Knowledge that Transforms

Abstract Reviews the book "The Evaluation of Risky Interrelated Investments," by Frederick S. Hillier.

Abstract This article presents a proposed auditing exercise which can be used in discussing a taxonomy of evidence and evidence-gathering techniques. This exercise involves the use of a view-graph slide showing a scene that contains qualitative as well as quantitative characteristics. The particular slide that the author uses shows a profile of people riding on a bus or street car. The scene is fairly typical in that some people are standing while others are sitting, and the vehicle is carrying men, women and children of different races, some of whom appear to be engaged in conversation. This exercise is built on the maxim that a picture is worth a thousand words. The auditing instructor can develop any number of taxonomies to discuss evidence and its reliability. However, many students will probably not get the message. The exercise is a symbolic rather than logical means of communicating the message. It does not have to replace the professor's scholarly and logical explanation, but it can reinforce it. Three specific and relevant points can be made to auditing students in the discussion following their participation in the exercise. First, the evidence-gathering technique of observation can be evaluated. A second pedagogical point for which this exercise can be used is to discuss the variations in the reliability of audit evidence, especially testimonial evidence. A final pedagogical benefit of this exercise centers on the communication skill needed by the auditor.

Abstract Reviews the book "Introduction to Modern Accounting," by Ronald J. Thacker.

Abstract The article focuses on the role of liquidity in exchange valuation. The method of assigning values to goods at the event of exchange under the historical cost system has been described. The historical cost system as a given and attempt to generalize the exchange valuation rules of that system has been taken. An exchange is a two-way flow of goods. An acquisition is accompanied by a sacrifice. Thus, an exchange has a double effect, an increment in one good and a decrement in another, which requires a double entry on the books of account. The operations necessary to make the entry may be analysed in general terms. The entry is meant to reflect the underlying flow of goods. An exchange is an increment in one good accompanied by a decrement in another good. Neither of these goods necessarily has a value attached, instead value is assigned to them. In most cases this assignation of a value is done intuitively, that is without an explicit consideration of the process. The simplest cases are cash exchanges in which the value of cash is set equal to the quantity of cash.

Abstract Reviews the book "Financial Executive's Handbook," edited by Richard F. Vancil.

Abstract The article presents a short-run planning model for a decentralized firm, which includes a linear programming model for the allocation of scarce corporate resources. The decentralization philosophy is well known and its essence lies in the desire by large firms to delegate responsibility decision making on a broad basis throughout the organization. A classical decentralization problem occurs in the planning phase of a decentralized organization. It consists of the question of how to obtain an optimal plan for the firm as a whole while allowing each division to do its own planning. An important limitation to the decomposition technique is that only problems of a certain form can be subjected to the technique. The decentralization model presented has the general form required for the application of the decomposition technique. The "market" values are, in mathematical programming terminology, the dual values on scarce corporate resources. This description essentially applies to all applications of the decomposition methodology to the decentralized decision making problem.

Abstract A general input-output model has been constructed of which all possible alternative forms are special cases. It was shown that one of two alternative sets of assumptions is necessary to assure the existence and feasibility of a solution to the problems of determining the unknown input for a given output, and that of determining the unknown output for a given input. Methods for the transformation of one specific realization of the model into another were developed, together with a technique for the translation of a problem stated in physical terms into one of dollar transactions. The methods were illustrated by a specific example. Finally, some well-known special models were used to illustrate the generality of the representation. It remains to be shown in another context, for example that of a particular real system, that the algebraic transformations have more than purely technical or computational significance. It may suffice here to point out that the levels of the input-output model may easily be identified with cost or profit centers, divisions or plants, in which case the transformations applied to the basic model may be chosen to supply the transfers and aggregations desired for planning, budgeting and control purposes. It is hoped that the overall model will provide a useful tool for the integration of extant material, a standardization of output model may easily be identified with cost or profit centers, divisions or plants, in which case the transformations applied to the basic model may be chosen to supply the transfers and aggregations desired for planning, budgeting and control purposes. It is hoped that the overall model will provide a useful tool for the integration of extant material, a standardization of notation and a basis for simplifying the process of modelling new situations which lend themselves to input-output analysis. Extension into the more general area of linear programming is obviously possible, and the transformations suggested are...

Abstract This article develops and applies the concepts of model, action effectiveness and decision value of information in a production decision example. It is argued that a message has several types of potential value and that accounting information should be evaluated according to its learning characteristics in addition to its value in decision. The potential value of information in planning, in control, and in decision making empirically seems to exhibit itself in contributing directly to choice, in improving one's understanding of real-world relationships and in identifying payoff relevant actions. The need to focus on the potential values of information has arisen to counter the decision ethos or advocacy of many information system designers, to explain the role of feedback-oriented information such as many accounting systems, and also to explain several empirical and experimental observations. The concept of information value that derived from and focused upon statistical decision theory has been examined primarily from the standpoint of learning and has been extended to conform to what is argued to be the role of much accounting information. The design of accounting information systems can be expected to benefit to the extent that such concepts improve both our understanding and our methods of estimating the value of information.