[Libby (1993) suggests a simple model of the acquisition of expertise where knowledge and ability determine performance, and instruction, experience, and ability determine the acquisition of knowledge. An important implication of the model is that a detailed understanding of the knowledge acquisition process is needed before the practical implications of expertise research are evident (see also Bonner and Pennington 1991; Waller and Felix 1984). Libby's review indicates, however, that the vast majority of studies of the knowledge acquisition process focus on what knowledge auditors acquire during a particular period of time with the firm, but not on what particular aspects of instruction and experience lead to superior knowledge.1 The latter type of study is necessary before firms can determine how best to organize auditors' training and experiences to allow efficient and effective acquisition of the necessary knowledge. The importance of analytical procedures in auditing and the popularity of ratio analysis as an analytical procedure are well-documented (e.g., Biggs and Wild 1984; Libby 1985). The current study focuses on the knowledge necessary to perform ratio analysis in audit planning. Specifically, we examine the effectiveness of various combinations of instruction and experience (practice and feedback) in producing this knowledge. The results indicate that combinations of instruction and no experience or of instruction and practice without feedback do not produce knowledge. Practice with explanatory feedback and any form of instruction creates gains in knowledge, but may not always be available in the audit environment. Practice with outcome feedback, on the other hand, does not assist in the acquisition of knowledge unless it is preceded by instruction with what we have labeled "understanding rules," making this combination appear to be an adequate substitute for explanatory feedback. Practice with outcome feedback combined with what we call "how-to rules" does not promote knowledge acquisition. Finally, results indicate that ability aids in the acquisition of knowledge, and that this knowledge is related to performance in ratio analysis. These findings have implications for audit effectiveness and efficiency, and for education and firm training related to ratio analysis. If explanatory feedback can be replaced by a combination of understanding rules and practice with outcome feedback, audit efficiency could be increased since explanatory feedback takes more time and more experienced personnel. Explanatory feedback may also be inaccurate or unavailable, particularly under conditions of time pressure. However, if only outcome feedback is to be provided for ratio analysis, understanding rules must be incorporated into education and training. For the most part, firm training and university education currently provide only how-to rules for ratio analysis (see Bonner and Pennington 1991; Ernst & Whinney 1986). The ideas described above could also be extended to tasks other than ratio analysis for which outcome feedback is available (Solomon and Shields 1993).]

Reviews the book `Expert Systems in Business and Finance: Issues and Applications,' by Paul R. Watkins and Lance B. Eliot.

[Accounting numbers are an integral part of the firm's formal and informal contracts (Watts 1974; Holthausen and Leftwich 1983; Watts and Zimmerman 1986; Ball 1989; Christie 1990). This contracting-based theory of accounting is based on the premise that managers choose particular accounting procedures either efficiently to maximize the value of the firm, or opportunistically to make the manager better off at the expense of some other contracting party (Holthausen 1990). The relative amounts of efficiency and opportunism depend on controls on managers' accounting discretion. Such controls include monitoring by the board of directors, competition from the product markets and from within the firm by other managers, and the discipline of the market for corporate control. It is difficult to determine whether managers make accounting choices to maximize firm-value. Empirical tests often assume opportunism and usually reject the null hypothesis of no association between accounting choice and firm-specific variables such as leverage (Christie 1990). However, many of the empirical regularities interpreted as evidence of opportunism can also be interpreted as occurring for efficiency reasons, which serves to confound these findings (Watts and Zimmerman 1986; Watts and Zimmerman 1990; Sweeney 1994). The few tests based on efficiency rationales find an association between the contracting variables and accounting choice (Zimmer 1986; Whittred 1987; Malmquist 1990; Mian and Smith 1990a). This paper measures the relative influences of efficiency and opportunism in accounting choice by examining a non-random sample that maximizes the probability of finding opportunism. Economics and finance studies document that corporate control actions such as tender offers and proxy fights discipline opportunistic managers. Therefore, we select a sample of takeover targets and examine this sample for evidence of managerial opportunism in choice of accounting procedures. A key assumption of our tests is that, prior to the control action, corporate control targets contain more non-value-maximizing managers than surviving firms in the same industry that were not targets of corporate control actions. This assumption allows us to use surviving firms' accounting procedures as the benchmark for the efficient accounting choice. In this application of Alchian's (1950) "economic Darwinism," surviving firms on average are more efficient than non-surviving firms. An unbiased estimate of accounting opportunism in this sample is an estimate of the upper bound on the amount of accounting opportunism in a random sample of firms. If there is little or no opportunism in our non-random sample, then for firms generally we can discount opportunism as an explanation for choice of the three accounting methods we study. Efforts to explain choice of accounting methods could then be redirected towards efficiency explanations. We measure opportunism by comparing the frequency of choice of income-increasing procedures by takeover targets with the corresponding frequency of their surviving industry peers. We find that takeover targets select income-increasing depreciation, inventory, and investment tax credit (ITC) accounting methods more frequently than their surviving industry peers in up to 11 years preceding the control action. Our analysis includes a multiple regression that controls for efficient choice of accounting methods. Our estimate of the upper bound on the frequency of opportunism is small relative to the mean choices of surviving firms. We conclude that some accounting opportunism exists in the takeover targets, but that efficiency is the more important explanation of accounting choice. However, while the frequency of opportunism is relatively small, the dollar effect on retained earnings of selecting an income-increasing method is large. For the median target firm, the after-tax effect on retained earnings if the firm had been on the alternative method is about 26 percent for depreciation, 9 percent for inventory, and around 5 percent for the ITC.]

