Abstract The article discusses assessing prior distributions for applying Bayesian statistics in auditing. The results of this study suggest that auditors are willing to specify information from which prior distributions can be constructed. The prior distributions which were obtained, had most of the probability concentrated on small amounts of error, but there was considerable variability among them. It was found that there were substantial inconsistencies in the way some auditors specified information about the prior distributions. These inconsistencies and the variability among the prior distributions indicate that at least some of these distributions do not accurately reflect the auditors' beliefs about audit populations. Therefore, it is concluded that auditors should proceed with caution in relying on their prior distributions. To apply Bayesian techniques, the auditor subjectively evaluates the non-sampling evidence and expresses his belief about the audit population as a prior probability distribution. A likelihood function is then obtained by statistically evaluating the sample result.

Abstract The article reports that the evaluation of the cost control procedures applied to a process is facilitated by viewing the control objective as minimizing a whole set of costs including the efficiency cost incurred in the operation of the process and all of the control procedure costs. Thus, proposed changes in control procedures can be evaluated by determining their net effect on the total of this set of costs. Two approaches to controlling efficiency cost were discussed along with some indication of the types of procedures required by each. The first approach, that of preventive controls, has its primary effect on efficiency cost through the frequency of occurrence of operating problems. The second approach, that of detection-correction controls, has its effect on efficiency cost by influencing the length of time operating problems are allowed to exist in the process. It can be argued that budget performance reporting, a major contribution of the accountant to process cost control, serves both control approaches.

Abstract Reviews the book "Proceedings Second International Conference on Accounting Education," by E.F. Castle.

Abstract In a recent unpublished paper entitled Questions of Metric, Stafford Beer cites some letters to the newspaper, London Times, addressed to a question of social change. The issue concerned the seven hundred years old Norman Church of St. Michael of Stewkley, which stands square in the middle of a possible runway of a possible Third London Airport, not by design surely. A cost benefit analysis had been made by a commission for each alternative site of the proposed airport. It is really astonishing how many crisis-numbers are being thrown at the public these days. They all describe what programmers call the rate of activity in a certain sector of society. Since often the rate of activity, pollution or poverty or information, spread yields uneasy or horrible feelings, people and politicians are apt to conclude that something must be done to lessen the rate, or even to make it negative. But even if the disinterested observer is telling us about real impending disaster provided an activity continues to increase, it by no means follows that he is telling us about real social change in a pragmatic sense.

Abstract Many colleges and universities are purchasing small time-sharing systems, at relatively low cost. For example, IBM has introduced a new facility which permits up to 31 teletype connections and, when operated at minimum configuration, requires monthly operating costs of less than $8,000. Furthermore, business schools do not have their own computer, nor must they be connected with a large university which supports a computer. Commercial time-sharing is readily available from several sources, regardless of geographic location. Discounted rates are usually provided for educational use. Fixed costs are typically under $100 per month for the rental of teletype, including maintenance. Cost of operating terminals runs from about $8 to $13 per terminal hour of use, and are expected to be reduced with improvements in hardware and software. According to a survey reported in a recent issue of the journal Datamation, education is the fourth largest user of time-sharing. The increased availability of time-sharing systems and low entry cost have prompted many schools of business to obtain teletype terminals either by outright purchase or through rental contracts.

Abstract The article focuses on exposing first-semester accounting students to accounting periodicals. Since many introductory accounting courses include a substantial amount of bookkeeping-type work, students often develop a conception of accounting as a dry and unstimulating field. This viewpoint can often be radically altered by exposing first-semester accounting students to the activities of professional accountants. In order to expose the first-semester introductory accounting students to the activities of accountants and to give them a much broader perspective of accounting than can be derived from their textbooks, each of the students are required to select an article from one of several accounting periodicals and prepare a written report on the article. Students are encouraged to select articles that are both interesting and understandable to them. They are asked to avoid overly technical articles such as those dealing with complex tax matters. Most students are able to find suitable articles in recent issues of The Journal of Accountancy. Other recommended sources of accounting articles are The Accounting Review, Management Accounting and The Federal Accountant.

Abstract The article examines the desirability of the existing practices in accountancy for business combinations to determine the accounting problems that arises when a business separation occurs. The primary issue in accounting for divisive reorganizations centers on the propriety of carrying forward the existing basis of accountability for those assets transferred to the new entity versus creation of a new basis of accountability. Since continuity of ownership in the aggregate is maintained in all divisive reorganizations, it could be argued that all are reverse poolings. An aggregate view of ownership, however, fails to differentiate between those divestitures in which there is a division of the firm between owners and those in which ownership is unaltered. In the context of accounting theory there does not appear to be a body of rationale which clearly disproves the validity of either reverse pooling or reverse purchase treatment. It has been argued by those supporting purchase treatment that business combinations are basically exchange transactions bargained between independent entities.

Abstract The article provides information on the factors that limit the accounting process. When accounts are summarized in the form of financial statements, they compactly present figure-pictures of the economic results of transaction decisions affecting the enterprise concerned. The information service of accounting makes a unique contribution to the needs which interested parties have in order to understand the impact management's decisions have had on the enterprise involved. Clearly, account data, even when carefully summarized into financial statements, must be read analytically and with a clear awareness that those data only report on specific transaction experience previously consummated by that specific enterprise. In reading financial statement summaries of enterprise transaction experience, one should clearly realize that the reported amounts originated in prior transactions acceptably completed between independent parties free to trade or not to trade. Enterprise accounting can perform a socially useful service because its data are "pure," that is, faithful to the price-aspects of that enterprise's actual transaction events in the markets.

Abstract Accounting information influences many decisions, but little is known about the way in which this influence is exerted in particular classes of decisions. If the facilitation of decisions is taken as the purpose of accounting, then accounting measurement methods ought to be evaluated in terms of their influence on the decision-making process. The article looks at permitted rates of return for privately owned natural gas distribution utilities. It attempts to relate differences in these rates of return with differences in accounting methods used. It is observed that as compared to many other decisions, the regulatory decision is fairly well standardized. In addition, the output of the decision is a single unambiguous number. For these reasons the regulatory decision is studied with expectations of a greater probability of obtaining meaningful results than would be the case with well-structured decisions. Finally, whether decision-makers are influenced in their decisions because of fixation or because of their choice of a particular method of measuring an accounting variable, the fact that decisions may be influenced by the related accounting process points to a need for greater research efforts directed at finding objective criteria for selection among alternative accounting methods for particular purposes.

Abstract This article applies some elementary principles of mathematics and statistics to a discussion of depreciation, and in the process casts light on several problem areas. New formulas are suggested for sum of the year's digits and double declining balance methods of depreciation. Finally, the assignment of cost to depreciation is examined using the tools developed in the first part of the article. This discourse seeks to supplement the presentation of depreciation for students who have some quantitative background, since most students appreciate finding applications of mathematical concepts, which by them may seem esoteric or irrelevant. A depreciation density twice lion is a real-valued, non-negative, continuous function. Depreciation depends on a multitude of factors. Since consistent methods of depreciation depend only on the fraction of total life exhausted and not on the total lifetime of an asset, it is possible to compare different methods of depreciation on one graph. The analogy between depreciation and a probability distribution was exploited in the article. It was shown how some problem areas were illuminated using the tools developed. But in a discussion of accounting that makes use of any concepts of mathematics or statistics, it should be remembered that mathematical niceties or rigor can never be substituted for what is economically relevant.