Knowledge that Transforms

Provides information on the Opinion No. 8, 'Accounting for the Cost of Pension Plans' study issued by the Accounting Principles Board. Features of the study; Information on normal cost, service cost and prior service cost in pension plan; Difference between defined minimum and defined maximum in pensions.

Reviews the book "The Practice of Modern Internal Auditing: Appraising Operations for Management," by Lawrence B. Sawyer.

Presents a reply to comments made by Akshay K. Talwar on a transfer pricing system based on opportunity costs. Relevance of transfer pricing in the budgeted profit approach; Inconsistency in Talwar's approach to evaluating divisional managers.

This article describe the uses of the time-shared interactive computer in the real-time environment as a teaching aid in the auditing of Electronic Data Processing systems. The approach described here has been used in undergraduate auditing classes at the University of Iowa. Students work with files of data and programs prepared by the instructor and stored within the computer system. The student's focus is on the audit problem to be solved, the input of data and the use of the computer to yield a solution. As in practice, no programming knowledge is required. The time-shared computer allows the user to communicate with the computer as if he were the only user of the system.

This article presents a study on holding gains and losses and the evaluation of management in accounting in the U.S. The result is achieved simply by valuing cost of sales at end-of-period prices. Holding gains are calculated as units of goods available for Sale, beginning inventory plus purchases, valued at end-of-period prices minus the sum of opening inventory and cost of purchases. Then operating profits will be independent of the amount of end-of-period purchases and all gains or losses from fluctuating prices will be allocable to purchasing management.

This article presents a study on a cooperative formulation of the audit choice problem in auditing in the U.S. Under appropriate conditions, this leads to group level surrogate utility and probability functions such that the audit program chosen should maximize expected surrogate utility. Thus, the auditing problem is conceptually reduced to a Bayesian decision problem. The normative utility function, however, is determined by summing the auditee's and auditor's respective risk tolerances; and the probability function is determined by sampling both individuals' opinions in proportion to their marginal stake in the choice consequence. That is, the appropriate functions are composites and are not, in the general case, those of the auditors.

The article announces two recent awards in the accounting profession, including the American Accounting Association's Outstanding Educator Award for 1972-73 to Wilton T. Anderson of Oklahoma State University and Charles T. Horngren of Stanford University, and the Notable Contributions to Accounting Literature Award to Richard Mattesich.

The article reports that recent developments in finance, particularly the construction of the portfolio and efficient capital markets theories, proved to have a significant impact on accounting research. Among the major questions currently being examined is the relationship between financial statement and market-determined risk measures with the objective of inferring from the extent and timing of such a relationship the usefulness of accounting information for investment decision making. Available research generally indicates the existence of a weak to moderate association between accounting- and market-based risk measures, while very little evidence is available regarding the ability of accounting data to improve risk measurement and hence portfolio selection. Thus, both the positive and normative questions remain to a large extent unanswered, and more research in the area is obviously warranted. The objective of this study is to draw attention to a set of financial statement measures which according to organization and production theorists reflect some basic risk characteristics of the firm.

Reviews the book "Contemporary Thought in Accounting and Organization Control," by K. Fred Skousen and Belverd E. Needles.

Presents information on a study which proposed a conceptual framework within which the alternative of reporting opportunity cost deviations in terms of their identified sources can be evaluated. Problem in identifying the deviation sources; Sources that may contribute to material price variance; Conclusions.