Knowledge that Transforms

The article discusses an experiment in education for the profession. In terms of preparation for entrance into public accounting as a profession, there has been a tendency for professional considerations to "slip through the crack." This crack lies between the conceptual/theoretical orientation of the typical collegiate accounting program and the necessarily technical orientation of the staff training programs offered by CPA firms and the AICPA Professional Development Division for neophyte practitioners. Based on the success achieved with the seminar, the author urges others to consider a similar undertaking, especially if an inter-term period is available. There must be consideration, however, of the previously mentioned fact that the Board of Managers of the Professional Development Division of the AICPA has always had a policy of limiting the use of PD materials to its own seminars and courses that are offered at a fee to those in professional practice. The division is intended to be self-supporting, with the cost of developing program materials being recovered through the fees charged those who attend.

This article presents information on the accounting curricula in the U.S. colleges. The faculty at the University of Delaware are constantly re examining what they are doing in order to determine if there are better ways of having the typical undergraduate program for accounting. In general, most faculty seemed to be favorably impressed with this new approach. In particular, the point was made that there was more class discussion than with other texts. There were some who did not like it, claiming that it was just too much trouble to teach from such a book. It was also claimed by those who disapproved of the text that the students found it much too difficult. One good method of judging the relative achievements would be to give common examinations. Since the topical sequence in the texts was not identical, assignment schedules had to be prepared which would have all students cover the same material at the same time. They decided to follow the chapter sequence of the standard text, tailoring the reading and problems in the programmed text to follow the same pattern. This meant that those students who would be using the programmed text would have to buy both volumes of the text for the first semester of work.

Reviews the book "The Design of Economic Accounts," by Nancy Ruggles and Richard Ruggles.

The aim of this article is to present the findings of an investigation of 69 firms that changed their depreciation accounting method from a form of accelerated depreciation to a form of straight-line depreciation for financial statement purposes. At the completion of the extensive datagathering required for this study it was believed that the 69 firms represented all the firms that made change in the intervening period and were indexed by the major reporting services cited above. Although a few potential switch-back firms have come to light since, it would not seem that their inclusion would significantly influence the study findings. The investigation of 65 switch-back firms during the period in which they decided to change their depreciation method offers some advantages for seeking out the existence of a market influence. The magnitude of the effect of the change on reported net income is significant. For the 60 profitable firms in the sample, the median increase in net income after taxes resulting from the change is 8.64 percent and the range runs from 1.00 percent to 26.8 percent.

Reviews the book "Why, When and How to Go Public," edited by G. Scott Hutchison.

The article focuses on social-psychological processes similar to those found in performance evaluation systems developed and used in accounting information systems. Further research must be done to determine the generalizability of these findings to behavior in actual business firms. However, several tentative hypotheses about accounting systems and their relationships to individual performance can be formulated: Performance reports quantitative measures like the test scores in the experiment accompanied by supportive comments generally stimulate higher performance more than a mere presentation of figures. The effects of certain combinations of factors on performance e.g., ability and self-esteem can be enhanced through the use of supportive feedback or diminished by neutral feedback. Initial budget estimates prepared by individuals holding varying levels of ability and self-esteem will be unrealistically high or low estimates of performance in relatively new activities. Accounting-type feedback decreases differences between expected and actual performance.

This article is a report on an experiment directed at determining the extent of nonsampling errors in accounts receivable confirmation procedures. In an ordinary audit situation it is not practical to measure the extent of improper responses. Auditors generally accept a confirmation at its face value without questioning the respondent further, however, under various circumstances, the auditor will look beyond the confirmation for satisfaction. The proportion of nonresponses to confirmations which ask the recipients to confirm the information provided on the confirmations is equal to the proportion of nonresponses to confirmations which ask the recipients to provide the information concerning their accounts. The acceptance of the hypothesis might lead to a solution to the problem of improper responses. Unless the recipient contacts the office being audited, the data on the confirmation would be obtained from his records. It is proposed here that the immediate solution to the problem of nonsampling errors is for the auditor to use the blank confirmation form and circularize a number sufficiently large to yield the number of responses needed to satisfy him.

The article highlights the report of the Committee on Cost and Profitability Analyses for Marketing of the American Accounting Association. The charge made to this committee is most relevant in an era which finds an increasing proportion of firms' expenditures being made in marketing activities as they often attempt to differentiate more standardized products through marketing efforts. Prior to suggesting new approaches to the analysis of marketing costs, insight can be gained through a brief summary of the current state of marketing cost accounting. The suggested accrual or deferral of direct action promotional expenses to provide a better matching of income and expenses with stated goals can usually be justified under existing accounting principles governing accrual and deferrals. Price variances are the differences caused by actual price policies and price administration differing from those included in the sales plan. There is no unique way to classify or categorize the operations research problem. Decision theory problems enable the use of subjective or individual probabilities involving the judgment and experience of a decision maker in a structured approach to determine rational and optimum strategy.

Reviews the book "Accounting: An Introduction," by Kenneth W. Perry.

The article reports that in the October, 1971 issue of "The Accounting Review," professor Harold Bierman presented a discussion of a situation in which the application of general price-level adjustments to basic historical cost data results in an adjusted historical cost number which is significantly different from "value." "Value" for purposes of the Bierman discussion is estimated using discounted cash flow analysis. Bierman examined two cases. In the first case, the company incorrectly forecasts changes in the general price level and subsequently determines that increases in the general price level have occurred and are anticipated to occur in the future. In the second case, the company correctly anticipates movements in the general price level and adjusts its acceptable rate of return criterion accordingly. In both, Bierman assumes that cash flows from the project under analysis are "perfectly positively" correlated with movements in the general price level. Bierman's analysis uses discounted cash flow and annuity depreciation methods. He demonstrates that a difference exists in the net value of an asset when the investor ignores price-level change in the estimate of cash flows and the discount rate, and when he properly estimates the effect on both variables.