Knowledge that Transforms

Abstract Reviews the book "Financial Reporting to Employees," edited by Lee D. Parker.

Abstract Recent research indicates that auditors' account value estimates from analytical review are affected by knowledge of the unaudited account value (or book value). The exact nature of the consequences from the auditor's use of book value for analytical review has not been formally shown and is a source of controversy. This paper examines the audit cost and risk consequences associated with the auditor's reliance on book value for analytical review. The analysis is framed within a Bayesian decision theoretic model and is conducted for a comprehensive set of audit and environmental conditions. The results include expressions for audit cost/risk when the auditor's analytical review is and is not conditioned on book value. While definitive inferences are possible only when certain intuitive criteria are used, the advantages of incorporating book value in the practice of analytical review appear minimal. That is, reliance on book value would seem to require a procedure that, if reliable, would preclude the need for analytical review (or any other audit procedures).

Abstract Reviews accounting books by Ahmed Belkaoui. `Behavioral Accounting'; `Human Information Processing in Accounting'; `The Coming Crisis in Accounting.'

Abstract Examines the term `incremental information content,' which considers the the current accrual and cash flow components of income. Value placed by investors on the components of income; Preferred level of aggression; Analysis of studies of incremental information content; Accounting interpretation of the term; Composition and disclosure of income.

Abstract Presents a study which uses data from management practice in a nonprofit budgetary setting to test whether input cost shares are independent prices while controlling for operating characteristics. Background on substitution among production inputs; Model for testing the fixed cost share hypothesis.

Abstract Compares the usefulness of three different accounting procedures for the prediction of insolvency among property-liability insurers. Statutory accounting principles; Generally accepted accounting principles; Market value- and cash-flow-based principles.

Abstract Reviews the book "Incorporating the Time Value of Money Within Financial Accounting," by J. Alex Milburn.

Abstract Reviews the book `Evolution of United States Budgeting: Changing Fiscal and Financial Concepts,' by Annette E. Meyer.

Abstract Reviews the book `An Analytical Framework for Accounting Theory,' by Stanley C.W. Salvary.

Abstract Reports on two experiments examining the effects of alternative incentive pay schemes for controlling unit manager behavior in intrafirm resource allocation settings. Resource allocation and the Groves scheme; Operationalization of the resource allocation setting; Cash earning schedule; Unit managers' responses to bonus pay.