We have interpreted accounting theory as providing a complete and transitive ranking of accounting alternatives at the individual level. It was then proven that no set of standards (applied to the accounting alternatives per se) exists that will always rank accounting alternatives in relation to consistent individual preferences and beliefs. The major import of the result is to raise a number of questions. We know that standards do not always work. When, then, do they work? Under what types of conditions will various types of standards work; when they fail, how badly do they fail? We know that criteria systems, as in information theory, ASOBAT, or cost-allocation guides cannot be relied upon to provide the desired result in every situation. This does not, however, necessarily imply that they never provide the desired result. Hence, a major question in accounting theory must be conditions under which standards do work.

The article estimates the economic effect of varying certain information practices in a specific firm under a specific set of circumstances. The major features of the simulated decision context are a large number of decision variables, over twenty that are centrally determined with a global, but imperfect, optimization model, and implemented by a number of semiautonomous individual decision makers. These individual decision makers, in turn, have access to certain local information and can marginally influence implementation of the centrally determined decision variables. While the production aspects of the linear program model focus on determining the optimum mix to produce a specified number of each main product, the marketing aspects focus on how many of each main product should be produced and sold. Implementation effects may be viewed in terms of resultant variations in the parameters in the central linear program model and in the levels of the decision variables that the individuals are instructed to implement. Such variation may be controllable, and may be desirable.

Performance evaluation models are usually constructed and implemented without giving formal consideration to desirable adaptation of a decision during its actual implementation. Moreover, it is generally acknowledged that such adaptation may be desirable and is usually accomplished in some heuristic fashion. Since the performance evaluation model, through both information flow and behavioral effects, may affect this process, the possibility of altering the evaluation model in an advantageous manner becomes an issue. Control of the decision implementation interface is a poorly structured, little understood, problem in management science that is of direct concern to the accountant. Using a firm simulation experiment, we have examined the differing implementation effects of three alternative performance measurement models. We define an implemented decision as a specific act that an organizational decision unit attempts to achieve, such as an output of x units during some specified time period. The final result of this implemented decision is not necessarily equal to the priori-desired result; and the relationship between the implemented and ultimately achieved act we term the decision implementation interface. More important, however, the results are sufficiently intriguing to warrant replication of the experiment.

The object of a structured accounting system is to focus on the decision-performance control problem by monitoring all parameters and variables in a firm's particular decision models and reflecting their deviations in a hindsight optimum decision. Since performance deviations may imply optimum decision deviations and vice versa, it would appear that people should recognize both sets of possible consequences in generating control information. Intra-period revision of an implemented decision is based upon a consideration of the firm's present state, which is the result of past decisions and actual performance, and its predictions for the future. Moreover, intra-period physical and economic limitations often constrain the adaptation possibilities, for example, major production mix alterations may be physically or economically infeasible in the middle of a period. And, because of the particular exigencies of this process, these decisions are usually made in a heuristic manner.

For purposes of exposition and application, a linear programming formulation of the planning process was postulated. Recent application of the proposed approach indicates that this is a feasible approach to generation of control information. And, in fact, the application's results are highly encouraging. First, important deficiencies in the traditional accounting system were observed. Since this traditional model is not an opportunity cost system per se, the most it can be expected to do is to signal the existence of opportunities. In the period analyzed it did signal the existence of deviations although their source and effect were obscured. A second, and more subjective result, is that application has given every indication that this type of approach is indeed feasible (which should not be confused with an assertion that it is desirable from a cost and value viewpoint). Consequently, it is appropriate to suggest that additional research be done in an effort to examine such issues as the extent to which accounting variances should be aggregated, given a specific decision model, or the extent to which decisions made in response to certain deviations should be considered in the accounting system.

This paper examines the information content of revenue recognition rules in a series of environments, ranging from an abstract disclosure setting to one of disclosure in the presence of moral hazard and self‐reporting by an informed agent. The emphasis is on conceptualization of recognition issues, ranging across financial and labor markets, and the simplification required to force the analysis into a workable and familiar model. In this way, the limitations of both our thinking about recognition issues and our modeling techniques are highlighted. Résumé. Les auteurs examinent le contenu informationnel des règies de constatation des produits dans un éventail de cas, parmi lesquels un cas abstrait de publication d'information, un cas de présentation d'information en situation de risque moral, en passant par la présentation autonome d'information par un mandataire averti. Les auteurs s'intéressent particulièrement à la conceptualisation de questions relatives à la constatation des produits couvrant le marché financier et le marché du travail, et à la simplification qu'il faut opérer pour ramener l'analyse à la dimension d'un modèle maniable et d'utilisation courante. Ainsi les limites que component tant l'opinion au sujet des questions de constatation des produits que les techniques de modélisation sont‐elles mises en relief.

Auditing, Management Advisory Services, Contracting, Economies of scope

Performance evaluation systems, Control system, Investigation region, Moral hazard

A two-date rational expectations model is analyzed. At the first date, traders can privately acquire a costly signal that provides imperfect information about a public report that will be issued at the second date. Equilibrium characterizations are provided for the fraction of traders that become informed and the informativeness of the first-date price, as well as the price change variance and the expected trading volume at the second date. Comparative statics identify how the above variables are influenced by changes in the information content of the public report, and in particular how market phenomena at the public release date are influenced by endogenous prior information acquisition and trading in response to the forthcoming public release.

[The purpose of this paper is to examine controllability: the notion a manager should be evaluated based on that which she or he controls. We embed the managerial evaluation problem in a principal-agent setting and ask whether the optimal agency solution bears any logical relation to a casual definition of controllability. It does not. More to the point, the agency framework compels us to look at information content. This information content perspective, upon reflection, agrees with our intuition, with our anecdotal impressions of practice, and with the dictates of the principal-agent model. Moreover, there is a well-defined relation between information content and a notion of control. Thus, the information content perspective may be thought of as offering a precise definition of controllability.]