Knowledge that Transforms

ABSTRACT: A substantial accounting research literature seeks to explain the existence of alternative accounting methods and management's willingness to expend efforts lobbying to defend alternate methods. This paper investigates the association between management lobbying on accounting for oil and gas producing activities and the effect that the method may have on firm cash flows and on accounting numbers that are restricted by the terms of firm contracts, Full cost companies that lobbied at different stages of the deliberations on oil and gas accounting are compared with those that did not. The models and their classificatory success rates were statistically significant. Also, the models developed at each stage of the rule-making process provided statistically significant predictions for the other stages. This suggests that the contract and cash flow effects were stable predictors of lobbying by managers.

ABSTRACT: This study Investigates the Incremental information in alternative measures of constant dollar and current cost operating income reported under SFAS No. 33 over historical cost income and its cash and accrual components. To do so, it examines contemporaneous associations between unexpected returns at the time of release of the annual report or 10-K report and variables measuring the unexpected components of these alternative income measures. The research design exploits the difference in timing of the release of historical cost income and of SFAS No. 33 income. The empirical analysis indicates that current cost and constant dollar operating income measures have Incremental information over historical cost income and its cash and accrual components. The results also indicate that there is Incremental information in cash flow over that conveyed by alternative measures of constant dollar and current cost operating income. However, Incremental Information in SFAS No. 33 measures and of cash flow is observed only for a subset of the industries examined.

ABSTRACT: The ability of Einhorn's [1972] "expert measurement and mechanical combination" to eliminate bias and increase consensus in control reliance decisions was examined. This method uses the human to measure cue values end then combines these component judgments with a mathematical model to form global control reliance decisions. Its aim Is to eliminate error Induced when the human aggregates Information into a global judgment. Two groups of senior auditors evaluated a series of cases by either making global control reliance decisions or making component judgments of the strength of the individual controls end compliance tests. Component judgments of the latter group were combined mechanically into an overall Judgment. The mechanically combined component judgments were, on average, more like those provided by a group of firm experts and ware more consensual than the global judgments. These results are compared to those of prior studies which examined similar aids.

Reviews the book "Behavioral Accounting Research: A Critical Analysis," edited by Kenneth R. Ferris.

ABSTRACT: Financial reporting of lessors' transactions is a controversial area for several masons: (1) lessors' accounting alternatives (e.g., operating vs. sales-type lease methods) usually generate large financial statement differences; (2) many of the parameters required to implement lessors' accounting choices (e.g., residual value estimates) are "soft" and, therefore, difficult to verify; (3) little is known about the sensitivity of income disclosures to errors in these parameter estimates; and (4) lessors' rules are still evolving and, therefore, are somewhat ill-defined. Using a highly critical Barron's article regarding Comdisco, Inc. as a starting point, this paper analyzes aspects of these masons for controversy, especially (3) and (4). Specifically, Barron's argued that Comdisco's accounting for residual values and other leasing Income recognition procedures were flawed. Using Comdisco's financial reports as a benchmark, we analyze elements of lessors' accounting and evaluate competing reporting options. We then examine the sensitivity of income numbers to residual value estimation errors using a simulation approach. The parameters for the simulation are derived from Comdisco's recent disclosures. The simulation results and analysis are used as a basis for recommending changes in lessors' financial disclosures and income determination.

Reviews the book "International Transfer Pricing Policies," by Wagdy M. Abdallah.

ABSTRACT: An area of concern to tax policymakers is the role of third-party preparers in Income tax reporting. This research examines the degree of consistency in judgments of preparers subject to differing degrees of governmental regulation. Economic theory of regulation suggests that CPAs, who are subject to a higher degree of government regulation, would be expected to recommend and justify more pro-taxpayer positions in ambiguous areas of tax law than would unlicensed preparers. This hypothesis was tested by administering a set of tax cases with a high degree of uncertainty regarding the correct tax status to groups of CPA and non-CPA tax practitioners. CPAs were found to be consistently more pro-taxpayer than were non-CPAs.

This article presents a list of books received on accounting, published in the October 1989 issue of the journal "The Accounting Review." The book "Accounting for Research and Development," 2nd ed., by J. Batty, presents a framework for the organization and control of corporate research and development expenditures. Four broad issues are examined: organization and selection of projects, financial and accounting implications, measurement of results and systems design. Another book "An Analysis of the New Financial Institutions," by Alan Gart, begins with an introduction to commercial banking and then discusses the asset composition of commercial banks, the capital and liability accounts, and asset and liability management.

Reviews the book "The Japanese Stock Market: Pricing Systems and Accounting Information," by Shigeki Sakakibara, Hidetoshi Yamaji, Hisakatsu Sakurai, Kengo Shiroshita and Shimon Fukada.

Reviews the book "Inquiry and Accounting: Alternate Methods and Research Perspectives," by Ahmed Belkaoui.