes virtually infinite. The seven grades listed above are only the major ones, and other subsets may be distinguished without limit.

Reviews the book "Business Combinations: Planning and Action," 1st ed., by Arthur R. Wyatt and Donald E. Kieso.

Reviews the book "Systems Analysis and Project Management," by David I. Cleland and William R. King.

Reviews the book "The Cost of Capital," by Wilbur G. Lewellen.

The article evaluates the method of determining the depreciation rate for a group account in order to draw conclusions regarding its relevancy as an approach to self-insurance expense and depreciation accounting. In an attempt to minimize costs associated with formal insurance contracts (exchange transaction) some companies implement programs of self-insurance. In contemporary accounting practice, events to be recognized in the accounts must be characterized by exchanges of consideration. Orthodox procedure for recognizing gains or losses resulting from casualties distorts the proportionate allocation of costs over the relevant planning horizon or period for which a group of assets is expected to produce revenues as judged by management at the time the decision is made to acquire the assets. In the above discussion it has been demonstrated that the notion of self-insurance expense is incompatible with contemporary accounting practices. Recognition of this fictitious cost does not meet the criterion of exchange transaction as required by contemporary accounting practices.