Demski and Sappington (1990) treat income disclosure as a process that conveys fully revealing information, and they establish two results related to this commentary: (1) an income-disclosure procedure is fully revealing if, and only if, the related end-of-period, present-value measures always are invertible in the realized information-structure signals, and (2) strict favorableness is sufficient for fully revealing income disclosure under the true probability measure. This commentary shows that the first result follows from a more interesting necessary and sufficient condition than invertibility. Essentially it shows that an income-disclosure procedure is fully revealing if, and only if, differences in perceptions about the discounted expected values of future cash flows or differences in current cash flows are possible in all periods for all cash flow/signal pairs. In the context of the second result, an alternative, more general, sufficient condition for fully revealing income disclosure under the true probability measure is identified. This outcome is assured if differences in perceptions about the discounted expected values of future-periods cash flows are possible in all periods for all cash flow/signal pairs.

Presents a commentary on the study of Kermit Larson and R. W. Schattke on the additivity of current cash equivalent (CCE). Arguments concerning the nonadditivity of CCE; Principle of measurement theory; Process which incorporates the combining operation for purchasing power and can be used to determine whether the property is additive.

The article focuses on methodology of financial accounting. In recent years, a number of accounting theoreticians have begun to attempt to apply the methodology of theory construction and confirmation in sciences to financial accounting. The impetus for these efforts probably was the desire to develop a theory or theories of accounting, which has the explanatory, the predictive and the descriptive powers of theories of sciences. In any case, these pioneering efforts have identified an inextricable link between theory construction and confirmation and measurement theory. The purpose of the paper is to appraise the validity of the ratio-scale view. The next section of the paper contains an overview of the analysis and the third subdivision of the paper provides a detailed analysis of the logic of this viewpoint. The final section provides conclusions concerning the future development of accounting theory, which are based on the examination of the ratio-scale view. The importance of the connection between theory construction and confirmation and measurement theory implies that accountants need to explore thoroughly the relationship between the numerical assignments of extant accounting systems and requirements of measurement theory.

The article identifies the conditions for classifying accounting as a measurement discipline. A typical definition of measurement is "the assignment of numerals to objects or events according to rules." Defining measurement in this manner overcomes the objections mentioned above and insures that measures obtained via the various scales will be informative and consistent. A more satisfactory definition of measurement is the assignment of numerals to represent elements or a property of elements in a specified system on the basis of isomorphism or homomorphism existing between one or more empirical relational systems and one or more numerical relational systems. For example, if purchasing power, which is defined as the ability of an object to command other objects and services in exchanges, is shown to satisfy the conditions above, more precise definitions of accounting concepts could be formulated. Similarly, in choosing a depreciation method for a particular asset, the accountants would choose the method which is believed to parallel more closely the decline in the purchasing power of the asset. If accountants are not willing to choose an economic property for accounting measurement, which approximates extensiveness, and to assume that the property is extensive, they must abandon their attempts to improve and to explain accounting via measurement theory.

Reviews the book 'Measurement and Accounting Information Criteria,' by Theodore Jaye Mock.

The primary goals of this paper were (a) to test the information content of stock dividend announcements and (b) to produce evidence about the validity of the AICPA conclusion that small stock dividends almost always produce significant amounts of extra value on the ex date and that large stock dividends fail to generate such ex date value. In regard to the first objective, the authors' findings imply that the market, in the aggregate, uses stock dividend information in setting equilibrium security prices, that much of the market's reaction to such information occurs no later than the declaration date, and that such information tends to produce positive unexpected returns. With respect to the second goal, the results imply that the market is not conditioned to react positively to stock dividends of any size on the ex date and, consequently, that the AICPA conclusion is valid (invalid) with respect to large (small) stock dividends.

The goal of this study is to investigate the incremental information content of the 10-K (i.e., the information content of the data which are contained in the 10-K, but which are not included in the annual report) from a market perspective. This objective was accomplished by examining aggregate market reaction to the 10-K via several statistical procedures. Each of these procedures appears to imply that the market, in the aggregate, uses the incremental data in the 10-K in setting equilibrium security prices and, consequently, that this data set possesses information content.

The article applies the Financial Accounting Standards Board (FASB)'s proposal to a random sample of firms that granted stock options in order to assess the impact of the related compensation expense on operating income in the United States. Under existing generally accepted accounting principles, no compensation expense is recorded for executive stock options (ESOs) if the exercise price on the date of grant is equal to the market price of the stock. Similarly, only negligible compensation expense tends to be recorded if the exercise price on the date of grant is less than the market price of the stock. The inadequacy of this method has led the FASB to consider a proposal to measure compensation related to grants of ESOs at their fair values, with a lower bound constraint. It would seem natural to use the continuous-dividend version of the B-S model for firms that pay cash dividends and the no-dividend version for firms that do not pay dividends. The latest FASB proposal requires that stock option compensation be measured as of the vesting date, as opposed to the date of grant.

The article presents a comment on the interpretation of API. In "Interpreting the API," Ronald M. Marshall concludes that API does not always provide a proper measure of either the private value of accounting data or the association between unexpected accounting signals and unexpected market returns. In addition, Marshall concludes that an alternative formulation of API always produces measures of these attributes, which are at least as good as those obtained via API. On the basis of these conclusions, Marshall argues that API constitutes the more appropriate tool for use in accounting research. Authors do not disagree with Marshall's conclusions from a conceptual viewpoint, but they do question the desirability of using API in accounting research because of its inherent subjectivity and costliness in terms of time. Since API does not possess these defects, authors believe that it constitutes the better research technique when, conceptually speaking, it can be expected to yield results, which are equivalent to those that would be produced using API. One objective of the paper is to identify an important sufficient condition, under which the two API will produce equivalent results.