Knowledge that Transforms

Accounting is a means of making certain quantitative information available. When it is obligatory, as in tax reporting, there are rules to follow and no theory need justify them. (Some rules are formulated only after specific returns have been filed.) The area where theory and professional training are relevant is that where a decision-maker is (or would be) motivated to incur the collection costs of accounting because he expects to make a decision which will be more rewarding because the data were known than would the saving of the collection costs have been. The many parties (all of whom are managers) who need this kind of data are mainly trying to determine what company management seeks to know--company prospects under various (or a single) future conditions. Historical data are often irrelevant, and logical historical income determination often disguises relevant portions of the data. Accounting theory should pay more attention to users' objectives, even at the sacrifice of some objectivity. All accounting courses should stress usefulness by pointing out shortcomings of certain data as well as by pointing out the precise conditions where useful data are relevant. At present there is need for a course with this practical emphasis in which the principal attention will be on the relations of data to decisions and on means of analyzing and augmenting routine data for limited internal purposes.

This article focuses on accounting theory and research in management accounting. Commercial and governmental operations are constantly increasing in size, in complexity, and in the number of people affected. It has become essential that simplifying techniques be developed so that human intelligence can plan and control them. Accounting is basically a method of measurement and communication. The importance of both techniques has increased considerably in recent years. Measurement has reached a stature in science such that some believe that unless a process can be measured the study of it can hardly be called scientific. Accounting activities have increased for the most part because the need for records of transactions has become so great, not because of new techniques or research ideas. Soviet Union, for example, in spite of relatively limited interest in accounting theory, has more bookkeepers than the United States. The area that accounting theory usually has emphasized is only a part of the field of the measurement and use of economic values. There are many other aspects of measurement in business and government, such as population counts and the volume of physical trade.

The subject area of "Consolidations" offers itself as a most suitable workshop for testing many of the notions of accounting. Yet the usual textbook solution involves so much busy work that the student has little remaining time or energy to benefit from theoretical inquiry. Indeed, the drudgery involved in the initial preparation of the worksheet may be sufficient to divert intellectual attention! Another obstacle to the learner is found in the multi-chapter approach to the subject found in many textbooks. With this approach, the student works largely with small discrete parts of the whole. Ordinarily this might be desirable; here, however, his attention is best directed to the whole problem since the answers to the parts are relevant only in the context of the whole. It is usually true that by the time a student undertakes the study of consolidations, he has an extensive and thorough background in accounting methodology and theory. The question as to the proper method for disposition of minority share of inter company profit of the three listed earlier is deliberately not raised here. Probably the answer relates to the purpose of the consolidated statements.

The general meaning of cost is sacrifice or in economic terms, undesirable change in value. Which value changes are undesirable depends on the point of view adopted. To a proprietor, decreases in assets and increases in liabilities are undesirable. To the business entity, increases in owners' equities in connection with the contributions of capital to the business may be viewed as costs, along with increases in liabilities and decreases in assets, but a genuine entity point of view is seldom adopted by accountants. From the residual equity point of view, preferred stock outstanding is a liability, and increases in liabilities, like decreases in assets, are costs. Expense is one category of cost. Losses, production costs, and purchase costs are examples of other categories. Recognition of the value of information about the firm's net recurring income should be encouraged; that figure is one of the most useful data an accountant can provide to those who must make investment decisions. But to show as recurring an item of cost that is actually erratic is to report the results one would like to see rather than the value changes that actually occurred. The solution is to make a sharp distinction in the financial statements between recurring and nonrecurring changes in net worth.

This article focuses on determining priorities for cash distribution in partnership liquidation. Students in the Principles of accounting course are introduced in partnership liquidation to the problem of cash distribution using a situation in which all assets are sold at once, liabilities are liquidated, and cash is distributed to the partners cash is distributed to the partners. Priority order has no importance but it points out, and the instructor should emphasize, that payment of cash on the basis of the capital account balances is now equitable because gains and losses have been distributed according to the partnership profit and loss sharing ratio. The author has developed another method which compares percentage of capital to the profit and loss-sharing ratio. By inspection it can be seen that the capital balances are not in the same ratio as the profit and loss-sharing ratios. Although it could be seen by inspection that the capital account balances are not in the profit and loss-sharing ratio the computation shows us what the capital account balance ratios are.

