Knowledge that Transforms

Abstract Reviews several books on accounting profession in business. Accounting and Financial Reporting by Agricultural Producers: A Research Study; A Guide to Implementation of Statement 87 on Employers' Accounting for Pensions: Questions and Answers, Special Report by Joan Lordi Amble and Jules M. Cassel; The Valuation of Privately-Held Businesses: State-of-the-Art Techniques for Buyers, Sellers, and Their Advisors by Irving L. Blackman; Auditing Standards and Procedures Manual: 1986-1987, by D.R. Carmichael and Martin Benis.

Abstract Reviews the book "Statistical Techniques for Analytical Review in Auditing," by Kenneth W. Stringer and Trevor R. Stewart.

Abstract Reviews the book "The Historical Development and Operational Form of Corporate Reporting Regulation in Japan," by Jill McKinnon.

Abstract Reviews the book 'CCH Federal Taxation: Advanced Topics,' 1986 ed., by Ephraim P. Smith.

Abstract Reviews the book 'Efficient Capital Markets and Accounting: A Critical Analysis,' 2nd ed., by Thomas R. Dyckman and Dale Morse.

Abstract ABSTRACT: This note examines the extent to which firms affected by a change in the tax law respond by making changes in the accounting methods used for financial reporting. The specific tax issue considered is the Thor Power Tool case that limited the use of formula write-downs for inventories. Since LIFO could be approximated by formula write-downs, we hypothesize that affected firms will tend to switch to LIFO during 1979 (and only during 1979) for tax reporting purposes and (because of the LIFO conformity rule) for financial reporting purposes as well. The empirical analyses of inventory method changes are consistent with this hypothesis.

Abstract Reviews the book 'Principles of Accounting,' 2nd ed., by John G. Helmkamp, Leroy F. Imdieke and Ralph E. Smith.

Abstract ABSTRACT: Previous market-based research has generally failed to detect significantly negative market price reaction to the issuance of SFAS No. 8. Using standardized abnormal returns, this study re-examines the issue. Reaction to events culminating in the issuance of SFAS No. 52 is also studied. Finally, since the accounting method used prior to SFAS No. 8 may be related to the costs imposed by SFAS No. 8, the method is determined and its effect on the observed market reactions is investigated. Our results indicate an overall negative reaction to SFAS No. 8, with a positive reaction to SFAS No. 52. In addition, the pre-SFAS No. 8 method of accounting for foreign currency translation is found to be related to the market reactions to SFAS No. 8 and SFAS No. 52 in mixed and unpredictable ways.

Abstract ABSTRACT: When making audit judgments end decisions, an auditor often relies on knowledge or information about how task variables covary. Typically, an auditor generates this information without the aid of a formal covariation model. Thus, the quality of audit judgments and decisions which rely on covariation information may depend on an auditor's ability to judge covariation in a manner that is paramorphic to 8 formal model. This paper reports two experiments examining the rules by which auditors Integrate joint frequency data when making covariation judgments end whether their judgments are affected by context, prior expectations, and amount of auditing experience. A main result was that the subjects generally used date-integration rules that were sensitive to the objective covariation level, but often overstated or understated this level. The effects of context, prior expectations, end amount of auditing experience were generally small.

Abstract ABSTRACT: The neutrality and equity aspects of the Accelerated Cost Recovery System (ACRS), which became part of the U.S. tax law in 1981, are examined using a Monte Carlo simulation. ACRS depreciation is found to be equivalent to general price-level adjusted (GPL) depreciation only at inflation rates of between nine and 13 percent. To the extent that corporations alter their production, investment, and financing activities as a result of Inflationary misstatement, the post-1980 law is nonneutral during times of inflation. Further, ACRS will result in a substantial, disproportionate relative capital shift among Industries during Inflationary periods, which indicates the horizontal Inequity of the post-1980 law. This capital shift will be largest for capital-intensive industries having long-lived assets, such as transportation, utilities, and real estate. Both nonneutrality and horizontal Inequity lead to decreased economic efficiency and a deadweight loss to the economy.