Knowledge that Transforms

Abstract Reviews the book "C.P.A. Law Review," 4th edition, by Joseph L. Frascona.

Abstract The article presents a report of the Committee on External Measurement and Reporting of the American Accounting Association as of October 1973, which focused on the formulation of hypotheses in studying reporting problems. The Committee met several times to interpret and evaluate its charge and to select a limited number of propositions in areas where reporting problems are of immediate concern. The areas to be considered were identified in the reports cited in the charge and those of special interest to individual members of the Committee. A comparative evaluation of the importance of research projects in financial accounting would also have been helpful. The committee, because of various factors, was unable to respond fully to its charge, but perhaps the directions charted above will provide some stimulus to future researchers.

Abstract This article presents information on an empirical study designed to provide additional evidence about changes in accounting methods. The primary responsibility for effecting accounting changes currently rests with the management of a reporting firm. This results from a structure of accounting authority which leans heavily upon "general acceptance" of accounting practices among statement issuers and which allows flexibility for managers to tell their story as they see it. As long as this framework prevails, the primary pressure point for effecting changes in reporting practices will continue to be the management of the reporting firm. One can define an innovation as an idea perceived as new by the individual even if, in fact, it is not new. Diffusion is the process by which adoption of the innovation spreads. In terms of primary emphasis, this view differs substantially from that reflected in the diffusion of innovation studies which suggest that accounting change behavior is related primarily to the characteristics of the innovative accounting methods themselves, rather than to the behavioral set of the changer. Accounting change behavior is a complex phenomenon which is probably influenced to some extent both by the behavioral set of potential changers and by the characteristics of the particular changes as well as by other factors.

Abstract The article discusses tax considerations in relation to accounting for capitalized leases. The example given in the article assumed that a capitalized lease was considered appropriate. A zero tax rate was generally assumed by the accounting entries for leasing. Eliminating such assumption would lead to a more complex analysis, but the before tax and after tax computations could be reconciled. The lease problem illustrated in the article was a good example of the fact that one could not always assume that the after tax accounting analysis of a situation was a simple extension of the no tax situation.

Abstract The article presents a report of the Committee on environmental effects of organization behavior of the American Accounting Association as of October 1973 on the measurement and reporting methods useful in communicating to internal and external users the effects of an organization's behavior on the physical environment. Accountants must begin to look beyond the firm (the client) to macro-entities to properly understand the consequences of accounting models. Asset values are partially dependent upon so-called free economic goods (air, water, etc,). The accountant of tomorrow must be committed and equipped, via education and experience, to help society solve environmental problems. This means, among other things, that the accountant must understand the social and behavioral ramifications of environmental data capture and communication. Accounting for and attesting to environmental information raises this argument-separation of management advisory services and auditing once more.

Abstract Reviews the book "SEC Accounting Practice and Procedure," Third Edition, by Louis H. Rappaport.

Abstract The article presents a report of the Committee on Tax and Financial Entity Theory of the American Accounting Association, which aimed to compare and contrast the entity concept, associated with financial accounting to that associated with Federal income taxation. An examination of the existing literature suggests that professional and scholarly writings in both financial accounting and income taxation contain numerous viewpoints or equity theories, which advocate a theory as the proper one for all purposes. The 1964 American Accounting Association Committee's definition of the entity concept was used as a focal point. For financial accounting, the liquidation of a corporate unit would result in the recognition of gain or loss to the corporate unit before transferring the assets to the shareholders. The Code provisions covering collapsible corporations were designed to prevent the conversion of ordinary income to capital gain.

Abstract Reviews the book "Accounting for Managerial Analysis," by James M. Fremgen.

Abstract This article focuses on the attitude of business students towards social problems. This paper reports comparisons which were made of entering freshmen who have elected a field of business at Virginia Tech with the national average for all curriculums. Of the business students 97.9% believed that the Federal government should do more about pollution, but this percentage was below the national average. Overall, the data indicated that entering business students seem to be strongly concerned about our social and economic problems. Accounting students were found to have positive attitudes toward parents, people in general, and authority, whereas creative writing students displayed negative attitudes. On the basis of this and other research, it seems logical to infer that accounting students are deeply concerned with social and economic problems. The challenge for accounting educators is to promote student interest in social and economic affairs and to assist the student in implementing his skills in a constructive manner toward a solution to these problems.

Abstract This article presents comments on the study "Environmental Complexity and Financial Reports," by Henry Miller. It discusses some of the experimental results evidenced by researchers testing the empirical correspondence of the theoretical work upon which Miller's extension was based. Miller introduces some new thoughts to the continuing debate on the relevancy of studies in decision making and environmental complexity to accounting research. However, the new dimensions that Miller adds are incomplete. Researcher Lawrence Revsine's original formulation of the problem in an accounting environment implied each member of the family of curves achieved optimal performance at the same level of complexity. The evidence cited in support of these relationships is the theoretical work by researcher O.J. Harvey and David Hunt. While the theoretical development of Harvey does indeed support the relationships depicted by Miller. Professor Miller has responded to the challenge with an interesting and provocative probe into the relevancy of one aspect of some of the behavioral studies of environmental complexity to a policy for expansion of the financial accounting data base, but the probe was, perhaps, not deep enough.