Knowledge that Transforms

This article presents a comment on the study of some observations on student values and their implications for accounting education in the U.S. If accounting majors are less concerned with wisdom and beauty than other students it may be incumbent upon accounting educators to raise the consciousness level of their students. This could be done by pointing out the scholarly background of accounting and the infinite complexities of designing a useful and reliable method of measuring economic and financial transactions.

This article describes a taxonomy of cognitive skills which has been designed by a group of educational psychologists and identifies the implications thereof for the development of accounting courses and the accounting curriculum. The taxonomy is designed to give precise direction to the learning process and is expressed in terms of expected student behavior at each level in the accounting program. The primary focus of this paper is on the financial accounting program. The taxonomy is relevant to the development of curriculum in that it reveals the elements in the learning process, orders them in an educationally logical sequence, and helps explain the interrelationships among them. It raises questions not only of what should be taught, but also of when and why it should be taught.

Reviews the book "Replacement Cost Accounting," by Lawrence Revsine.

The article informs that human resources is of importance to management as well as to outside users. Accountants are faced with the challenge of designing systems which are capable of providing accurate and reliable information about human resources. The model in this article provides a framework for determining the value of these resources. This model is based on valuation of groups rather than individuals; the term "group" refers to a homogeneous group of employees working in a firm. This group approach represents a major difference over the prior models. In this model, a Markov chain representation is used to consider the career movements of the employees within the firm and the chances of their leaving the firm before their retirement or death. The probabilities of career movement and of exit from the firm can be estimated on the basis of historical data and the Markovian chain technique. Since the pattern of movements is considered to be constant, the probabilities determined for one period are extended to future periods.

This article focuses on various models of auditing. One property of accounting numbers which has received a great deal of attention in the past few years is that of predictive ability. Research conducted to date has tended to view predictive ability as an impersonal criterion for the evaluation of accounting numbers. Behavioral reactions to particular sets of accounting numbers by particular decision-makers have typically not been investigated by predictive-ability researchers. However, a committee of the American Accounting Association recently introduced a model which, according to the committee, provides the potential for evaluating internal accounting numbers by examination of the utilization of those numbers by decision-makers. The purpose of this article is to provide a more complete discussion of the proposed model and, more importantly, to indicate potential hazards and other considerations in the implementation of the committee's proposal. The discussion draws heavily upon certain portions of the psychology literature which deal with the manner in which individuals utilize numerous pieces of data in making complex judgments or predictions.

A correction to the review of the book "Business and Personal Taxes," by Catherine E. Miles and Joseph E. Lane, Jr., published in the July 1973 issue, is presented.

This article focuses on how regression analysis, coupled with Bayesian statistical procedures, can be used to provide assistance to auditors in selecting accounts for investigation. Auditors characteristically express their opinion on corporate financial statements on the basis of an examination of only a small portion of the underlying data. Often the auditor relies on little more than informed judgment as to the specific data that he should review. In examining some accounts, notably inventory and accounts receivable, statistical sampling methods are sometimes used to select the data to be studied in detail. Frequently however, the auditor must operate with relatively little guidance as to which particular accounts or subaccounts merit comprehensive review. The purpose of this article is to demonstrate how regression analysis, coupled with Bayesian statistical procedures, can be used to provide the auditor with assistance in selecting those accounts for investigation that are most likely to result in significant audit findings.

Reviews the book "Audits of Investment Companies," by the AICPA COMMITTEE ON INVESTMENT COMPANIES.

The article discusses a study of the different approaches to reporting interim accounting data. Although the accounting literature has posited three approaches, there are only two alternative concepts of distinguishing net income. These are the independent period concept, and the dependent period concept. The first gives status similar to that of the annual period so that traditional accounting principles are applied in income determination. The second views the interim period as part of the annual period.

This article presents response from the author to a criticism of his article "Implicit Factors in the Evaluation of Lease vs. Buy Alternatives," published in the October 1973 issue of the journal "The Accounting Review." The author's article concluded that, if the implicit interest rate in the lease payments equals the rate at which a firm can borrow and if the depreciation pattern under buy coincides with the quasi-depreciation pattern under leasing, a firm would be indifferent between buying and leasing. He also stated that an implicit interest rate in a lease which exceeds the rate at which a firm can borrow and an accelerated depreciation method under the buy alternative which results in a greater tax shield will favor buying over leasing. It was criticized that the conclusions do not hold if the depreciation life for tax purposes exceeds the lease payment period and that leasing may be preferable even though the implicit interest rate in the lease exceeds the borrowing rate. Since the cash flows resulting from the tax shield should be discounted at the cost-of-capital instead of the borrowing rate, it was assumed that the cost-of-capital equals the borrowing rate since a 6% discount rate was used.