This article focuses on conventional and modern accounting researches devoted to questions of accounting policy. The purpose of this article is to offer a model for organizing one's thoughts and efforts directed toward the process of accounting policy making and related research strategies. The motivation for attempting such a task is a conviction that results from individual accounting research studies must, suggestively, be interpreted as interrelated building blocks for accounting policy decisions. The authors consider accounting policy making, at first, as a social choice process. They argue that the most promising use of any given research strategy in the area of financial reporting policy is not in selecting optimal alternatives; rather, it is in contributing, along with all other available strategies, to developing theories that then may be used by policy makers to settle specific issues. The statements of goals of financial accounting made to date suffer from two major problems: first, that they have not received general acceptance and second, that they do not provide a basis for selecting among alternative policies. The framework of a standard accounting policy decisions is proposed here having a prime goal for maximization of social welfare.

This article presents a reply from the authors to the criticism of their article underlying a set of market-clearing security prices by Robert P. Magee, published in a recent issue of the journal "The Accounting Review." In their earlier work, the authors showed that there is a potential bias against non-extant accounting alternatives built into association tests based on extant security prices. Magee shows that under certain conditions the bias may be sufficiently reduced such that a nonextant alternative which actually contains more information will indeed be judged so on the basis of its association with market prices. He concludes that the conditions that they specified under which association tests will be valid for nonextant alternatives are too restrictive. There is no nontrivial accounting disclosure change that will not potentially cause a redistribution of wealth; consequently, there is no change for which social welfare impacts can be accurately surrogated by results of market association tests for differential information content. The authors concluded that market association tests may provide data that policy makers can use to revise their prior beliefs about the relative desirability of alternative accounting disclosure requirements.

The article discusses how an accounting policy maker can use evidence from empirical research based on security prices to revise his prior beliefs about the relative desirability of accounting alternatives. The authors here show that, it is entirely plausible to expect different equilibrium prices to result from different accounting measurement and disclosure systems. According to the authors, to realize the full value of some alternative kinds of accounting information, an individual or group of individuals might have to produce the same information for many different firms. But the costs to such individuals may exceed the sum of the costs of having the separate firms include those alternative outputs in their total disclosure policies. The article concludes that the association between accounting numbers and extant market prices cannot be accepted out of hand as a surrogate for the expected benefit to society from the accounting policies producing those numbers. Costs of producing and impounding information by accounting sources compared to costs via competing sources must be analyzed.

The article presents a simulated case for audit education. Many of the concepts and ideas that are explored in an auditing course are not comprehended as well as they might be. As a means of easing this problem authors developed an experimental project which included case material in combination with detailed accounting records and complete sets of facsimile source documents for part of a hypothetical client's operations. The case material described the client's operations and accounting system. For the order filling and billing portion of the client's system, a complete set of accounting records and source documents were produced by computer simulation. Although the simulation that was developed may initially appear similar to the traditional audit practice case, they actually differ greatly in their objectives. The narrative description and the simulated documents included only the information which was believed necessary for the interim audit of the sales account and for evaluating the effect of the results of the sales audit on year-end procedures in accounts receivable and sales.