Linear Programming, Asset services

Earnings smoothing, Changes in accounting methods, Earnings management

In a recent article, F. K. Wright proposes a linear programming approach to the measurement of asset services.' He bases his work on the theories and shadow-pricing developed within linear programming. Similar uses of shadow prices are to be found in other papers on accounting research. Usually, in a linear programming context, one need not distinguish between the gain in having one more unit of a resource, as opposed to the loss in having one less unit. The purpose of this note is to show, by means of an example, the need for making such distinctions. I give a simple illustration and then discuss its relation to general linear programming theory and its implications for accounting research.

Foreign Income, Currency Risk, Financial Statements

Robert E. Jensen, [Observations on Jensen's Experimental Design for Study of Effects of Accounting Variations in Decision Making]: A Rejoinder, Journal of Accounting Research, Vol. 5, No. 2 (Autumn, 1967), pp. 230-251

The research reported herein was undertaken to investigate relationships between (a) security evaluation and portfolio selection and (b) alternative inventory valuation and depreciation methods in financial reporting. First, a computer simulation model of a manufacturing firm was developed. In this simulation phase, the effects of alternative methods of financial statements and related measures (earnings per share, working capital, earnings margin, current ratio, inventory turnover, and other financial ratios along with corresponding rates of change and moving averages) were investigated under a wide range of operating conditions. In the second phase, an attempt was made to measure the effects of these accounting variations on evaluations by professional security analysts. Complete prospectuses were developed for two hypothetical companies named ETX Electronic Industries, Inc. and Rayco Electronics Corporation. Financial data for the companies were generated by the computer model. Four sets of financial reports with their related measures were generated for each company for a ten-year span. Two inventory methods (lifo and fifo) and two depreciation methods (straight-line and accelerated) were used. The four different financial reports for each company resulted m sixteen combinations of financial reports for the two companies. Participants in the study received an information packet which included an introductory letter, a return questionnaire, and one prospectus for each of the companies to be evaluated. The only variation in the in-

Double-entry bookkeeping, Programming, Accounting

Accounting history, Double-entry Bookkeeping, Inca's

E. P. Howrey, R. E. Quandt; The Dynamics of the Number of Firms in an Industry1, The Review of Economic Studies, Volume 35, Issue 3, 1 July 1968, Pages 349

Our interest in this study is the relative informativeness of earnings announcements reported before and after Form 8-K disclosures of the reason for an auditor change. We appeal to several models that predict that the market's response to an earnings surprise is positively related to the perceived precision of the earnings report. We predict that the Form 8-K reason disclosures aid investors in updating their expectations of earnings precision by providing useful information about the financial reporting process that produces the earnings report. For 802 auditor changes from late 1991 through late 1997, the average price response per unit of earnings surprise is lower subsequent to an auditor change for companies that switched for disagreement-related or fee-related reasons and higher for those that switched for service-related reasons. This paper provides further evidence on the effects of differential earnings quality on differences in the returns-earnings relation across companies and over time as well as the efficacy of Form 8-K disclosures of reasons for auditor changes.