Knowledge that Transforms

Reviews the book "Financial Accounting Information: An Introduction to Its Preparation and Use," by A. Thompson Montgomery.

Reviews the book "Intermediate Accounting: Concepts, Methods, and Uses," by Sidney Davidson, Clyde P. Stickney, and Roman L. Weil.

Reviews the book "Corporate Reporting: Its Future Evolution," by Edward Stamp.

Reviews the book "Managerial Accounting," 3rd ed., by Joseph G. Louderback and Geraldine F. Dominiak.

Reviews the book "Inflation, Deflation, Reflation: Management and Accounting in Economic Uncertainty," by J.P. Wilson.

This paper analyzes the modified treasury stocks (MTS) method mandated by APB Opinion No. 15 for computing diluted Earnings Per Share (EPS) figures in cases where warrants are outstanding. It is shown that the MTS method suffers from two basic deficiencies. First, it assumes that funds obtained from exercising the outstanding warrants are used to reduce debt or to purchase Government securities. This introduces exogenous factors (e.g., interest rate) into the process of computing diluted EPS. Second this method is applicable even in those cases where the exercise price of the warrant exceeds the share price. As a result of these deficiencies, dilutive effects are often reduced and even nullified under certain conditions, Moreover, these effects are subject to managerial discretion and, hence, potential manipulation.

Reviews the book "Financial Reporting by the Oil and Gas Industry in Europe: A Survey Based on 1981 Annual Reports," by Kenneth S. Most.

Reviews the book "Illustrations of Foreign Currency Translation: A Survey of the Application of FASB Statement No. 52," by Hortense Goodman and Leonard Lorensen.

This paper evaluates the usefulness of specific price-level adjusted (SPL) data for bankruptcy prediction using data from the 'seventies. Bankruptcy prediction models are derived from a matched-pair sample using multiple discriminant analysis and logit analysis and are tested on a holdout sample from a later period. The findings indicate that SPL data do not greatly improve bankruptcy prediction.

The article presents the author's opinions on organization theory and auditing. The articles: "Auditing: Perspectives From Multi-Person Decision Theory," by Robert Wilson, and "Organization Theory and Methodology," by Michael C. Jensen, were published in the April 1, 1983 issue of the periodical "Accounting Review." The two articles have much in common. Both emphasize the fact that research on intra- and inter-organization equilibrium behavior is mushrooming and now able to accommodate accounting questions in a way never before feasible, or perhaps even imaginable. Wilson suggests that cost allocation may reflect rational (equilibrium) obfuscation in a financial-reporting context. Wilson emphasizes the importance of "reputation" as an explanatory variable in many economic relationships. Reputation-building is the major factor contributing to economies of scale in auditing. According to Jensen, accounting methods are chosen according to organizations' policies. The use of mathematics as a factor of production in the research process comes into the fore with Jensen's vision of two agency models.