Knowledge that Transforms

Abstract Reviews the book "Accounting for Colleges and Universities," by Clarence Scheps and E.E. Davidson.

Abstract The article informs that in a recent article in this journal professor Harold Bierman suggests that under some conditions, price-level adjustments may be less useful for purposes of decision making than the historical cost data. Bierman relies on the notion of economic depreciation which yields an asset value equal to the discounted expected future cash flows attributable to an asset. He then illustrates that if the discount rate is adjusted to reflect expected inflation, the use of economic depreciation leads to an asset value at time t precisely equivalent to the present value of the expected future cash flows under inflation at time t. Bierman then shows that if an additional adjustment for price-level change is made to the discounted value of the asset, an incorrect asset valuation is obtained. It is useful to explore the effects of Bierman's suggestions on the income statement in terms of their potential implications for decisions. Finally, one should ask about the economic significance of these results under what is known about the actions of the market and individuals in the market.

Abstract Reviews the book "Accounting Programs and Business Systems: Case Studies," by Frank J. Clark and Robert L. Gray.

Abstract Presents a letter to the editor about the Value of R[sup2] in Regression Analysis.

Abstract ABSTRACT Couched in terms of the contrast between certain aspects of the undergraduate curriculum and the professional role of students after graduation, this paper reports the design and results of an interdisciplinary, quasi-consulting project, which involved accounting and management students. The research findings include a quantitative measure of the impact of accounting consultants on the project and a qualitative gauge of the overall learning experience that developed. Based on the findings, the research project appears to have been valuable from both a pedagogical and an applied viewpoint. Further research in this area could promote development of more effective accounting and management curricula. Students majoring in accounting frequently complete their degree requirements without taking a course in business decision making that allows them to assume a consulting or advisory role. Even when accounting students elect a course in business policy, they perform as managers rather than as consultants. After graduation, however, accountants often find themselves serving in a consulting capacity. This ,difference between academic requirements for an accounting degree and the manner in which professional accountants function suggests that accounting education could be enhanced by conducting appropriate projects, which would permit accounting students to act as quasiconsultants.(n1) A similar contrast also confronts students majoring in management. As undergraduates, management majors are provided training in the theories and techniques of decision making. In the business world, however, managers draw upon technical expertise of their staff advisors. Management students, therefore, may benefit from working with quasi-consultants. The purpose of this paper is to report the design and results of an interdisciplinary, quasi-consulting project, which involved accounting and management students. The research findings include a quantitative measure of the impact of

Abstract Reviews the book "Auditing: A Conceptual Approach," by W. Thomas Porter and John C. Burton.

Abstract The article is a comment on the article "An Empirical Analysis of the Quality of Corporate Financial Disclosure," by researchers, Surendra S. Singhvi and Harsha B. Desai, published in the January 1971 issue of the journal "The Accounting Review." Singhvi and Desai report on a research project in which they attempted, to identify some of the characteristics of corporations in the United States which are associated with, and the possible implications of, the quality of corporate disclosure. To accomplish their purpose, an index of disclosure was constructed. According to the author, Singhvi and Desai have little to say about how they applied the index. Presumably, they constructed a list of criteria to be met by each item if it were to receive the requisite number of points. However, no mention is made of such a procedure in the article. The lack of specific criteria would tend to give greater play to the variability of human judgment in applying the index. The test, as described by Singhvi and Desai is somewhat misleading.

Abstract The article presents information on author J. Curley's norms for the evaluation of potential merger. s. This paper comments on the methodology, that question the usefulness of his normative propositions and to suggest a superior criterion for the financial evaluation of prospective mergers. The article will be devoted to a step-by-step review of Curley's analysis. It will be argued that Curley's dichotomies between the so-called "short-run" and "long-run real growth effects" of mergers, and between their "real" and "transitory" effects, are invalid and misleading. In the next section, one shall then examine the effect Curley's error can have on the valuation of conglomerate stocks. The criticism registered above is something more than mere pedantry. As this author has argued elsewhere the spectacular rise and subsequent collapse in the market value of the conglomerate giants during the late 1960's can be attributed in no small part to over optimistic projections concerning these companies future earnings growth.

Abstract The article highlights the report of the Committee on Basic Auditing Concepts of the American Accounting Association. The charge of this committee is to investigate the role and function of auditing and make recommendations for research projects, examine the problems of evidence, and issue a position paper on the scope of auditing by accountants. The Auditing Concepts Committee began its deliberations with rather wide differences in opinion regarding completion of its charge. Frequently, the term audit or auditing is modified by a descriptive word or phrase to indicate either the particular purpose of the audit or the subject matter of the audit or both. Accounting methodology employs techniques and procedures to measure, describe, and interpret economic data to users. Their application results in an abstract expression of the activities of acquiring, using, and disposing of economic resources. One semantic problem of the auditor arises from the reader's attachment of a different meaning to the wording of the auditor's report from that intended by the auditor. Indication of some potential or specified lack of correspondence between the audited information and established criteria is the purpose of graded opinions.

Abstract This article presents information related to the article "Cost-Volume-Profit Analysis Under Conditions of Uncertainty," by researchers Robert K. Jaedicke and Alexander A. Robichek. The fact that the traditional "cost-volume profit analysis" does not include adjustments for uncertainty severely limits its usefulness. Jaedicke and Robichek explain that if a firm is considering the introduction of two new products with the same expected fixed costs, the same expected selling price per unit, the same expected variable costs per unit and the same expected breakeven sales volume, one may be misled to think that the two products are equally desirable. This is not true for one good reason: determining which product is more desirable depends upon the frequency distributions of all the variables that influence profit, not just their expected values. Furthermore, it is more instructive to compare two profit distributions not only by their expected values but also in terms of their variances. Use of the Jaedicke-Robichek model enables one to compute the expected value and the standard deviation of profit for a given product. This information enables a manager to estimate the probability of achieving the breakeven point, as well as the probability of achieving any level of profit or loss.