Knowledge that Transforms

Reviews the book "The Practice of Public Accounting," second edition, by A.S. Donnelly.

The purpose of this article is to suggest an outline for a body of theory, within which the auditor would find guides that stimulate the exercise of judgment in program planning, rather than mechanical aids that suppress this judgment. Fundamental to the formulation of such guides is an understanding of the concept of a minimum audit program, which the auditor adjusts to meet the weaknesses of a specific internal control situation. Comments concerning the necessary judgment process by which internal control is evaluated effectively suggest that over-all appraisal of internal control must be replaced with precise analysis. The article says that in analyzing internal control, the auditor must deal with specifics, not with generalities. The auditor must determine whether specific weaknesses exist, the irregularities thereby permitted, and the specific modifications of his program called for by these conditions. In this way many of the problems associated with the over-all, more subjective approach to internal control evaluation would be eliminated.

Reviews the book "Auditing, Management Games, and Accounting Education," by Neil C. Churchill, Merton H. Miller and Robert M. Trueblood.

In recent years there has been an increasing use of quantitative methods by business and industry in the solution of their problems in the U.S. The introduction of the computer as a tool of business has accelerated this use. Schools and colleges of business administration, being aware of this trend, have put more emphasis on mathematics for business administration majors. One of the problems faced by the colleges is the fact that many business administration faculty members have not had sufficient training in mathematics. As a result, there has been a lack of emphasis on the application of quantitative techniques in business administration classes. In October 1964 the College of Business Administration at Bowling Green State University, as a part of its continuing study of the undergraduate curriculum in business administration, appointed a sub-committee to recommend methods and techniques to improve the quantitative capabilities of the business administration faculty. The article presents discussion with deans of the member schools of the American Association of Collegiate Schools of Business were contacted to learn how widespread this problem is and to gain some background on their approaches to its solution.

The article focuses on different approaches of managing the costs involved in large and complex programs of work like weapon systems, space ventures, etc. Structurally, the pert/cost system is based upon three interrelated components--a work breakdown structure, work packages, and the network. It is designed to provide management with the tools necessary to achieve schedule and cost planning, determination, and control in those instances for which conventional management systems are inadequate. The resource allocation procedure, a supplement to the basic Pert/Cost system, is concerned with the problem of efficient allocation of limited resources in accomplishing work programs, and is based on the premise that activities on a network are subject to time/cost trade-offs. This supplement is not considered an essential part of the Pert/Cost system. However, it serves to extend the usefulness and effectiveness of the Pert/Cost system as a management tool. While the concepts involved appear relatively simple, the implementation of the supplement usually requires considerable management education and understanding in order to insure its proper use.

The article highlights that at present time a disparity exists within accounting literature in quantifying the idle-capacity variance. The divergent methods used to calculate the variance indicate that, as yet, accountants have failed to agree on its meaning. The theory of overhead absorption has experienced significant improvements in a relatively few years, but it still is not fully developed. This article explores some deficiencies believed still to exist and some possible causal factors related to idle-capacity variance. Primary among the misconceptions covering the idle-capacity variance is an assumption that it measures the dollar loss due to the presence of idle plant facilities. This concept has resulted in a computational stagnation. The results of the stagnation have been a continuance of the idle capacity from predetermined actual rate to standard rates. As a consequence there is a theoretical deficiency in the analysis of standard-cost overhead variance. The article says that there are vast majority of current accounting texts and certified accountant program exam solutions are, it is believed, pursuing a definition under standard costing which is not preferable.

The article presents a study which evaluated the position of the Committee of Professional Ethics of the American Institute of Certified Public Accountants on management services. This evaluation involved both a priori and an empirical analysis of two contentions. The first contention states that potential conflicts of interest between management consulting and the factual independence of a certified public accountant (CPA) are limited to two situations. The second contention states that acting as a management consultant does not impair the CPA's appearance of independence; that is, it does not suggest to a reasonable observer a conflict of interest.

Reviews the book "The CPA Plans for the Future," by John L. Carey.

The article discusses possible valid combinations of replacement market-ceiling-floor-cost and demonstrate a computer solution that identified the lower of cost or market for accounting students. Allan R. Dreblin discussed twelve possible valid combinations. Meanwhile, Maurice A. Hartman presented a method to help the student find the lower of cost or market. Another method is applicable to all of the twelve combinations of replacement market-ceiling-floor-cost and does not involve exceptions