Knowledge that Transforms

Congress introduced the first version of the minimum tax provisions in the Tax Reform Act of 1969. Congress subsequently modified the minimum tax provisions with the Tax Reform Act of 1976 (TRA76), the Revenue Act of 1978 (RA78), and the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA). This study evaluates the TRA76, RA78, and TEFRA minimum tax provisions from the perspective of horizontal equity. The study is based on taxpayer data from the 1978 Individual Tax Model prepared by the Internal Revenue Service (IRS). Relevant individuals are classified into groups of equally-situated taxpayers based on expanded income. For each such group, the coefficient of variation (CV) is computed, and the three minimum tax structures are compared for their relative equity effects. The study generally concludes that the TRA76 add-on minimum tax best enhances horizontal equity.

Reviews the book "Improving Capital Budgeting: A Decision Support System Approach," by Lawrence A. Gordon and George E. Pinches.

This paper presents a framework for empirical research on the self-selection and effort effects on worker performance of standard-based employment contracts, along with the results of an experiment that tests some hypotheses derived within the framework. The framework examines how personal and contract attributes (or a worker's perceptions of them) affect the self-selection process and how self-selection and effort are interdependent. The experimental results were consistent with these hypotheses: workers select among alternative employment contracts based on their performance capability, the correlation between performance capability and performance incentives in the contract selected is higher in the presence of a controllability filter, and contract selection can explain effort effects.

Reviews the book "Doctoral Programs in Accounting," edited by Thomas J. Burns.

Reviews the book "Management Control: Planning, Control, Measurement and Evaluation," by Kenneth J. Euske.

Decisions about a subordinate's behavior are among the most important control problems facing audit managers and partners. Green and Mitchell [1979] apply attribution theory to examine supervisors' decisions made following a subordinate's behavior. Green and Mitchell argue that an individual's causal attributions regarding a subordinate's behavior serve as mediators between the behavior of the subordinate and the action responses of the evaluator. This paper reports the results of a study that examines the attribution judgments and responses made by auditors following an incidence of an audit senior's poor performance. Employee work history and client history each significantly affect the attribution judgments made by auditors. Also, the attribution judgments were associated significantly with the recommended responses of auditors. Additional analyses showed that the association was higher for internal attributions and responses than for external attributions and responses.

Reviews the book "The Wit and Wisdom of Wall Street," by Bill Adler.

This paper reports the results of an experiment to test four models of the principal's information evaluation behavior in a private, pre-decision, principal-agency setting, The four models tested were an expected utility model, a prospect theory model, a linear model and a multiplicative model. In response to recent criticism that tests of positive theories in accounting lack sufficient power to discriminate among competing theories, the tests of the models were designed to disconfirm the models' predictions without assuming initial conditions. The model which best resisted the attempts to falsify it was the multiplicative model. The results demonstrate the generalizability of theories of information evaluation behavior from an information evaluator-decision maker setting to a principal-agency setting and show that the descriptive validity of principal-agency theory can be enhanced by incorporating models of individual behavior other than those based on expected utility theory. The study also provides a rigorous test of prospect theory and offers guidance for the future development of this theory.

Reviews the book "Words of Wall Street, 2000 Investment Terms Defined," by Allan H. Pessin and Joseph A. Ross.

Reviews the book "Accounting: Concepts and Applications," by Paul R. Berney and Stanley J. Garstka.