Reviews the book "Performance Measurement, Evaluation, and Incentives," edited by William J. Bruns, Jr.

The purpose of this article is to investigate the information content of the change in the standardized measure (CSM) disclosure reported by oil and gas producers as assessed by market participants. Previous research by Doran et al. (1988) suggests that selected components of the CSM disclosure have a modest influence on share prices. This study reexamines this issue with a more homogeneous sample of oil and gas producers (e.g., excluding Canadian firms), and investigates all ten components of the CSM that firms must currently report. It provides evidence on the usefulness of one of the major supplemental disclosures for oil and gas producers. In particular, it shows that disaggregating the change in reserve value into the required components provides additional information over reporting only the CSM, and that six components provide incremental information relative to the other components and to net income: (1) production; (2) discoveries; (3) purchases of reserves; (4) quantity revisions; (5) price changes; and (6) the change in income taxes. In the early 1980s, the Financial Accounting Standards Board (FASB) and the Securities Exchange Commission (SEC) decided that, although reserve value accounting data would not be reported in the financial statements, supplemental disclosures of reserve values and changes therein (i.e., the CSM disclosure) would be required because such information is not reflected in historical cost financial statements (see FASB 1982; SEC 1982). Thus, this study also contributes to the more general area regarding the incremental information in footnotes relative to information such as net income reported in the financial statements (e.g., see Beaver et al. 1982; Imhoff et al. 1992). Doran et al. (1988) tested for the incremental information content, relative to historical cost earnings, of three reserve value-based measures: (1) the total annual change in reserve value (less reserve purchases and sales), as well as the change in reserve value attributable to (2) discoveries and (3) revisions in price and quantity estimates. They calculated the variables using data filed under Statement of Financial Accounting Standards No. 69 (SFAS No. 69, FASB 1982) for 1982-1984 and found that only the revisions variable provided information on producers and that earnings did not. This study replicates their tests using SFAS No. 69 data over the same period with consistent results. The analyses of Doran et al. are then expanded by investigating the information content of the ten components of the change in reserve value required by SFAS No. 69. The set of information Items currently required are more disaggregated than the set that was required prior to SFAS No. 69. The study results offer new insights and provide the first evidence that gross profits from production are positively associated with returns. In addition, the findings suggest that discoveries and purchases of reserves are negatively associated with returns during the test period. Although this appears to be counterintuitive, it is consistent with analyses of the oil and gas industry by McConnell and Muscarella (1985), Picchi (1985), and Jensen (1986a, 1986b) that the market reacted negatively to oil firms investing in exploration and development (E & D) during this time period. They describe the period as one in which oil prices were declining, and firms were spending too much on E & D, and had excessive levels of reserves. Thus, additions to reserves as measured by CSM components such as discoveries need not be positively associated with returns. In addition, there is some evidence that the tax change component reflects a tax adjustment to the values of the other components. The analysis of the CSM components is replicated using abnormal returns estimated from a market model that includes industry and market indexes. The results show that net income is positively related to abnormal returns, which indicates that earnings do provide information about firm-specific events for producers. The results also indicate that the six CSM components described above are associated with the dual-index returns.

[The purpose of this article is to investigate the information content of the change in the standardized measure (CSM) disclosure reported by oil and gas producers as assessed by market participants. Previous research by Doran et al. (1988) suggests that selected components of the CSM disclosure have a modest influence on share prices. This study reexamines this issue with a more homogeneous sample of oil and gas producers (e.g., excluding Canadian firms), and investigates all ten components of the CSM that firms must currently report. It provides evidence on the usefulness of one of the major supplemental disclosures for oil and gas producers. In particular, it shows that disaggregating the change in reserve value into the required components provides additional information over reporting only the CSM, and that six components provide incremental information relative to the other components and to net income: (1) production; (2) discoveries; (3) purchases of reserves; (4) quantity revisions; (5) price changes; and (6) the change in income taxes. In the early 1980s, the Financial Accounting Standards Board (FASB) and the Securities Exchange Commission (SEC) decided that, although reserve value accounting data would not be reported in the financial statements, supplemental disclosures of reserve values and changes therein (i.e., the CSM disclosure) would be required because such information is not reflected in historical cost financial statements (see FASB 1982; SEC 1982). Thus, this study also contributes to the more general area regarding the incremental information in footnotes relative to information such as net income reported in the financial statements (e.g., see Beaver et al. 1982; Imhoff et al. 1992). Doran et al. (1988) tested for the incremental information content, relative to historical cost earnings, of three reserve value-based measures: (1) the total annual change in reserve value (less reserve purchases and sales), as well as the change in reserve value attributable to (2) discoveries and (3) revisions in price and quantity estimates. They calculated the variables using data filed under Statement of Financial Accounting Standards No. 69 (SFAS No. 69, FASB 1982) for 1982-1984 and found that only the revisions variable provided information on producers and that earnings did not. This study replicates their tests using SFAS No. 69 data over the same period with consistent results. The analyses of Doran et al. are then expanded by investigating the information content of the ten components of the change in reserve value required by SFAS No. 69. The set of information items currently required are more disaggregated than the set that was required prior to SFAS No. 69. The study results offer new insights and provide the first evidence that gross profits from production are positively associated with returns. In addition, the findings suggest that discoveries and purchases of reserves are negatively associated with returns during the test period. Although this appears to be counterintuitive, it is consistent with analyses of the oil and gas industry by McConnell and Muscarella (1985), Picchi (1985), and Jensen (1986a, 1986b) that the market reacted negatively to oil firms investing in exploration and development (E & D) during this time period. They describe the period as one in which oil prices were declining, and firms were spending too much on E & D, and had excessive levels of reserves. Thus, additions to reserves as measured by CSM components such as discoveries need not be positively associated with returns. In addition, there is some evidence that the tax change component reflects a tax adjustment to the values of the other components. The analysis of the CSM components is replicated using abnormal returns estimated from a market model that includes industry and market indexes. The results show that net income is positively related to abnormal returns, which indicates that earnings do provide information about firmspecific events for producers. The results also indicate that the six CSM components described above are associated with the dual-index returns.]

