Knowledge that Transforms

The article presents a report of the Committee on Auditing Education of the American Accounting Association as of October 10, 1973. Early in its deliberations, the Auditing Education Committee concluded that the distinction in the charge between undergraduate and graduate level was less appropriate than a distinction between basic and advanced. Furthermore, the Committee agreed that an advanced auditing course should be largely unstructured. Despite misgivings triggered by the foregoing observations, the Committee concludes that the subject matter of auditing comprises a separate discipline with sufficient rigor and research potential to warrant inclusion in the university curriculum. The theory of evidence is an area in which advocates of a conceptually oriented course need particularly to clarify their ideas of topical coverage. Concrete proposals are relatively new, so that a whole range of possibilities exists. Hence, any one proposal is a for instance expressing the thoughts of particular individuals.

The article presents a report of the Committee on Human Resource Accounting of the American Accounting Association as of October 1973, which aimed to deal with the major issues posed by human resource accounting. Although a few companies have pioneered the development and implementation of accounting for investments in human resources, a great deal of future research is required in this area. Research is needed to develop systems in different types of industries and determine the general liability of models and methods used. The basic research need in the area of human resource valuation is for empirical testing of proposed methods. In other words, ills necessary to test the reliability and validity of proposed methods for measuring human resource value. A major area of future research is the need to assess the reliability and validity of models and methods developed by measuring the original and replacement cost of human resources.

This article presents information on the use of dynamic programming in analyzing two accounting methods for inventories and their potential effect on manager decisions. The objectives are to consider the viability of dynamic programming in considering alternative accounting methods and their potential decision effects and the potential decision effects of variable and absorption cost inventory methods. These objectives are met by developing quantitative statements of the alternative methods in a decision-making context, transforming these statements to a dynamic programming formulation, solving these mathematical programs via the computer and analyzing the results in view of past research in the area. Inventory valuation methodology alternatives were selected because of the longtime interest of accountants in utilizing and comparing these systems, the resulting literature made available by that interest, and most important the failure of that literature to disclose a general model capable of fully investigating the decision alternatives in either an analytic or empirical manner. The dynamic programming solution technique is employed as the only viable optimizing methodology in existence.

Reviews the book "Interim Financial Reporting," by James W. Edwards, Geraldine F. Dominiak and Thomas V. Hedges.

Reviews two books. "The Techniques for Advanced Accounting Problems," by Jerome H. Schwartz and Robert Horowitz; "Supplement for Intermediate Accounting," by Jerome H. Schwartz.

Reviews the book "CPA Review Manual," 4th ed., by Herbert E. Miller and George C. Mead.

Presents a comment on the American Accounting Association. Recognition received by the association as a participant in the new three-level organization responsible for establishing financial accounting standards; Need for the Association to establish formal procedures for the selection of members to fulfill the Association's designated responsibilities; Efforts being made to strengthen the Association's regional organizations in order to facilitate the increased participation.

The article focuses on the source of the conflict between present-value depreciation and interperiod tax allocation techniques for determining balance sheet values in accounting practice. A major portion of the controversy over the appropriate treatment of income taxes in accounting results from disagreement on the nature of income taxes. Even if one accepts the unproven assumption that income taxes are an expense, the question of the relationship between income taxes and asset valuation remains to be answered. Supporters of tax allocation, on the other hand, regard asset valuation and income tax accounting as separate problems. The impact of income taxes during a specific accounting period should be measured by the amount of tax which will be paid on income earned and reported during that period, regardless of when the taxes are paid. The article concludes that the basic benefits associated with present-value depreciation can be realized under existing tax laws and accepted methods of accounting for income taxes if annual depreciation charges are based on pre-tax income streams.

The article states that the economic theory is not a monolithic structure. A liberal use of assumptions has provided the base upon which the traditional theory of the static, profit maximizing firm has been constructed. Since the rent, taxes, and insurance associated with productive facilities are obviously independent of volume, the author suggests to single out depreciation of plant and equipment for further investigation. The cost of depreciable plant and equipment usually expires over a period of several years, because of wear and tear, obsolescence, and general deterioration. This time period is normally referred to as the useful life of the facilities. Now it may be true that some assets have the inherent capability of being used in the manufacture of a known stated number of units of production. According to the author a widely accepted way of allocating the cost of the mentioned factors over their useful lives is through the use of straight line depreciation, where the charge against income each time period is simply equal to the cost of the lumpy factor divided by the number of time periods in its useful life.

The article assesses the feasibility and desirability of adopting a report issued by the Study Group on Introductory Accounting titled "A New Introduction to Accounting." An analysis of the recommended modules and topics reveals that many of the subject-matter suggestions are not really innovative. Consequently, any discussion of the feasibility and desirability of adopting the Study Group's recommendations can be limited to the specific suggestions that would require significant revision of the traditional first-year accounting curriculum. Given the imposed school-calendar and classroom-time constraints, it appears that only the first three innovations listed in the article can be feasibly adopted. If much less time is devoted to the discussion of bookkeeping procedures, the instructor should be able to greatly increase the emphasis placed on the use of accounting data in resource allocation decisions. If it is conceded that non-accounting majors do not need exposure to such topics as closing entries, trial balances, work sheets, and special journals, then it must be concluded that at least 80%of the class benefits by the shift in emphasis.