Robert Jaedicke and Carl Nelson in their article "The Allocation of Income Taxes--A Defense," published in the April 1960 issue of the journal "The Accounting Review" propose a slightly different point from which to view the argument for the inter-period allocation of the tax differential arising from the application of accelerated depreciation for tax purposes only. Subsequently Arnold Johnson in his article "More on Income-Tax-Allocation Accounting," published in the January 1961 issue of the journal summarized his position against period allocation of the tax differential, concluding that the statement of income for a given corporation for a given year should contain a deduction only for the income taxes payable to the U.S. Treasury for that year. Johnson's article, though following in time, made no overt reference to the earlier Jaedicke-Nelson article and is taken here as an independent element of the continuing debate on tax allocation. The intention of the present article is rebuttal on the Jaedicke-Nelson arguments. While along the way it hopes to provide evidence supporting Johnson's position that "allocation lacks the proof of either a legal liability or of a current asset value," the present effort centers itself in the following funds framework; the one in which Jaedicke and Nelson place their arguments.

This article presents the report of the Committee on Doctoral Programs in Accounting. The committee made various recommendations on how to improve the Doctoral programs. It suggested that the doctoral program is the principal educational process for preparing students both for university teaching and for basic research in accounting. Hence the primary objective of the study program for the doctorate should be to develop in the student original and incisive thinking and to create an attitude conducive to study and research. As wide variations in the backgrounds of doctoral students call for individually designed programs of course work, instruction in methods of teaching and familiarity with the learning process should be a part of the doctoral program. At the end of the study program the doctoral candidate should demonstrate proficiency in accounting and a reasonable understanding of economics, statistics, the functional areas of business, the behavioral sciences, and mathematical methods. And finally the demand for college teachers of accounting should not be an excuse for lowering the standards for the doctoral program.

Financial statements cannot be critically examined unless companies disclose the methods used in obtaining the figures in the statements. In a recent attempt to review and analyze statements of food companies, it became apparent that the disclosure policies of the 217 companies examined were something less than desirable. In particular, most of the companies did not report depreciation methods and about one-half of them reported only a very nebulous "Lower of Cost or Market inventory valuation method. Financial statements are supposed to supply stockholders, investors, governmental agencies and other interested parties with sufficient information to provide a good foundation for making decisions about the performance of individual companies. Unless the methods and policies underlying the reported figures are disclosed so there is no question as to that meaning of the figures, the data may be of limited value. If financial statements are to be used for something more than advertising and fulfillment of legal obligation then policies that are every hit as important as the data should be adequately disclosed.

This article examines the suitability of variable costing for external reports. Variable costing is the inventory costing method which applies only variable production costs to product; under this method fixed factory overhead is not assigned to product. Typically variable production costs are direct material costs, direct labor costs, and variable overhead costs. Variable costing differs from conventional costing, sometimes called absorption costing, because fixed factory overhead is treated as a period cost rather than as a product cost. If a given cost has no influence on future operations, it is irrelevant and not helpful for decision-making. Therefore, assets should consist only of relevant costs, costs that will influence future results. If costs will not have an impact on future results, they have no service potential because they cannot affect future cost incurrence. Proponents of conventional costing maintain that income is greater when production exceeds sales than when production is at the same level as sales, because fixed facilities are better utilized and render more benefit in the form of inventories that will bring future revenue.

While the accountant may find that most of his assignments involve accounting problems, he may also have to investigate security and criminal cases. This article focuses on the role of accountants in FBI investigations of financial crimes. The FBI is charged with the duty of investigating violations of the laws of the United States, collecting evidence in cases in which the United States is or may be a party in interest, and performing other duties imposed upon him by law. Its inquiries cover Federal criminal violations, civil matters, and cases concerning the internal security of the U.S. Its investigative staff consists of approximately five thousand nine hundred Special Agents assigned to fifty-five field offices and to FBI headquarters in Washington, D.C. They are the products of American educational system coming from approximately seven hundred fifty colleges and universities. To be considered for the position of Special Agent Accountant, the candidate must possess a degree from a four-year resident accounting school and have at least three years of practical accounting and or auditing experience. The applicant must be between twenty-five and forty years of age, meet demanding physical standards, and be capable of performing strenuous Physical exertion.