This article is an attempt to state the fundamental legal principles governing the rights of holders of original shares in a corporation to subscribe when that corporation issues new or unissued stock. The general rule is that when new shares are issued for money each `holder of the original stock is entitled to a prior right to subscribe in the proportion that his shares bear to the total issue before the increase If part of the authorized capital stock of a corporation remains unissued, in the absence of a statute to the contrary, each stock- holder has a right to purchase such proportion of it, when the issuance and sale thereof are directed, as his holdings bear to the stock then outstanding. It has been held that the right to issue the remaining stock is a corporate franchise, held by the corporation in trust for the corporators, and that this right must be used for the benefit of all the shareholders. The same rule applies to the corporation which has issued and sold but part of its authorized stock and later decides to issue the unissued shares.

Owing to the comparative youth of the accounting profession, court decisions affecting its members are few and scattering. However, the importance of these adjudications to the profession in inverse proportion to their number. An attempt is made in this article to state the significant parts of the American and English cases which have been decided during the past half century. Since accounting has attained the dignity of a profession, its members are subject to the same rules in their practice as are the members of other skilled professions. The damages claimed on account of the losses from the defalcations of the clerk and the insolvency of his surety are too remote to recovered, without showing the existence of special circumstances, known to defendants from which they ought to have known that much losses were likely to result from failure to disclose the true condition of affairs. Such losses are neither the natural nor the proximate consequences of the failure of defendants to make a proper audit.

This article makes an attempt to rationalize the relationship of accounting instruction to a liberal course of study. The lack of uniformity as to the extent and as to the type of accounting instruction offered by liberal arts colleges leads one to believe that rationalization upon this subject has not been conclusive. For the last thirty years, the addition of courses in Economics, Commerce, and Business Administration is one of the outstanding developments in the content of the curricula of colleges and universities in the U.S. The principle which differentiates schools or courses of instruction is to be found in the fundamental purpose which they are designed to serve. In a professional school courses are designed and taught with the idea of preparing men for some special function or profession in life. Accounting maybe described as intelligent counting. It is as essential in the determination of the facts of economic and business experience as are sound and adequate laboratory and field methods in the field of natural science.

Accounting is recognized as one of the basic tools of quantitative measurement essential to the proper control of business and the accurate analysis of its problems and as such is generally considered to be a fundamental subject in the professional training for business administration. The following study has been made with the purpose of determining what the members of the American Association of Collegiate Schools of Business are doing to further education in accounting. Every collegiate school of business offers a course of elementary accounting which usually takes a year to complete and carries from three to five hours credit per semester. Although the content varies to some extent among the institutions. Very few of the institutions under discussion offer more than one course in auditing. Cost accounting is another standard course in these schools. It is either a one or two semester course with credit ranging from two to six semester hours. Courses in C.P.A. problems or advanced accounting problems are offered by a majority of the members of this association.

[This paper reviews and critiques the positive accounting literature following publication of Watts and Zimmerman (1978, 1979). The 1978 paper helped generate the positive accounting literature which offers an explanation of accounting practice, suggests the importance of contracting costs, and has led to the discovery of some previously unknown empirical regularities. The 1979 paper produced a methodological debate that has not been very productive. This paper attempts to remove some common misconceptions about methodology that surfaced in the debate. It also suggests ways to improve positive research in accounting choice. The most important of these improvements is tighter links between the theory and the empirical tests. A second suggested improvement is the development of models that recognize the endogeneity among the variables in the regressions. A third improvement is reduction in measurement errors in both the dependent and independent variables in the regressions.]

Based on stock price behavior around the release of annual reports in 1981 and 1982, Wilson [1987] concludes that for a given amount of earnings, the market reacts more favorably the larger (smaller) are cash flows (current accruals). The goals of this paper are to assess the generality of Wilson's finding and to assess alternative economic arguments that would manifest themselves as a "preference" for cash flows over current accruals. For the overall period, 1977-1984, there Ts no evidence of the simple relation observed by Wilson in his two-quarter test period. We then examine progressively more contextual models of the implications of cash flows and accruals. These models are also unsuccessful in explaining stock price behavior around the release of detailed financial statements. We conclude that either (1) the security price reactions to the release of cash flow and accrual data in financial statements are too highly contextual to be modeled parsimoniously, or (2) important uncertainties about the contents of detailed financial statements are resolved prior to their public release.

[Based on stock price behavior around the release of annual reports in 1981 and 1982, Wilson [1987] concludes that for a given amount of earnings, the market reacts more favorably the larger (smaller) are cash flows (current accruals). The goals of this paper are to assess the generality of Wilson's finding and to assess alternative economic arguments that would manifest themselves as a "preference" for cash flows over current accruals. For the overall period, 1977-1984, there is no evidence of the simple relation observed by Wilson in his two-quarter test period. We then examine progressively more contextual models of the implications of cash flows and accruals. These models are also unsuccessful in explaining stock price behavior around the release of detailed financial statements. We conclude that either (1) the security price reactions to the release of cash flow and accrual data in financial statements are too highly contextual to be modeled parsimoniously, or (2) important uncertainties about the contents of detailed financial statements are resolved prior to their public release.]

This paper examines the likelihood that U.S.-based multinational enterprises (MNEs) will alter their corporate structure in response to changes in U.S. tax policies towards income derived from direct foreign investments. If the deferral privilege is eliminated, it is probable that a number of corporations having foreign subsidiaries will decontrol part or all of their subsidiaries that retain the controlled foreign corporation (CFC) classification in order to avoid the additional U.S. tax burden. The most likely means for decontrolling these subsidiaries is by either selling additional common stock that has not been previously issued or by making a tax-free distribution of the CFC stock under Section 355. For the "average" subsidiary, decontrol will increase the net dividends to shareholders by approximately 20 to 25 percent. Decontrolling is more likely for subsidiaries that are incorporated and/or operating in low tax rate jurisdictions and which reinvest half or more of their earnings. For these decontrolled subsidiaries, the increased dividends available to the shareholders can be nearly six times as large as are the dividends when CFC status is retained following the repeal of the deferral privilege.

In two recent articles in the periodical "The Accounting Review," Beaver and Dukes (B⁄D), have used market association tests to assess the relative information content of accounting earnings numbers under various tax allocation principles. This article is a brief comment on two of their measures of association, "Percent Correct" and "Composite Average Price Index (API)." Correct interpretation of these measures is important for policy makers who might rely on their results and for researchers who may want to use their research method. The reinterpretation of the ⁄D data does not change the conclusions they draw regarding the consistency of different earnings numbers with the set of information used in setting security prices. Rather, its significance lies in the added confidence a policy maker can put in these results. There seems to be no ex ante reason to expect negative composite APl's or especially that the proportion of times that positive forecast errors are associated with negative unexpected price changes should be statistically significant.

The expression "accounting theory" which is what the title of this article might be interpreted to cover would be far too ambitious a programme on this occasion. It can be used in at least two senses which it is desirable to distinguish. The first interprets "accounting" as a gerund, that is, the words "theory of accounting" come to mean a statement or set of statements about the activity that is known as accounting, or, in other words, propositions about the accounting that is carried out by people who are called accountants. The second interpretation possible is that of regarding the word "accounting" as a substantive or noun, meaning an area of study. A theory of accounting in this sense becomes a set of statements about the things that accountants or others interested in the field observe and think about, as well as what accountants do. This field has been explored only in more recent times than the other and has, to a great extent, developed out of it. The distinction between these two interpretations is perhaps rather shadowy and subtle, and they are not altogether divorced from each other.