Knowledge that Transforms

Abstract Reviews the book "Replacement Costing: Complying With Disclosure Requirements," by Melvin C. O'Connor, Rita C. Grant and Harold M. Sollenberger.

Abstract Reviews the book "Fundamentals of Management Accounting," by Robert N. Anthony and Glenn A. Welsch.

Abstract Reviews the book "Illustrations of Accounting for Marketable Equity Securities," by Hortense Goodman and Leonard Lorensen.

Abstract Reviews the book "Accounting and Management Action," 2nd ed., by Jack Gray and Kenneth S. Johnston.

Abstract Reviews the book "Modern Management Accounting," 1st ed., by A. Tom Nelson and Paul B.W. Miller.

Abstract The article presents the author's reply to Professor R.M. Piper's comments on his paper "A Note on the Joint Variance." Piper raises the question of whether the three-variance method should be taught at all. The value of bringing the joint variance into classroom discussions of variance analysis is twofold. First, there are a number of possible treatments of this variance, and consideration of these alternatives is impossible without its explicit recognition. According to Piper, since the joint variance cannot be controlled by a single manager, it should not be assigned to any single manager. However, such treatment of the joint variance requires its recognition and separation. Thus, Piper himself seems to provide the requested rationalization for the three-variance analysis. The second reason for discussing the joint variance is so that students will recognize that the two-variance method commonly used and taught implicitly treats the joint variance as part of the price variance. This recognition may also help students remember that the multiplier of the price variance is actual quantity while the multiplier of the quantity variance is standard price, as opposed to alternative combinations.

Abstract Reviews the book "Shortened CPA Law Review," by George C. Thompson and Gerald Peter Brady.

Abstract Falk and Heintz have proposed a scalogram technique to rank industries according to risk as reflected by financial ratios. The present paper examines some problems which need to be resolved before this technique can be used. First, the F & H selection of ratios is somewhat subjective and is not supported by tests for validity and reliability. And because of the confounding effects of changing economic conditions, the difficulty in obtaining a unique observable concept for industry risk, and because of measurement problems, it may be infeasible to assure an adequate degree of validity and reliability for this ranking technique. Also, some of the ratios selected by F & H may have high inter-correlation with other F ratios, thus implicitly adding greater weights to some of the ratios. Moreover, the F & H technique may be biased because of the selection of a different number of significant digits for two of the ratios. F & H have not offered any supporting reason for either of these sources of bias.

Abstract The article presets a reply from William Steve Albrecht on comments made by David E. Keys and Curtis Norton on the topic related to Estimation Error in Income Determination. Certainly, their critique clarifies many of the implicit assumptions and ambiguities in the original paper. The author feels that there are three comments made by Keys and Norton that deserve clarification. They suggest that the author implied the relative frequency interpretation of probabilities that will always be preferable to the subjective interpretation of probabilities in determining forecast error. Since they are essentially the same, the author agreed that a decision about the preferability of one interpretation over the other is a cost-benefit question and is probably situation-specific. Keys and Norton imply that it may have been inappropriate to use a quantification process in the time domain because the underlying process of each time period may not be constant or stable. They also suggested that the level of aggregation of the variances and covariance can affect the magnitude of the confidence interval around net income.

Abstract B & C have raised a number of important points regarding our original paper. Many of the issues were addressed in the original paper so that our response to them here necessarily has been some- what repetitious of the previous discussion. Nevertheless, we are grateful to B & C for pointing out some potential difficulties in applying the technique, for emphasizing the need for validation before the technique can be of practical value, and for giving us the opportunity to clarify and expand upon numerous issues which possibly were not dealt with satisfactorily in the original paper.