Focuses on the knowledge necessary to perform ratio analysis in audit planning. Effects of instruction and experience on knowledge acquisition; Effects of abilities in knowledge acquisition; Effects of knowledge and abilities on performance; Examination of Libby's model.

This study finds that in probit equations 50% of people working 35 hours per week in the US will not be offered benefits or health insurance through their employers to replace services received while on welfare. Women with an average of 39 hours of work per week have an average 76% probability of being offered medical benefits (as one of three example options) while men working an average of 43 hours per week have on average a 72% probability of being offered medical benefits. The probability of being offered medical insurance life insurance and retirement benefits is slightly over 20% for working 35 hours per week. Although women have a slightly higher probability of being offered all the benefits individuals with children have a lower probability of being offered all the benefits which is not significant for medical insurance retirement or flexible work schedules. Individuals working for large firms have a greater probability of being offered benefits excluding flexible scheduling and profit sharing. Working longer hours increases the probability of receiving benefits except in training situations. Higher wages are found in the three stage least squares estimation in reduced form equation to be related to more work experience higher aptitude test scores residence in a standard metropolitan statistical area work at larger firms more work hours per week and not being single. Data are obtained from the 1991 US National Longitudinal Survey of Labor Market Experience of Youth among 1988 persons 26-34 years old who worked and were paid an hourly wage. Persons in the sample earned an average of $9.00 per hour and worked slightly more than 41 hours per week. 33% were Black 20% Hispanic and slightly under 50% were female. About 60% had a child under 6 years old. The average firm size was 5205 employees.

We examine the influence of industrial structure on the cross-sectional volatility and correlation structure of country index returns for 12 European countries between 1978 and 1992. We find that industrial structure explains very little of the cross-sectional difference in country return volatility, and that the low correlation between country indices is almost completely due to country-specific sources of return variation. Diversification across countries within an industry is a much more effective tool for risk reduction than industry diversification within a country.

We study dispersion in the prices an airline charges to different passengers on the same route. This variation in fares is substantial: the expected absolute difference in fares between two passengers on a route is 36 percent of the airline's average ticket price. The pattern of observed price dispersion cannot easily be explained by cost differences alone. Dispersion increases on routes with more competition or lower flight density, consistent with discrimination based on customers' willingness to switch to alternative airlines or flights. We argue that the data support models of price discrimination in monopolistically competitive markets.

We investigate industry response to cyclical variations in demand. Production units that embody the newest process and product innovations are continuously being created, and outdated units are being destroyed. Although outdated units are the most likely to turn unprofitable and be scrapped in a recession, they can be "insulated" from the fall in demand by a reduction in creation. The structure of adjustment costs plays a determinant role in the responsiveness of those two margins. The calibrated model matches the relative volatilities of the observed manufacturing job creation and destruction series, and their asymmetries over the cycle.