Knowledge that Transforms

Reviews the book "Managerial Statistics," 2nd ed., by Kermit O. Hanson and George J. Brabb.

Abstract The 1961 annual meeting of the American Accounting Association was held on August 28, 29, and 30 in Austin, Texas with the College of Business Administration of the University of Texas as host. At the Plenary sessions on Tuesday and Wednesday, the following speakers discussed the topics indicated: "Accounting Innovation and the Psychology of Change," by Gardner M. Jones, Michigan State University; "Principles of Divisional Income Determination," by Gordon Shillinglaw, Columbia University; "New Directions in Tax Administration," by Mortimer M. Caplin, Commissioner of Internal Revenue, United States Treasury Department; "Business Information Systems," by Robert E. Pfenning, Comptroller, General Electric Company; "A Critique of Standard Costs," by David Solomons, University of Pennsylvania; "Accounting Data for Purposes of Control," by Robert K. Jaedicke, Stanford University; and "Should We Discard the Income Concept?" by Maurice Moonitz, Director of Research, American Institute of Accountants.

Reviews the book "Financial Planning and Policy," by Ernest W. Walker and William H. Baughn.

Abstract When discussing the professionalism of accounting, a question that often arises is, how does accounting compare to the other professions, for example law or medicine? Many statements have been made in the accounting literature on the acceptance of accounting as a profession in this relation, but generally these are opinions made by CPA's and very few non-accountant, objective analyses, are ever made. The present stage of the professional development of accounting could be measured by comparing it to some other vocation that has been accepted and recognized as a profession, which at some point in history has gone through a similar stage of development. To make this comparison, a list of authoritative criteria defining a profession should be used as a foundation for measurement. There seems to be no doubt that accountancy as practiced by certified public accountants is generally accepted as a profession. There are a few specific areas where accounting falls below law and medicine in the status of professionalism, but these cannot be labeled as areas of weakness. Rather it is an indication of growth; that accounting is still in its middle stage of development, analogous perhaps to law and medicine in their era of growth.

Abstract The article focuses on the definition of accounting. The author states that to the advanced accounting student or practicing accountant, the art of recording, classifying and summarizing business transactions conveys much more than simply the routine recording of business events in an accounting system, these activities would seem to be clearly in the realm of bookkeeping. Generally, an accounting system is designed to collect, classify and summarize business transactions, as well as business activities. An accounting system may be a manual system, a semi-mechanical system, or an electronic computer system. The study of the more recent developments in accounting systems, such as electronic systems, or computer systems, is especially interesting in regard to their potential in the area of analysis. Education for accounting must involve the study of all reasonable alternative systems, principles, standards and methods of measuring the effects of business activities. Accounting systems may be divided into two main types, financial accounting and administrative or managerial accounting.

Reviews the book "Understanding Financial Statements and Corporate Annual Reports," by Louts O. Foster.

Abstract The purpose of this article is to present the mathematical logic underlying variance computations. Variance analysis is often regarded by beginning students in cost accounting as one of the most difficult topics. They are confused by the intricate maze of alternative procedures and amounts used in variance computations and resort to memorizing the mechanics involved. Since in accounting a variance is always calculated as the difference between two related quantities, an understanding of the mathematical operations involved facilitates the understanding of the significance of the variance. A variance horn standard is defined as the difference between the standard cost and the actual cost incurred. The use of standard costs thus gives rise to variances between projected amounts and actual amounts for direct material and direct labor. Since price and quantity are the only variables present, the discussion that follows applies equally to either the analysis of direct material cost or of direct labor cost.

Abstract The article presents an exploratory study of the possibility that significant generalizations about accounting might be derived inductively. Different users of inductive method might arrive at apparently unrelated generalizations about an enterprise if each were observing different aspects of its behavior, like, cultural, political, social, or technological. The method emphasizes the economic enterprise rather than its "owners" or other associated factor suppliers, and also the character of the data, and the difference between observed data per se and analyses or other manipulations of the data. Applied to accounting, it would emphasize the difference between accumulated facts and interpretations of those facts, that is, periodic or other financial statements. This might make the periodic reports more understandable. The essence of all three of these "contributions" is that inductive method clarifies the nature and limitations of accounting data and of the interpretive reports reflecting those data. Further use of the method by accounting theorists may contribute to the solution of several of the contemporary issues in accounting.

Abstract The article suggests that disclosure in published reports is not complete unless expected income data are reported. Since a means for reporting such data is available, it is suggested that accountants thoroughly investigate the difficulties and drawbacks in such reporting, and, if they can satisfy themselves, press vigorously for it. Expectations and expected income are prime factors in influencing production, employment and profit results, and thus may be characterized as basic economic factors. Since it is customary to budget financial position as well as operations, it would probably be possible to report an anticipated balance sheet as well as an income statement. Auditors might come to regard a report of expected income and a contrast of results with previous expectations as a significant addition to the means available for disclosure of financial information, once they recover from their initial reaction. This initial reaction, however, based on a reluctance to deal with anything so hypothetical, would lead most members of the profession to banish all consideration of such a report from their minds.

Abstract The article reports on the auditing section of the May 1962 Uniform C.P.A. examination, which has been conducted on May 17, 1962 from 8:30 to 12:00 noon and included two groups of questions as follows, one of the problem given is, "Your client is a small college in a small town. The college has recently elected as treasurer the president of the local bank in which the college keeps its cash funds. The bank is also the custodian of the college's endowment fund securities. Furthermore, certain short-term securities are held at the bank in a safe deposit box to which the president has access. Confirmation requests to the bank in the past have been signed by the former college treasurer and the bank's replies have been signed by the bank president." The problem has been answered briefly as, "the dual role played by the bank president who is now also treasurer of the client organization signifies the absence of normal internal controls over cash and securities. When internal controls are weak or absent, the auditor should extend and intensify the audit procedures bearing on the areas affected. In this case the auditor should arrange if possible for a college official other than the treasurer to sign the confirmation requests."