Knowledge that Transforms

In 1974, the AAA Committee on the Relationship of Behavioral Science and Accounting called for the development of teaching methods that enabled students to experience behavioral aspects of accounting. This article suggests behavioral accounting research as an important source for the development of such teaching methods. As an example, a behavioral decision simulation adapted from prior research is described, The simulation enables the student to experience the information evaluation method and enables him to contrast his subjective evaluation process with the evaluation process prescribed by a normative model. The article illustrates how this contrast can serve as a basis for classroom discussion of human information processing issues in accounting.

The Basu and N&S methodologies differ on three dimensions: choice of test statistic, method of computing significance levels, and method for sampling from among the possible observable reactions. In our opinion, neither methodology dominates the other, and we could easily envisage future researchers drawing from both approaches. To a large extent, the three basic differences between the methodologies involve independent choices, so that it is possible to choose from the best features of each methodology. For example, a researcher might decide to use correlations as the test statistic (N&S), compute significance levels relative to an empirical distribution (N&S), and test for a significant correlation between the abnormal returns for one "partitioning" event and the abnormal returns for each of the other possible events (Basu).

Reviews the book "Oil and Gas Accounting."

Auditors of U.S. multinational companies with subsidiaries in the Federal Republic of Germany frequently must rely on the audit work performed by German auditors (Wirtschaftsprufer). If German financial statements are to be included in the consolidated financial statements of a U.S. parent company, the foreign auditors must comply with the SEC requirement that auditors be independent. This paper discusses the results of a survey conducted to ascertain the perceptions of Wirtschaftsprufer concerning auditors' independence. A questionnaire which listed a number of auditor-client relationships for which the SEC position was known was mailed to a random sample of Wirtschaftsprufer. The sample subjects were asked to indicate for each situation whether they considered the auditors involved to be independent or not independent. The responses received were compared with the SEC positions. The results of the survey show that, on the whole, most German auditors take a less strict view of auditors' independence than does the SEC. Since the SEC rules on independence are, with minor exceptions, applicable to all auditors of SEC registrants, it seems that it is important that foreign auditors be made aware of the specific SEC rulings.

Wei Shih, professor of applied statistics and operation research, presented a general decision model that accounts for uncertainty in demand, while assuming that costs and selling prices are known parameters. Under this model, Shih developed methods for computing the optimal production level and formulas for the mean, variance and distribution of the amount of profit. In this article, the author investigates how management should perform break-even analysis when confronted with production decisions for situations satisfying Shih's model. At first the author demonstrates by argument and counter-example that Shih's analysis of the break-even decision is incorrect and then presents a valid approach to break-even analysis for the general decision model. Shih's model assumes that price, variable cost and fixed cost are known parameters. Demand has to be determined by the decision maker. Usually the decision maker will choose the value of demand so as to maximize the expected profit. According to Shih's model, since the profit is a linear function of demand, it is only necessary to compare the average demand with the break-even point to determine the profitability of new product.

A 1978 survey of undergraduate tax courses offered at U.S. universities and colleges provides information about course content, instructional materials, and teaching methods for accounting professors involved with the design and implementation of the tax curriculum.

Reviews the book "Intermediate Accounting," by Loudell O. Ellis and Ronald J. Thacker.

Reviews the book "Capital Budgeting: Planning and Control of Capital Expenditures," by John J. Clark, Thomas J. Hindelang and Robert E. Pritchard.

Reviews the book "Fundamental Accounting Principles," 9th ed., by William W. Pyle and Kermit D. Larson.

Reviews the book "Annual Accounting Review," edited by Stanley Weinstein and Michael A. Walker.