Knowledge that Transforms

Abstract Since its inception, accounting has had a dependency relationship with other disciplines. Accounting education has developed, as a part of business administration and therefore, this has been the intellectual environment within which accounting thought has been incubated. The importance of this environmental setting can be seen by looking at the contributions to accounting theory of Australian academicians who are usually much more a part of economics departments than of schools of business as compared to the United States. This environmental factor is important in looking ahead to future developments in accounting theory. Four developments in business administration promise significant changes for the environment within which accounting theory will be developed and research will be carried on. Business administration has changed from an emphasis on description of business practice to a more analytical discipline where great attention is given to the underlying concepts and real attempts are being made to construct the practical models. The underlying basic discipline of Economics, which has been the primary base for theoretical models in the past, has been partially supplanted by the behavioral sciences, and it has been supplemented by greater attention to mathematical models. The economic goals, which were implicitly, or explicitly the almost exclusive objectives of business administration have been expanded to include broad society goals. The study of business administration is being expanded to a general study of administration for all types of organizations.

Abstract The charge of this committee was "to survey previous American Accounting Association studies as well as current practice and to recommend a preferred curriculum and degree or degrees to be conferred. The American Association of Collegiate Schools of Business has instituted and implemental accreditation of graduate degree programs in colleges of business administration. A student must hold an undergraduate degree from an accredited institution to be admitted into a master's program in accounting with a satisfactory grade-point average. Nationwide testing should be supported to improve admission standards. Career accounting teachers should have earned doctoral degrees. Organization behavior is a course stressing human relations applied particularly to business and large scale organizations. Microeconomic Theory should be a course to integrate the concepts found in intermediate price theory and other economics courses with corresponding business practices.

Abstract The article discusses the nature of decision models and information evaluation models. The first section presents a general framework, or model, for information evaluation. The second examines the nature of the operational model that would be constructed in order to apply the general framework in a specific setting. The information evaluation process is viewed in cost-benefit terms; and the cost-benefit, or value, calculation is developed from the point of view of an individual who decides what information to supply. Different signals may result in different decisions, and, therefore, the information evaluator must develop a conditional probability distribution over the future events for each possible signal. Decision models seldom represent as controllable variables all actions that must be taken. Most mathematical models do not attempt to include detailed predictions of individual events. One simplified and well-known method for selecting information systems is to base the selection on personal opinion. Some insights that can be developed by such an exploration were then related to information choice issues and information research methods.

Reviews the book "Managerial Economics," edited by G.P.E. Clarkson.

Abstract This exercise examines the possibility of using shadow prices to calculate transfer prices between divisions of the multi-division or conglomerate firm and of basing divisional profit statements on transfer prices derived in this way. In order to demonstrate the proposal, a well known Harvard Buisiness School case is modified in two ways so that two different linear programming solutions can be derived. Divisional income statements are then computed which indeed do exactly distribute the total profit of the firm each time, but these statements are found to have several unsatisfactory features for purposes of income determination. The exercise concludes by suggesting extensions for study and problem solving for the student.

Reviews the book "Statistical Sales Forecasting," by Vernon G. Lippitt.

Abstract One of the responsibilities of a certified public accountant, CPA is to keep secret the confidential disclosures made to him by his client in the course of his professional engagement. The AICPA has recognized the need for this confidential relationship in Article 1.03 of the Code of Professional Ethics, which states: A member or associate shall not violate the confidential relationship between himself and his client. To carry out his mission, the CPA must have access to all the information of a company relating to the financial statements, even though some of it might be highly confidential and potentially valuable to competitors. That complete information is made available to the CPA is a tribute to his integrity and professional stature. If a confidential bond did not exist between auditor and client, the auditor-client relationship would not last, since disclosure by the CPA of trade secrets, secret processes, lists of customers or plans of organizations and the like would create such distrust and apprehension in the relationship that the client would be hesitant to let the auditor examine any of the documents for fear of later disclosure. However, the disclosure by the auditor of confidential information learned in the course of his professional engagement in a court of law becomes a much more difficult question.

Reviews the book "Business Planning: Key to Profit Growth," by Patrick H. Irwin.

Abstract Quantitative techniques may be used in performing certain tasks normally associated with accounting. Accounting is a prime source of some of the information used to estimate the parameters of various quantitative decision models. Accountants should understand and have access to the decision models used in a firm because some information generated by these models are used in his own tasks or should be included in the information that is supplied to decision makers. Evaluation of a proposed parameter change, such as the expansion of equipment capacity, may include a comparison of the predicted change in contribution profit with the predicted cost of that change. Calculation of the cost of potential estimation errors may assist in deciding where to focus efforts to reduce estimation errors. This cost is the difference between the optimal contribution profit, given the correct estimates, and the contribution profit, which will result if the decision maker attempts to implement the values of the decision variables selected on the basis of the erroneous estimates. Linear algebra can be used in costing the products for income determination. Linear programming can be used to determine the contribution profit and decision variables that are optimal for the parameters that actually did or should have occurred. This type of analysis adds new dimensions to the usual types of variances calculated and expands the concept of control.

Reviews the book "DR Scott Memorial Lectures," edited by Orace Johnson.