Reviews the book "Accounting for Data Processing Costs," by Robert W. McGee.

This paper demonstrates that the treatment of self-services, their inclusion or exclusion, affects neither the decision relevance of the information made available by the reciprocal method of cost allocation nor the internal versus external acquisition decision made through the underlying technology matrix. Three propositions and proofs are provided, showing that there is a one-to-one transformation between the two treatments of self-services in each of the analyses.

The article presents a comment on the effect of chance variation on revenue and cost estimations for breakeven analysis. In traditional breakeven analysis, total revenue and total cost are represented by straight lines with one intersection which indicates the breakeven quantity output. The effect of quadratic revenue and cost curves on breakeven analysis was introduced. Two breakeven points for the quadratic model were derived by solving for the levels of output at which the regressed total revenue equals total cost. Regardless of whether a linear or non-linear breakeven model may be appropriate, however, the revenue and cost functions are often unknown. Givens illustrated the regression analysis, but did not consider the effect of regression forecasting errors. In order to resolve the above issue an attempt was made to demonstrate the determination of what he called "the chance variation" in estimated revenue and cost functions; and to illustrate how these chance variations affect the results of a breakeven analysis. The estimated cost-volume functions were subtracted from the estimated revenue-volume functions to derive an estimated profit-volume function.

This article focuses on an article which was published in the April 1974 issue of the journal "The Accounting Review," which discussed three methods of allocation in reporting controlling and minority earnings on the consolidated income statement by simultaneous equations. The article demonstrated that the traditional treasury stock method in reciprocal stockholding situations understates the minority interest and is not consistent with a true treasury stock approach, and suggested the inclusion of additional earnings per share figures in revealing the current per-share equity claim of two equity interests on current earnings. The purpose of this article is to demonstrate that the two alternative models of allocating total consolidated net income to controlling and minority interests, proposed in the article published earlier, were improperly constructed and were not valid, and to illustrate the inefficiency in communicating the effective earnings per share of minority interests of subsidiaries through consolidated financial statements of the parent company.

This article investigates the nature of the stewardship concept, its historical development and implications in financial reporting. This concept of management's stewardship seems to encompass two of the four objectives of accounting suggested by a committee of the American Accounting Association: effectively directing and controlling an organization's human and material resources, and maintaining and reporting on the custodianship or stewardship of resources. Although it is generally recognized as a principal purpose of financial reporting, little research has been conducted as to its specification, and the concept remains without a settled definition. Stewardship is an old concept with a strong religious, particularly Christian, implication. According to Christian theologians, things or resources were created by God, who gave them to all men in common. The essence of things falls under the power of God, and man has only the right to use these things. In order to use them, a possession of the things may become necessary. This gives rise to the concept of property and human ownership.

In economics, business income is defined as the maximum amount that the firm can distribute as dividends and still be as well off at the end of the period as at the beginning. To be as well off economically, a firm must maintain intact the present value of the expected future net receipts of the capital. In measuring business income as the residual from matching revenue against costs consumed, the accountant must value all assets on the basis of unabsorbed original money costs. The differences between the accountant's income statement and the economist's income statement are that the former includes only realized income while the latter includes both realized and unrealized income, and the former does not include gains and losses due to price level changes while the latter does. In a world where everything changes from time to time and nothing stands still, the three basic issues of accretion versus realization as the criterion for income recognition, inclusion versus exclusion of unexpected gain, and real income versus money income, will continue. Hence, accounting income and economic income will never be in agreement.

How prior trust moderates investor responses to restatements is unknown. We examine how societal trust affects the changes in institutional investors’ shareholdings around a restatement. We consider two competing hypotheses based on the erosion of trust and confirmatory bias. We find the change in institutional investors’ shareholdings around a restatement is more negative for investors from high trust areas compared to low trust areas, consistent with an erosion of trust where high trust institutional investors view the restatement as a violation of trust. Further analyses show that our findings vary with the regulatory or economic environment, type of institution, and type of restatement. Our results are also robust to different tests that address endogeneity and use alternative societal trust measures. Overall, we contribute to the literature by examining the role of societal trust in a dynamic setting where investors’ trust-based beliefs about the credibility of accounting information are not realized. Data Availability: GSS Sensitive Data Files are not available from the authors. Persons interested in obtaining these data should contact the GSS at [email protected]. Other data are available from the public sources cited in the text.

Falk and Heintz have proposed a scalogram technique to rank industries according to risk as reflected by financial ratios. The present paper examines some problems which need to be resolved before this technique can be used. First, the F & H selection of ratios is somewhat subjective and is not supported by tests for validity and reliability. And because of the confounding effects of changing economic conditions, the difficulty in obtaining a unique observable concept for industry risk, and because of measurement problems, it may be infeasible to assure an adequate degree of validity and reliability for this ranking technique. Also, some of the ratios selected by F & H may have high inter-correlation with other F ratios, thus implicitly adding greater weights to some of the ratios. Moreover, the F & H technique may be biased because of the selection of a different number of significant digits for two of the ratios. F & H have not offered any supporting reason for either of these sources of bias.

This study examines the externalities of mandatory IFRS adoption on firms' investment efficiency in 17 European countries. We use the ROA difference between the firm and its peers to proxy for the information on the peers' investment performance. We find that the spillover effect of a firm's ROA difference versus its foreign peers, but not domestic peers, on the firm's investment efficiency increases after IFRS adoption. We also find that increased disclosure by both foreign and domestic peers after IFRS adoption has a spillover effect on a firm's investment efficiency. Further, a firm's investment changes induced by its ROA difference versus foreign peers are more value-relevant after IFRS adoption, and those induced by increased disclosure by foreign peers under IFRS are value-relevant. Additional analyses reveal that our results are affected by legal enforcement strength, peer composition, and industry competition. Overall, we document positive externalities of mandatory IFRS adoption. Data Availability: Data are available from commercial providers (Worldscope, DataStream, and I/B/E/S).

This study provides evidence of changes in how analysts generate stock recommendations after the SEC's approval of NASD Rule 2711 in May 2002, which introduced regulatory reforms to enhance the independence of analysts' research. We investigate the relations of analysts' stock recommendations with intrinsic value estimates (based on analysts' earnings forecasts relative to the stock prices, V/P) and with investment-banking-related conflicts of interest during the 1994–2005 period. We find a stronger relation between analysts' stock recommendations and V/P and a weaker relation between analysts' stock recommendations and conflicts of interest in the post-Rule period than prior to the implementation of the Rule. Moreover, the increases in the relation between stock recommendations and V/P after the implementation of the Rule are greater for the stocks recommended by analysts with greater potential conflicts of interest. Our findings suggest that the implementation of Rule 2711 has enhanced analysts' independence.