Knowledge that Transforms

The article seeks to illustrate a functional approach to those relationships with which accounting is involved. One application of functionalism as a theoretical and analytical approach is that which has been utilized mainly by certain influential sociologists. A wide range of data has been subjected to functional analysis. A basic requirement is that the object of analysis stand for a standardized feature of a social system or subsystem, such as roles, institutions, norms, and organizations. The properties that receive emphasis when systems are viewed functionally are integration, adaptation, contribution, and maintenance. The parts of the system must be aligned with each other and with their goals or ends, and the variables must be adjusted towards the maintenance of the system, even in a changing environment. A measure of the importance of a part, as well as a means of identifying it, is the contribution that it makes to the total of system activities. Functional analysis bears on the structural activities within a system. This being the case, a functional approach to accounting should provide an understanding and improvement in the relationships among accounting and other information or facilitative agencies.

Reviews the book "Systems Based Independent Audits," by Howard F. Stettler.

Reviews the book "The Complete Guide to Investment Analysis," by Ralph E. Badger and Paul B. Coffman.

The aim of this article is to evaluate the assertion that a company which is at least breaking even has built-in growth potential as a result of the depreciation charge. One of three possible conclusions might be derived: growth is always possible from depreciation charges, growth is sometimes possible from all or part of depreciation charges and growth is never possible out of depreciation charges. Some of the Australian analysts interviewed stated that they would only use retained cash flow as an indicator of future growth potential when a business is regarded, presumably on the basis of alternative information, as being a growth company or as being situated in a growth industry. This article will conclude that some growth in fixed assets is, in some circumstances, possible from depreciation charges. However, a consideration of all the influencing factors is so very complex, that the claim that depreciation charges represent future growth potential can have no general applicability at all.

The federal income tax laws and regulations allow a certain latitude for businessmen to either capitalize or expense certain expenditures. One major area where such a latitude exists is repairs. When a company makes an expenditure for repairs which could be either capitalized or expensed without forseeable objection from the Internal Revenue Service, then a capitalize-expense decision must be made by management which will optimize profits. When an expenditure has been made which falls within a discretionary area for income taxes (e.g., it may be expensed or capitalized) a decision which maximizes the tax savings over time is desired. In general, the analysis will be the same as that used to determine the optimal depreciation policy for capitalized expenditures. In most practical situations salvage value on a particular asset is of no great concern. The revenue code allows the tax payer to reduce the amount of salvage by 10% of the cost of the depreciable property. Since most items of expenditure do not involve salvage values in excess of 10% of cost, salvage value presents no problem.

The article highlights the report to the Executive Committee of Committee on CPA Examinations of the American Accounting Association for 1966-67. The report is in essence the findings of the three sub-committees and their recommendations relative to these findings. As the committee proceeded in its work, it found that its charge could not be fulfilled within the confines of a short period of time, such as one year. Too many unresolved issues of substantial import were uncovered and these issues cannot be left unresolved if the committee is to fulfil its charge. The examination exists for the protection of the public interest. Heretofore, public interest has been primarily a matter of third party reliance, that is, the "attest function." Furthermore, it seems as if the only possibility of an exclusive field for CPA's is the attest function. With these thoughts in mind one must either accept the "attest function" as the factor limiting what is to be included in the Uniform CPA Examination or challenge it.

Relationships between accounting methods, accounting information, and business decision-making are largely unexplored. Hypotheses developed here relate the user of accounting information, the relevance of accounting information for decisions, the decision-maker's conception of accounting, and other information available, to the effect of accounting information on decisions. No tests of the hypotheses have been made and additional research is warranted.

Reviews the book "Accounting for Management: Planning and Control," by Richard M. Lynch.

Reviews the book "The Financing of Small Business: A Current Assessment," edited by Irving Preffer.

The accounting profession and accounting education have increasingly become more specialized, and necessarily so. The field is too large and the material too complex for accountants to be true experts in every area. The operations research area is perhaps analogous to the area of federal income taxes. Each accountant must have a certain minimum knowledge about taxes, but people need not know all of intricacies of tax law. The first big problem to be overcome is fear of tackling the area at all. As indicated in the allegory, the two indispensable aids in accomplishing this end are an understanding of college algebra, and an understanding of elementary statistics. To become a real expert in linear programming would require a commitment of time and effort which is probably not justified, but to become thoroughly conversant in it and comfortable about it, is not such a big task, and will provide with a solid springboard for tackling the rest of the quantitative field. It seems that this approach is better than starting out with a survey of the entire operations research/quantitative methods field on a general level.