Financial reporting, Multidimensional Graphics, Schematic faces, Financial performance

The article presents a response of the author on comments made by scholar Joseph G. Louderback on his article "Another Approach to Allocating Joint Costs." The additional examples provided by "Another Approach to Allocating Joint Costs: A Comment," by Louderback do not demonstrate the existence of a conceptual error in the joint cost allocation procedure which I have advocated. Rather, examples demonstrate the robustness of the procedure. The apparent weakness in the allocation procedure as demonstrated in "A Comment" results from an error in the specification of the next best alternative means to obtain a service. Consider the first example, a firm has the opportunity to purchase a lot consisting of 400 units of A and 200 units of B for $1,500. The units of A are in saleable condition, but the B's would require an additional cost of $1,200 to restore them to saleable condition. The firm normally purchases units of A for $6 each and units of B for $4 each. The allocation procedure which I proposed requires the comparison of the joint purchase cost' with the next best alternative. The firm has the option to purchase 200 B's for $800. However, the next best alternative to purchase 400 units of A is 51.500. If the opportunity at hand were not available, the best alternative would be $2,400; however, goods are available for $1,500.

The article proposes a new computational procedure for allocating joint costs. This article assumes that accountants will continue to be required to allocate costs for reporting purposes. The argument for the acceptance of the proposed procedure is justified only to the extent that the results of this procedure do not possess the disadvantages of the allocation techniques employed in current practice. To an individual firm, all products and services obtained through the incurrence of a joint cost can also be obtained by incurring a separable cost. In the U.S. economy it is possible to contract for virtually any individual service desired, however, to do so may be quite expensive. This expense leads management to incur joint costs in order to effect cost savings. Given the observation that joint costs are incurred to effect cost savings, a different view of joint costs becomes obvious. Rather than allocate costs directly to a cost object, it should be possible to allocate cost savings as an offset to the cost of obtaining services independently.

Over a decade ago, professional judgment as applied to the determination of materiality was characterized as a black box (Bernstein [1967]). Since then a number of researchers have attempted to peer inside this black box. The objectives have been to determine how various factors affect materiality judgments and why highly trained professionals with extensive experience often reach different conclusions in similar situations. In a recent paper (Moriarity and Barron [1976]), we suggested a methodology which seems to hold promise as a means to open the black box. In this paper, we describe the next methodological step which we have taken and describe an application of the methodology. This paper may be viewed in terms of (1) the substantive questionmateriality; (2) the methodology-an application of conjoint analysis; (3) an application of judgment research; (4) a field study of audit partner judgments; and (5) a research technology having significant implications for future research on the substantive question. We believe that the primary contribution of the paper is point (5)-an illustration of a methodology having significant implications for accounting research. The field study itself provides two additional contributions: (1) it illustrates the application of the methodology to professional judgment in accounting, and (2) its findings are consistent with those of a large body of judgment research studies (e.g., Slovic and Lichtenstein [1971] and Libby

Several researchers (e.g., Boatsman and Robertson [1974], Dyer [1975], Frishkoff [1970], Pattillo [1975], Pattillo and Siebel [1974], and Woolsey [1973]) have attempted to explain how auditors make materiality judgments. However, these research efforts have not provided satisfactory explanations of the materiality judgment. In this paper, we (1) suggest a different view of the materiality concept, (2) suggest a methodology for examining how materiality decisions are reached, and (3) demonstrate the application of this approach to a specific materiality decision. Much of the research on materiality judgments is focused on discovering the amount of consistency which exists among professionals in making materiality judgments. The findings of this research have demonstrated that, in fact, no consensus exists in the profession. Bernstein [1967] summarizes much of the literature with the observation: [the decision function] seems to be . . . a highly personal device, since the output [decisions] can vary significantly on what are the same or similar sets of facts. Four possible sources of differences may exist among auditors' decision models which would explain the lack of consensus in materiality judgments. These are: (1) the variables deemed relevant to the decision; (2) the ma-

Reviews the book "International Handbook of Accounting Education and Certification," edited by Kwabena Anayane-Ntow.

Reviews the book `Business Ethics: A European Casebook,' by John Donaldson.

Reviews the book "The Audit Expectations Gap in the United Kingdom," by Christopher Humphrey, Peter Moizer and Stuart Turley.

Reviews the book "Business Behavior and Information," edited by Yuji Ijiri and Isao Nakano.

Reviews the book `The Accounting Profession in America,' by Frederic M. Stiner Jr. M. Susan Stiner and Ichiro Shiina.