This article proposes a better method for calculating debt coverage than that advocated traditionally for financial statement analysis. Statistical concepts of dispersion are used to measure the volatility of the earnings stream. These are then incorporated into a calculation of debt coverage which can be used to express probability beliefs concerning ability to repay. Coverage ratios are developed for the case where there is no trend, then the effects of trend are introduced. The proposed method deals with volatility in earnings and trends in earnings better than traditional methods.
Comments on an article which discussed the concept of evidence in auditing and the reasoning processes employed by auditors in establishing the fairness of financial statements. Concept of evidence; Relationship between fairness of financial statements, accounting policies and internal control.
Several authors have examined the issue of choice among financial reporting standards and principles using the framework of rational choice theory. Their results have been almost uniformly pessimistic in terms of the possibilities for favorable resolution of the issue. Upon further analysis, these results are revealed to be an artifact of the way in which the issue is initially formulated. Several possible methods of reformulating this issue within the rational choice framework are proposed and explored in this paper. The results here support a much more optimistic conclusion and suggest numerous avenues of further research which could provide considerable insight to the conditions under which optimal accounting principles are possible.
The goal of this paper is to develop operational definitions for opportunity costs in profit and cost situations. The static inventory problem under risk is suggested as a means of demonstrating these definitions.