Budgeting, Budget pressure, Supervisory style, Environmental variables

ABSTRACT: FASB Statement No. 52 on Foreign Currency Translation is designed to achieve compatibility between financial statement numbers and underlying economic effects of exchange rate changes. This result is accomplished through the selection of what the FASB terms the functional currency of the foreign subsidiary. Unfortunately, the rationale underlying the functional currency choice is complicated and not widely understood. To overcome the problem, this paper explains the objectives behind the functional currency choice by using three illustrative case settings.

ABSTRACT: This paper uses a simple example to isolate the underlying capital maintenance concepts that are associated with historical cost income and four widely discussed inflation accounting alternatives, The approach illustrates that each of these concepts conforms to Hicks' classical income definition and thus demonstrates why discussions of "true" inflation-adjusted income are oversimplified.

Review the book "The Theory and Measurement of Business Income," by Edgar O. Edwards.

ABSTRACT: This article considers the issue of technological changes in a replacement cost accounting system. When such changes occur and the firm continues to utilize the "old" asset, should the replacement cost be measured by reference to the current cost of the old asset actually in use? Or, alternatively, should the replacement cost reflect the cost of the technologically improved asset that is not now being utilized by the firm? The analysis indicates that the two approaches are economically equivalent in many circumstances. However, while their information content may be identical, various measurement problems exist which tend to make one method preferable to the other under certain conditions. These issues are explored in various market settings.

The article focuses on surrogates in income theory as proposed by researcher A.D. Barton. Barton's recent article on income theory contains several conceptual errors and incomplete analytical formulations, which negate the substance of certain conclusions. Barton's central theme is that both ex post and ex ante income concepts are needed for effective decision making. Barton introduces a collateral argument regarding the relationship between certain ex post and ex ante income concepts. Barton asserts that a rather lengthy tradition in the income theory literature is false. Specifically, Barton claims that certain current value measurement systems do not constitute even a potential surrogate for ex ante economic income. Barton's analysis misses the central point of this prior literature, substitutes assertion in place of the evidence called for by previous authors and obscures issues that were clarified carefully in past research. A major portion of Barton's conclusions rest on his examination of the relationship between asset market prices and net present values.

The article focuses on predictive ability, market prices, and operating flows. One normative function of external accounting reports is to provide information which will be useful to decision makers in generating estimates of the future levels of relevant variables. The reporting objective which follows from this belief is commonly called the predictive ability criterion. Predictive ability claims have been advanced in the past as support for the adoption of replacement cost income measurements. As knowledge of users' decision models is limited, the basic issue of precisely what the appropriate object of prediction should be has received little explicit attention. In the case of the current operating profit component of replacement cost income, there has been general acceptance for the a priori notion that this concept aids in the prediction of future operating income. Since income from operations and holding gains or losses result from different causes, they can be expected to have different patterns of recurrence. Effective prediction of future income is facilitated by reporting them separately.

The article examines the rationale of the proposed expansion of data used in external reporting. A new approach to external reporting has emerged in the recent accounting literature. Much of the accounting research over the past several decades has emphasized alteration or augmentation of reported data within the confines of the historical cost model. Financial decision-makers have access to a wide range of data. Government and business periodicals provide an abundance of information regarding macro-environmental events such as the state of the economy and factors relevant at an industry-wide level. Expanding the range of data provided is viewed as a means of overcoming the limitations of contemporary reports without necessitating detailed knowledge of user decision models. Social psychologists differentiate human information processing structures by their degree of concreteness. It was suggested above that the actual financial environment confronting the statement user is complex. Such inherent complexity necessitates simultaneous analysis of many variables in order to establish the expected future financial impact of a given series of observed events. This position is predicated on the assumption that detailed information about user decision models is needed to support the choice of a particular measurement model.

The article discusses the issues related to the correspondence between replacement cost income and economic income. The basic concern is centered on the ability of replacement cost income to approximate the results of economic income and thus provide statement users with information concerning changes in the cash flow potentialities confronting a firm. Previous researchers have suggested that theoretical study must precede empirical analysis of the predictive ability of particular income concepts. Since the presupposition of the indirect measurement hypothesis is that replacement cost income is a predictor of economic income, it seems appropriate to investigate the heretofore absent theoretical foundation for this contention. This article illustrates a conceivable inferential error which replacement cost reports might precipitate if Type B and Type C price changes are incorporated. One rationalization for the dissemination of replacement cost reports to investors relies on the validity of the indirect measurement hypothesis. Since investors and other statement users are concerned with firms' cash flow potentialities, it is imperative that accountants develop some external reporting techniques which will satisfy these needs for anticipatory information.

In its recent "Opinion No. 11" the Accounting Principles Board of the American Institute of Certified Public Accountants recommended comprehensive income tax allocation procedures whenever material, non-permanent differences exist between pretax accounting income and taxable income. In its "Opinion" the Board did not attempt to dispel the controversy surrounding the nature of the deferred credit. The Board's reluctance to buttress its "Opinion" with theoretical justification is unfortunate for two reasons. First, it gives rise to otherwise avoidable speculation, such as Professor David F. Hawkins', concerning the nature of the absent theory underlying the "Opinion." Second, it prolongs the relegation of accounting practice to the status of an "art" at a time when most business disciplines are moving towards the "positive science" approach. The purpose of this article is to critically examine Professor Hawkins' attempt to explain the nature of the deferred tax credit which arises as a consequence of the ruling in "Opinion No. 11."