Knowledge that Transforms

Reviews the book "Managerial Accounting," by Joseph G. Louderback and Geraldine F. Dominiak.

The article presents comments of authors on the article "Prediction Achievement and Simulated Decision Makers As an Extension of the Predictive Ability Criterion," by Robert Libby published in the July 1975 issue of the periodical "The Accounting Review." Libby maintains that predictive ability is an inadequate information evaluation criterion because it does not consider explicitly the ability of the decision maker (DM) to utilize information. Libby argues that the prediction achievement index of the Brunswik Lens Model is a useful extension of the predictive ability criterion because it incorporates predictive ability as well as the DM's ability to utilize information. High prediction achievement demands not only high predictive ability, but correct utilization of information. Objectives of this comment are to identify those areas of accounting where prediction achievement is clearly an inappropriate index of usefulness and to question whether prediction achievement is an unqualified extension of predictive ability in any area accounting. The comment is organized around the two-part framework for the evaluation of accounting numbers used by the Committee on Asset Valuation Bases which originally proposed the use of the Brunswik Lens Model in the evaluation of accounting alternatives.

Reviews the book "Risk and Uncertainty in Accounting and Finance," edited by John P. Dickinson.

Official pronouncements on financial statements restated for general price level (or simply, price-level statements) repeatedly have emphasized that price-level statements be treated as being entirely different from conventional financial statements. Financial Accounting Standards Board Exposure Draft on price-level statements also follows the same approach, emphasizing that conventional statements are stated in units of money while price-level statements are stated in units of general purchasing power. Such an attempt to treat price-level statements as being totally different in units of measurement may be desirable once a frame of reference is established firmly in the minds of users of financial statements. At least until such time, it seems to make sense to provide a bridge between conventional statements and price-level statements to facilitate acceptance of the new statements. The article analyzes and evaluates price-level statements from the viewpoint that their unit of measurement is comparable to that of conventional statements. The difference in figures arises because different accounting principles are applied to them.

While the basic question that Professors S.H. Kratchman, R.E. Malcolm and R.D. Twark (hereafter referred to as K, M and T) sought to explore is of central importance to accounting research, it appears that the methodology employed to address this issue strongly impacts upon their findings. The limitations of an ill-defined and conceptually lacking method of "current" value leads to a meaningless hybrid. The failure to properly adjust liabilities to reflect changing market rates clearly distorts the balance sheets and, hence, the performance measures utilized, i.e., return on assets and return on equity. The statistical tests are inappropriate for the null hypothesis implied by the basic research question K, M and T pose. The net result of these compounding limitations has been depicted partially in revised sets of performance measure ratios-sets which vary dramatically from K, M and T's results. These conditions all point to one inescapable conclusion; i.e., the aggregation of these limitations is of such unknown magnitude that without a complete replication, any and all interpretations K, M and T offer must be held suspect.

The article focuses on some changes made in the required accounting procedures for some nonmonetary transactions in APB Opinion No. 29, entitled "Accounting for Nonmonetary Transactions," which was released in May 1973. For example, the opinion requires that nonreciprocal nonmonetary transactions, such as property dividends, be based upon fair values. Opinion No. 29 also affects reciprocal nonmonetary exchanges significantly. However, some parts of the opinion dealing with nonmonetary exchanges are quite difficult to interpret and even the new editions of intermediate accounting texts, which claim to include all thirty-one opinions of the Accounting Principles Board fail to present an adequate explanation of the effect of this opinion on accounting for reciprocal exchanges of nonmonetary assets between entities. In addition, there seems to be a common misconception that Opinion No. 29 prescribes accounting procedures for nonmonetary exchanges identical to those required for income tax reporting. Therefore, the purpose of this article is to summarize and explain those parts of the opinion, which deal with reciprocal exchanges of nonmonetary assets.

Reviews the book "Information Systems for Operations and Management," by Dan Voich, Homer J. Mottice and William A. Shrode.

Reviews the book "An Evaluation of Selected Current Internal Auditing Terms."

Reviews the book "Management Accounting: The Behavioral Foundations," by J.L. Livingstone.

Reviews the book "International Tax Planning," by William C. Gifford.