Knowledge that Transforms

Reviews the book "Accounting for Management Control: An Introduction," by Charles T. Horngren.

The body of accounting knowledge consists of various related elements which form a logical and meaningful pattern. Absence of a uniform concept of the pattern. Absence of a uniform concept of the pattern-the structure of accounting theory-continues to hinder efforts to develop and clarify accounting theory. Development of accounting theory must involve a flow of ideas from the specific details of accounting practice to the more general elements of accounting knowledge as well as a flow from the general to the specific. Consequently, neither the deductive approach nor the inductive approach to development of accounting theory is singularly sufficient. Accurate graphic representation of the structure of accounting theory must convey the image of multi-related elements that form the body of accounting knowledge. The most general element in the structure of accounting theory explains the reason for the existence of accounting, and is called the postulate of accounting. Progressively more specific elements are the accounting principles, standards, practices, instructions, and activities. Concepts and conventions do not exist as separate elements in the structure, but function as unifying forces with respect to the standards, practices, instructions, and activities.

Reviews the book "Fundamentals of Auditing," second ed., by R.K. Mautz.

The article reviews the book "Managerial Planning and Control: As Viewed by Lower Levels of Supervision," by Burnard H. Sord and Glenn A. Welsch.

The article focuses on the tabular analysis of information. A decision table is a tabular presentation of system logic along truth table lines, formalized in a standard format so that the data may be translated by canned computer programs into machine language for many different configurations of data processing equipment. Although, the emphasis of this article is to illustrate the usefulness of decision tables for accounting applications and systems design, rather than to show the computer aspects. The use of decision tables by accountants offers benefits not available in other documentation methods. Problem definition and communications of system logic are made concise and clear. Interrelationships between variables may be more easily analyzed because alternatives are displayed in parallel, rather than in sequence. A check for completeness is facilitated because all sets of conditions and actions are separately delineated. Further, cause and effect relationships are also clearly identified.

Reviews the book "Establishing Accounting Principles—A Crisis in Decision Making."

Reviews the book "Neue Wege der Betriebswirtschaft," edited by Erich A. Weilbach.

The benefits derived from loss carry-backs should be reported in the financial statements in the year the loss occurred as an adjustment of the prior-year earnings. Such a procedure is based on sound theoretical grounds and has met widespread acceptance. Prevailing practice in accounting for the tax toss carryover seems to be questionable both on theoretical grounds as well as from a utilitarian viewpoint for financial reporting. Whenever an expected future economic benefit arises from the tax loss carryover, accountants have unjustifiably omitted it from the list of benefits or assets possessed by the firm. The balance sheet aspects of tax loss carryovers have too long been neglected. Moreover, in too many cases the earnings of subsequent profitable years have been relieved of any income tax burden resulting in misleading operating results. The procedures suggested in this paper for accounting for loss carryovers provide for recognizing the potential benefit gained from operating at a loss. To the extent that costs incurred giving rise to a loss are likely to be recovered, they should be carried forward on the balance sheet as assets to be associated with taxable income of later profitable years. This procedure achieves a proper matching of costs and revenues by requiring that the income tax reductions from the carry- over of operating losses be related to the years in which the losses occurred. Thus, the net loss of the loss year, as well as the net income of the other years to which the tax benefit is carried, is more fairly stated. In some, full accrual of a tax loss carryover results in effective financial reporting within the framework of existing accounting theory, especially when there are reasonably good indications that the carry- over will result in future income tax reductions.

Reviews the book "Aspects of Accounting and Auditing," vol. 1, edited by J. Langhout.

The growth of stock reacquisitions in the past three or four years has created the need to examine the relevant ethical principles. The law provides certain minimum standards of ethical conduct, but the conscientious executive is interested in doing more than the minimum required by the law. Adequate accounting disclosure is an important consideration in such financial transactions. Our inquiry indicates that disclosures of corporate stock reacquisitions in the financial press have not been common. Executives should give more consideration to the public relations aspect of such an important activity, if only to quell speculative rumors when a sizable amount of funds is involved. The increase in stock reacquisition indicates a greater awareness of the possible financial consequences. Ethical considerations should receive the same attention. These include not only adequate disclosure, but also the avoidance of conflict-of-interest situations, and a careful evaluation of the method of repurchase in relation to the amount of stock to be reacquired.