Knowledge that Transforms

Abstract The article is based upon the apparent reasonableness of solutions of the Ijiri-Kaplan (I-K) model for a set of data obtained from a financial institution and a Tuscon office supply company. To demonstrate the usefulness and validity of a model should, in fact, require some evidence that the use of the model will, in some way, generally improve audit decision making. In order to assess the potential for the model to improve audit decision making, certain important issues regarding audit sampling objectives and related measurement problems need to be clarified. First, there is a problem in how an error is defined for the model. For example, the I-K model is defined only for errors which have a dollar impact on an account balance. Further, the I-K model makes no allowance for qualitative differences among different errors. For example, one single extension error, say, in preparing an invoice would be of much less significance for the auditor than would be a single extension error in pricing inventory which might signal multiple errors of the same type.

Abstract ABSTRACT: Though demands to teach internal auditing have now been made for over a generation, at present, internal auditing as a university discipline is in a serious decline. Indeed, the roots of the debate on internal audit education were recorded in THE ACCOUNTING REVIEW in the 1950s, and much of what is being said now is a restatement of old arguments. The principal issue of debate has been whether internal auditing should be taught. Internal auditing is flourishing in one university. This article suggests a number of reasons for its success, and questions established assumptions about internal audit education.

Abstract A knowledge-recognition social exchange model is proposed in this article to conceptualize academic research as a sequential interdependent process. The importance of peer evaluation and feedback to the researcher is emphasized. University goals and their inter-relationships with resource allocation decisions are discussed. The paper reports the results of a survey to ascertain organizational consensus regarding the relative importance of research output indicators in the evaluation of the effectiveness of academic engineering departments' research programs. There is a general consensus among faculty members and between faculty and administrators to attribute the highest importance to papers published in scholarly journals. The regard for the importance of research proposals, however, is not widely shared. The study recommends published papers, invited papers and dissertations as output indicators to be measured by a university's system.

Abstract Research is undertaken to investigate the impact on users of the requirement in APB Opinion 15 calling for reporting of fully diluted earnings per share amounts on income statements. An impact on users is inferred if, around the time of first reporting under Opinion 15, one can observe different patterns of stock prices between two groups of firms: a group which reported fully diluted earnings per share in the first financial reports issued under the Opinion and a group which did not. Such differential patterns were observed, but they began at least a year before the date Opinion 15 became mandatory.

Abstract ABSTRACT: Although financial statement analysis is a traditional classroom topic, the learning process in this area is often mitigated by simplistic examples which fail to deal with the vagaries of actual corporate reports. This paper proposes an alternative approach which requires students to examine real-world data, analyze the computer output generated and articulate their findings and conclusions in a written report.

Abstract This article seeks to develop the concept of profit used in the microeconomic theory of the firm and to examine its potential as an accounting measure. Using a simple economic model, it is demonstrated that profit maximization can be the short-run analogue of long-run wealth maximization. Economic profit is compared with certain of the existing proposals for financial reporting and similar income measures are observed, Certain differences between some existing proposals are traced to a fundamental difference of opinion about the nature of a business enterprise. It is concluded that economic profit appears to have potential as an accounting measure. However, it is pointed out that empirical research will ultimately be required to determine the usefulness of the measure to financial statement users.

Abstract This article reviews the application of present value techniques by several real estate companies to satisfy the requirements of SEC Accounting Series Release No. 190 and suggests that in the particular circumstances of this industry, the results may be more valid than in the usual industrial situation. Real estate companies tend to bemoan the conventional financial accounting requirement for depreciation of properties. Certain sayings, such as real estate tends to appreciate, not depreciate and a well-maintained property never depreciates, are taken as axiomatic in the industry. The conventional requirement that a provision for depreciation of properties be made in financial statements is a key point of contention. Properties are shown at constantly declining historical cost net book values in the balance sheet, when they are often worth considerably more than cost. Reported income is understated because of the same requirement. These two impacts combine to mislead investors in the opinion of the managements, and tend to cause share prices to be unduly depressed.

Abstract ABSTRACT: Using two samples (one as an experimental and one as a control), the authors evaluated the joint effect of two factors on the behavior of common stock prices. These factors were (1) the decision to switch the method of costing inventory to LIFO, and (2) the sign of the expected growth in EPS before the announcement of the change was made. The findings in this article appear to support the hypothesis that the decision to change the accounting method of costing inventory to LIFO is given different interpretations by the securities market, depending on the sign of expected growth in EPS. The significance of the joint effect of the two factors and the existence of differential reaction to the accounting change suggests that intervening variables mediate between accounting-based information and the securities market in processing of the signals provided by such information. Different intervening variables may alter the interpretation of the same accounting event.

Abstract ABSTRACT: This study was concerned with Graduate-Level Public Sector Accounting Education (GLPSA) in the United States. A survey was conducted of the 123 graduate MBA programs currently accredited by the American Assembly of Collegiate Schools of Business, with 81 responses (65.8 percent received. From the responses, it was determined that 11 schools currently offer a GLPSA course, while an additional 40 schools are planning such a course for offering within the next five years. Various reasons were suggested by the 70 institutions currently not offering a GLPSA course such as a lack of resources, inadequate student and faculty interest, and low employment opportunities. Schools currently offering a GLPSA course were requested to return a copy of the course syllabus. Analysis of the 11 syllabi received revealed that most of the courses presently offered consider primarily financial accounting and reporting issues related to such public sector entities as municipalities, hospitals, colleges and universities, etc. Although most courses did consider such issues as budgeting and managerial control, the time devoted to these topics generally was limited to a small portion of the course.

Abstract This paper describes the conduct and results of an empirical study of the differential impact of providing two competing municipal reporting formats: Fund-by-fund versus consolidated financial statements. The conflict between these two reporting formats was linked to the problems of data expansion and financial reporting for diversified entities. An experimental survey was conducted through the mail, using subjects chosen from membership lists of the Municipal Finance Officers Association. Subjects responded by providing an expected, high, and low interest rate estimate for each of the four cities whose financial reports they examined. The dependent variables of concern in the study were (1) the expected interest rates and (2) the interest rate range estimates (high-low). The statistical analysis of the subjects' responses showed that the kind of report presented to the participants (consolidated or fund-by-fund) had no significant impact on the dependent variables examined in the study at α =.05, but did significantly influence expected interest rates at the .10 level. Several implications of this study were offered as suggestions for further research. The limitations of this study were also discussed.