Knowledge that Transforms

Abstract The article presents a reply to a comment made by Kenneth Brooks and Richard Schroeder on an article by the author, "Management Strategy in a Large Accounting Firm." In regard to the comment that the time frame chosen was not appropriate, the author responds that the time frame chosen was probably the most appropriate of any that could have been chosen, in that it was a cross-section of all of the activities that the firm is engaged in and not merely auditing. The full range of activities was observed, including field auditing situations. Indeed, it was found that observing field auditing was not particularly helpful towards developing an understanding of management strategy, and that it was only in the office environment that such strategy was fully revealed. Although it was imperative that client confidentiality be maintained, there were no impediments placed in the way of observation by management of the firm. The author does not believe that he implied that all successful firms follow the same strategy which he observed. In fact, the paper specifically indicates that this was a model of a successful firm, not all successful firms.

Abstract Reviews the book "Financial Statement Analysis," by George Foster.

Abstract Reviews the book "Accounting Value and Inflation," by William Baxter.

Abstract Presents an obituary for Lawrence Lee Vance, an accounting professional.

Abstract ABSTRACT: This article considers the issue of technological changes in a replacement cost accounting system. When such changes occur and the firm continues to utilize the "old" asset, should the replacement cost be measured by reference to the current cost of the old asset actually in use? Or, alternatively, should the replacement cost reflect the cost of the technologically improved asset that is not now being utilized by the firm? The analysis indicates that the two approaches are economically equivalent in many circumstances. However, while their information content may be identical, various measurement problems exist which tend to make one method preferable to the other under certain conditions. These issues are explored in various market settings.

Abstract Reviews the book "Accounting for the Cost of Interest," by Robert N. Anthony.

Abstract A new form of accounting statement, the Value Added (VA) Statement, now appears in the annual reports of many major British companies. One quarter of such companies now present a VA Statement, and the British government has announced that it intends to make this compulsory. This article relates the structure of the VA Statement to the underlying theory of company team membership, and the Statement is contrasted with the earnings statement which it resembles. The advantages and disadvantages of including a VA Statement in annual reports are discussed. The alleged advantages are difficult to verify but on balance the VA Statement is concluded to be a useful newcomer to the annual report provided it can be standardized. Recommendations on an accounting standard are given, including the conclusion that VA should be calculated after deducting depreciation.

Abstract Reviews the book "The CPA Examination," vol. 1, "Practice, Auditing and Theory," and vol. 2 "Suggested Solutions," by John Anderson and Robert Lentilhon.

Abstract ABSTRACT: The tax concept of earnings and profits is a complex and little understood subject. Part of the complexity can be explained by (1) the concept of earnings and profits is not well-defined in the tax law, and (2) its components are spread throughout the Internal Revenue Code. This paper presents a flowchart approach to analyze and integrate the essential elements of earnings and profits of corporate taxpayers for determination of the taxability and character of corporate distributions to shareholders. The flowcharts should be useful in helping students and professional accountants understand this concept.

Abstract Reviews the book "Selections from Encyclopaedia of Accounting, 1903," by Richard P. Brief.