Knowledge that Transforms

Reviews the book "Inventories Control, Costing and Effect Upon Income and Taxes," 2nd ed., by Raymond A. Hoffman and Henry Gunders.

Reviews the book "Issues in Fiscal and Monetary Policy: The Eclectic Economist Views the Controversy," edited by James J. Diamond.

Reviews the book "Finite Mathematics With Business Applications," 2nd ed., by John G. Kemeny, Arthur Schleifer, J. Laurie Snell and Gerald L. Thompson.

This article describes an experiment with the curriculum for the introductory accounting course. A necessary complementary objective was an increase in the students' understanding of balance sheet and the relationships between income measurement, the balance sheet, and the funds statement. A corollary objective was a decrease in the reliance on double-entry bookkeeping as the basic method of teaching accounting concepts. A completed venture model was used first to present the basic concept of income determination. In a completed venture, income and cash flow are easily related. Cash receipts and cash disbursements are familiar ideas to most students. Conventional pedagogy begins by explaining income as a change in wealth, or net worth, an explanation which presumes a rather sophisticated definition for assets and liabilities. The course introduces periodic income determination for an on-going entity by using the ideas introduced in the discussion of a completed venture. Cash flows related to operating transactions serve as the foundation for periodic measurement of income.

The article informs that behavioral research in accounting simultaneously must consist of theory-building and methodology refining. The problems of identifying significant variables and generalizing from experimental findings are inextricably linked. These joint problems are generally acknowledged, widely deplored and little studied. This article reports the results of a lab experiment testing the effects and interactions of three factors--subject type, consistency of information, and earnings per share trend--imbedded in the context of a financial analysis task. Multiple dependent variables were employed so as to obtain data about both the observable outputs and the non-observable process used by subjects in arriving at their predictions. The findings of the experiment have several interpretations. On a substantive level, they confirm some of the conventional wisdom about the use of accounting information, occasionally display counter-intuitive results, and provide insights into the relative impact of different elements of the traditional annual report.

Reviews the book "Accounting Systems: Procedures and Methods," 3rd ed., by Cecil Gillespie.

The article highlights the report of the Committee on Measures of Effectiveness for Social Programs of the American Accounting Association. The charge to this committee is to prepare a report on the implications for Accounting of integrating into the formal accounting and reporting process various non-financial statistics and measures that are essential to the evaluation of efficiency and effectiveness in social programs. A social program is a plan of action, an experiment introduced into society for the purpose of producing a change in the status of the society or some of its members. In the area of social reporting, there is a predominant tendency, particularly among politicians and other individuals backing or resisting social reforms, to "sell" their own viewpoints with biased reporting. It was pointed out previously that one of the major problems in measuring social programs is in achieving comparability among measures over time, between different programs, over different communities, etc. The accountant is not likely to be the one looked upon to achieve such miraculous comparability. The lowest level of involvement would limit the accountant to simply auditing the disbursement of public funds.

Reviews the book "Case Movements Analysis of the Accounting for Corporate Income Taxes," by Hugo Nurnberg.

This article discusses several means of achieving the weighting of the prices of all the commodities which are used to define the price index. In recent years, interest in price-level adjustments in accounting has increased and has become an important topic in instruction in accounting theory. Frequently, already existing price indexes will be employed in carrying out price level adjustments. Sometimes, however, construction of an index will be necessary. Any utilization of a price index should be accompanied by an understanding of the inherent characteristics of the formula which defines the index. Economic analyses may be a useful approach to this task. In particular, the proof demonstrated above may be useful in presenting these concepts in the classroom. The construction of a price index requires a weighting of the prices of all the commodities which are used to define the price index. But, for the same reason as in the case of the Paasche Index, this true index cannot be determined.

The article focuses on a proposal for the accounting measurement and/or the measurement of foreign exchange exposure for a domestic parent with foreign subsidiaries. The proposed method differs from other recommendations in the accounting literature in the explicit treatment of fluctuations in the domestic price level, the foreign price level, and the exchange rate. In the other methods examined, there were difficulties in accounting for at least one of those changes. Such separate treatment of each factor results in an economic and an accounting model which is viable--not only under today's international monetary environment--but which should also hold true under other international monetary arrangements. As a measure of exposure, the proposed method assists in hedging decisions. When incorporated in the financial statements, the proposed method assists in intercompany comparisons by effectively measuring the economic effects of price and exchange-rate movements. Finally, as indicated in the last section, the approach can be extended beyond the simplifying assumptions used in the article.