Knowledge that Transforms

Reviews the book "Advanced Management Accounting," by Robert S. Kaplan.

Previous accounting research in applied judgment tasks has been interpreted as supportive of the linear model as an appropriate representation of information processing behavior in the decision tasks studied. The present research tests whether this theoretical conclusion applies to the credit judgment task. Subjects judged the creditworthiness of hypothetical business borrowers described by one or more of the following traits: quality of management, financial condition, and payment record. Two distinctly different analytical techniques were employed to test the predictive ability of the linear model and several nonlinear models. In addition to standard correlational tests, qualitative tests of the predictions of the models were also made. Correlational tests were supportive of the linear model. However, qualitative tests diagnosed the credit judgment task as involving nonlinear decision-making processes. Theoretical and methodological implications are discussed.

Reviews the book "Advanced Accounting," 2nd ed., by Floyd A. Beams.

Reviews the book "Introduction to Financial Accounting," by Paul Hooper and John Page.

The article reviews actions taken by the author as the editor to the journal "The Accounting Review." According to the author, one of the most important decisions taken by him was to decentralize the editorial review process and to designate three individuals to serve as sub-editors beginning in 1980. Approximately one in five of the new manuscripts received since the second half of 1980 were handled by sub-editors, who chose reviewers and made editorial decisions. Sub-editors were assigned manuscripts falling within their respective areas of expertise, thus enabling a more sensitive assessment of the potential of each manuscript. In his opinion this experiment with decentralization has been a success. While the concept of decentralization has thus been shown to work, the measure of its success is unquestionably a function of talents of the three academics Bob Swieringa, Bill Kinney and Dan Collins, who so ably served as sub-editors. Another decision requiring considerable thought and consultation was related to the journal's policy on reproduction of articles. Although some journals had begun assessing a per-page or per-article fee for such reproduction and others had announced no policy at all under the Copyright Act of 1976, the journal decided upon perhaps the most liberal of possible policies.

The article presents a reply by James A. Anderson and Kent E. St. Pierre to a comment on the article "The Potential Impact of Knowledge of Market Efficiency on the Legal Liability of Auditors," regarding market efficiency and legal liability. In their comments on the above mentioned subjects the authors have given importance to some points. The important ones being 1) Speculation: The original paper was concerned with the direction of probable change in court decisions that might be caused by knowledge of market efficiency. 2) Criticism of earlier focus on common law; 3) Damages. Each of these categories are discussed briefly. Under the general heading of Auditors' Legal Liability Under the Common Law, critics have discussed both negligence and deceit. Theft analysis of liability for negligence focuses on the principle of privity of contract and concludes that "the common law courts are a long way from abandoning the notions of privity of contract, primary benefit, and foreseen persons (classes) and will likely continue to hold accountants liable in negligence only to those clearly foreseen third parties whose injuries are directly linked to the accountants' misrepresentation."

Reviews the book "Kohler's Dictionary for Accountants," 6th ed., edited by W.W. Cooper and Yuji Ijiri.

Reviews the book "Company Financial Reporting," 2nd ed., by T.A. Lee.

General Electric uses the equity method of financial accounting for its subsidiary, General Electric Credit Corporation, but consolidates it on the tax return. This note disentangles the amounts and sources of cash payments and refunds for income taxes of the two companies, with special emphasis on the effect of tax-transfer leases. It shows how to estimate the elements of the costs and benefits of tax-transfer leasing. Through tax-transfer leases, General Electric paid its lessees about $350 million in 1981 for benefits estimated to be worth on the order of $500 million, net. These transactions contributed to GE's being able to arrange its tax affairs to receive a refund of $104 million from the U. S. Treasury, while paying over $300 million in taxes to foreign governments and $54 million to state and local governments.

Reviews the book "Accounting and Federal Regulation," by James P. Bedingfield.