Knowledge that Transforms

Reviews the book "Training Managers Abroad," by Jane Dustan and Barbara Makanowitzky.

Reviews the book "The Tax Practice Deskbook," by Harrop A. Freeman and Norman D. Freeman.

Although social implications may exist, businesses are formed primarily in response to ownership conviction that profits can be obtained from operation. In order to measure operating results, to gauge the effectiveness of management and to estimate the vitality of the owners' investment, detailed knowledge of past performance is essential. Subsequent investors and creditors need to know past performance to estimate profit making potential. Accountants in public practice may well be facilitating the administration of economic activity by making themselves available for management services. Someone however, ought to be able to compute profitability for the owners and to tell them what net return for a given period of time has been enjoyed on their investment. Economists follow the principle that costs should be related to revenues on the same price level basis and that the income in one period should be compared with the income in another period on the same price-level basis. Determination of net income is certainly one of the important functions of the accountants.

This article focuses on professional practice in England and the U.S. In the present era of expanding international commerce, professional public accountants of each nation are continually increasing their contacts with accountants of other countries. In the interests of world wide financial communication, it is desirable that the conventions and behavioral standards of each segment of this world-wide accountancy profession he as clearly understood as possible. One of the distinguishing marks of a profession is the concept of ethical practice subscribed to by its members. The American accountant finds in the English fabric of ethical conduct much that is identical to his own concept. Both accounting groups restrict the practice in the member's name to members of the Institute of Certified Public Accountants. Both restrict the use of the institute's name to firms composed oil of their members. Both require that the member, even when not practicing as a public accountant, follow the guidance rules laid down by his accounting institute.

There is a need in cost and budgetary control for information on the significance of cost variances. The conventional tests of absolute or relative dollar magnitudes are inadequate. The probability of a variance resulting from random, non-controllable causes is also important. By using the properties of a normal probability distribution it is possible to devise a method for computing the probability significance of cost variances. By combining the costs and rewards of investigation with the associated probabilities, a model can he constructed to aid in the decision of when a variance should be investigated. In the illustrative model, presented in this article, the formal distribution has been used. In some cases, the cost characteristic may make the assumption of normality unrealistic. There is no reason why the analysis could not be modified to accommodate some other probability distribution and also some other budget philosophy. However, the normal distribution is easy to work with and in most cases it is probably a reasonable approximation, particularly if the budget philosophy is not one of selecting the lowest possible budgeted amount (highest possible efficiency). Given any definite budget philosophy, a reasonable probability distribution could be chosen and the remaining analysis would he much the same as that suggested above. Such analysis should facilitate management by exception as applied to cost control.

Reviews the book "Top Management Handbook," edited by H.B. Maynard.

Reviews the book "Accounting and Business Fluctuations," by Dalmas D. Ray.

Accounting students often find it difficult to understand the allocation of combined net income of a parent company and its subsidiary to controlling and minority interests when a reciprocal affiliation exists. This difficulty may be attributed, in part at least, to two causes, first, the problem of accurately defining the symbols employed in the conventional algebraic solution, and second, in the selection of a two-step process for computation rather than a single-step process. The problem has been clarified with the help of an example in which company P owns 90% of company S, and company S owns 20% of company P. The net income figures for the current year for Companies P and S are $60,000 and $20,000 respectively. The purpose of this paper is to point out the limitations in the conventional algebraic solution to combined net income allocation problems in reciprocal affiliations, and to suggest a method designed to overcome these limitations. Modification of the conventional algebraic solution makes possible the use of a one-step process in which the interests of the controlling and minority stockholder groups in combined net income are directly computed.

This article focuses on the statistical error concepts related to accounting. Both statistical sampling and accounting involve the processing of numbers. Although their means and ends differ, statistical science might serve as a useful point of departure for accounting research. The errors to be surveyed include unknown and unintentional differences from the true value. The intrusion of deviations into statistical procedures leading to estimation, testing hypotheses, and the latter's extension, decision-making, has long been recognized. Accordingly, sampling results are usually reported as "estimates" with "confidence limits." In contrast, the term, "actual'' is often employed to describe the amounts used in accounting for measurement, control, and, again, decision-making. This article raises the question whether accountancy could benefit from a formal theory of errors such as employed in statistics. This article has mentioned three types of unintentional errors primarily associated with measurement and three with control. They are recapitulated in the accompanying outline. Perhaps as an immediate benefit such a structure could be a means for the prevention of material errors.

This article presents the findings of the report of the committee, appointed by President Charles J. Gaa as a task committee operating under the Joint Committee on Education, to receive and review the Ford and Carnegie reports for the American Accounting Association. The two reports--"Higher Education for Business" by Gordon and Howell, and "The Education of American Businessmen" by Pierson were financed and sponsored by The Ford Foundation and the Carnegie Corporation of New York respectively. The authors of Ford and Carnegie reports, in their extensive surveys found glaring examples of bachelor's degrees given for programs of study, overloaded with business in general or with accounting in particular. The Committee urges that the faculty of each school should read the entire reports so that by carefully trying on each shoe of criticism they may find those, which fit their particular situations. It is also expected that the Ford and Carnegie reports will have an impact on collegiate education for business.