[This article relates the efficiency of nonprofit organizations to the composition of their board of trustees. Following arguments by Fama and Jensen (1983a, 1983b) and Williamson (1983), we conjecture that nonprofit organizations are more efficient if their board of trustees have a larger proportion of outsider trustees rather than insider (employee) trustees since the former are presumed to have a greater incentive to monitor the organization and the latter are presumed to have a greater incentive to consume perquisites. This conjecture is tested empirically for a sample of 72 charities with a specific health focus, with respect to both the technical and allocative efficiency of the organization. Technical efficiency indices were derived by using data envelopment analysis (DEA) under various assumptions concerning the industry production technology, including the assumption that charity outputs are not substitutable for each other. These indices are reasonably well measured since the data included information on volunteer labor, a necessary input for charity services. To test the conjecture that the technical efficiency of the organization is affected by the composition of the board of trustees, the estimated indices of technical efficiency were regressed on the board's proportion of insider trustees and the organization's debt-value ratio. The conjectured relationship was not confirmed by the data. As an additional test, the proportion of insider trustees was replaced by the ratio of insider-trustee remuneration to total labor remuneration, the argument being that the greater the relative remuneration received by the insider trustees, the more capable they might be in appropriating perquisites of all types. As before, the results did not confirm the conjectured relationship, leading us to conclude that the technical efficiency of nonprofits is not affected by the composition of the board of trustees. To determine the relationship, if any, between the allocative efficiency of the organization and the composition of the board of trustees, charity costs were multiplied by the technical efficiency index so that any remaining cost inefficiencies are allocative in nature. This adjusted cost was then regressed on the proportion of insider trustees on the board (or the proportion of insider-trustee remuneration) and the organization's debt-value ratio. The conjectured relationship between allocative efficiency and the composition of the board of trustees was also not confirmed by the data.]

Reviews the book "Implementing Activity-Based Cost Management: Moving From Analysis to Action," by Robin Cooper, Robert S. Kaplan, Lawrence S. Maisel, Eileen Morrissey and Ronald N. Oehn.

Reviews the book "Surviving Your Dissertation: A Comprehensive Guide to Content and Process," by Kjell Erik Rudestan and Rae R. Newton.

[Auditor liability is a growing concern of public accounting firms (Collins 1985; Flynn et al. 1990; Mednick 1987; Minow 1984). In lawsuits brought by clients for breach of contract and tort actions for negligent execution of an audit, as well as in an increasing number of lawsuits brought by third parties, a common defense is the auditor's compliance with generally accepted auditing standards (GAAS). In this study, the source of professional auditing standards was manipulated to examine its influence on jurors' decisions. Four fact patterns were presented to members of jury pools called to jury duty. Prospective jurors responded to a fact pattern by voting in favor of either the plaintiff/client or the defendant/auditor. The fact patterns were manipulated to compare jurors' responses to standards of auditing performance established by the federal government versus those established by the auditing profession. In addition, a comparison was made of jurors' responses to two sets of instructions provided by the judge: either that standards alone set the required level of performance or that standards are only a part of the evidence to be considered in establishing the required level of performance. At trial, a judge's instructions to the jury before its deliberations can be influenced by counsel for the public accounting firm as to the evidentiary weight assigned to professional standards. The results that follow indicate that jurors are more likely to rule against a CPA firm when the profession's standards are offered in defense and less likely to rule against it when government standards of performance are offered in defense. Also, as expected, jurors are more likely to accept standards in defense, whether established by the government or the profession, if the judge identifies the standards as the only criterion for an expected level of performance rather than as only part of the evidence.]

Reviews the book `Break-Even Analysis: Basic Model, Variants, Extensions,' by Schweitzer et al.

Reviews the book "The FASB Conceptual Framework 1973-1985: An Analysis," by Pelham Gore.