Knowledge that Transforms

Reviews the book "Accounting Queries," by Harold C. Edey.

Reviews the book "Cost Accounting," by Shane Moriarity and Carl P. Allen.

Reviews the book "Methods of Amalgamation and the Valuation of Businesses for Amalgamation and Other Purposes," by Arthur E. Cutforth.

Reviews the book "The New-Product Decision," by Dale L. Flesher, Tonya K. Flesher and Gerald U. Skelly.

This note explains a modified shortcut approach for computing earnings per share when convertible securities are present. In many cases, it can decrease the number of calculations involved when compared to a widely used shortcut procedure.

A bond exchange is a transaction in which a corporation with an outstanding bond issue offers the current bondholders a new bond in exchange for the outstanding bonds. Bond exchanges affect firms by: (1) altering the cash payments to bondholders, (2) increasing reported earnings, (3) improving financial ratios such as debt/equity, and (4) affecting tax obligations. Although bond exchanges are fairly common, especially in the airline industry, these transactions may be difficult to analyze. This paper reviews the sequence of public disclosures involving an exchange offer, illustrates a present value method for evaluating bond exchanges, and compares the reported results with the "economic" results obtained from this method. Eastern Airlines' 1980 bond exchange is used for illustrative purposes.

Reviews the book "Issues in Public Sector Accounting," edited by Anthony Hopwood and Cyril Tomkins.

This paper investigates the relationship between sampling risks and audit consequences under error and audit value projection testing approaches. The latter approach typically is presented in auditing textbooks in connection with classical variables sampling, while the former approach is shown to underlie both dollar-unit sampling methods (in which an upper precision limit for monetary error is computed) and statistical compliance testing methods. In particular, we demonstrate analytically that error projection approaches implicitly test null hypotheses which effectively are equivalent to an alternative hypothesis underlying audit value projection. We also present outcome matrices to identify the effect of such hypothesis interchange on the audit consequences of sampling risks, and thus provide a basis for clarifying sampling risk discussions in textbooks and the recently issued Audit and Accounting Guide: Audit Sampling.

Reviews the book "Accounting Structured in APL," by Yuji Ijiri.

Although many firms now prepare a cash-based statement of changes in financial position, reported "funds from operations" is typically a measurement of working capital. The statement reader wishing to determine cash flow from operations must use a series of indirect adjustments to do so. Our purpose in this paper is to identify the inherent difficulties the reader encounters when using this indirect method to convert reported funds from operations to a cash flow amount. We demonstrate how the indirect method will in fact not equal actual cash flow from operations because of numerous conceptual and practical problems encountered when applying the necessary adjustments. We develop illustrations of these problems, and we show how cash flow from operations calculated by the indirect method is, at best, an estimate of actual cash provided by operations.