This paper examines empirically the unexpected compensation to the top managers of a sample of 45 firms that voluntarily changed to capitalizing interest on long‐term construction projects during the time period 1966–1974. The cash compensation to top management increased starting the year of the accounting change compared to that of top management for a firm in the same industry of similar size. Further, a comparison of the capital expenditure per dollar of sales between the sample and a pair‐matched set of firms expensing interest in the same industry suggests that the long‐term construction project was not taken up by diverting funds from routine capital expenditures. Collectively, the results are consistent with an inference that the managers were rewarded in the short term for a set of actions with expected future benefits in the long term. The accounting change, which may have facilitated the expansion, appears embedded in such a set of actions. Résumé. Les auteurs procèdent à l'examen empirique de la rétribution inattendue que reçoivent les cadres supérieurs sur un échantillon de 45 entreprises qui sont passées volontairement à la capitalisation des intérêts dans leurs projets de construction à long terme au cours de la période s'échelonnant de 1966 à 1974. La rétribution en espèces versée aux cadres supérieurs de ces entreprises a augmenté, à partir de l'année de la modification de la méthode comptable, par rapport à la rétribution versée à la haute direction entreprises de taille similaire appartenant au même secteur d'activité. En outre, une comparaison des dépenses en immobilisations par dollar de chiffre d'affaires entre les entreprises de l'échantillon et leurs homologues du même secteur d'activité ayant opté pour l'imputation des intérêts à l'exercice a révélé que les projets de construction à long terme n'étaient pas financés à même les crédits ordinairement réservés aux dépenses en immobilisations. Dans l'ensemble, les résultats confirment le raisonnement selon lequel les gestionnaires ont été rétribués à court terme pour un ensemble d'actions dont les avantages futurs prévus se manifesteront à long terme. La modification comptable, qui peut avoir facilité l'expansion, semble inscrite dans cet ensemble d'actions.

This paper provides an algebraic basis of accounting transactions, procedures and bookkeeping activities in a framework that supports various financial and nonfinancial reports and accounting views. The development is based, on a set of accounting matrix operators. This approach, when combined with database technology, provides for a new level of control and security of accounting information, and minimizes the processing required for information distribution on a “need‐to‐know” basis. The procedural accounting matrix captures the essence of a complete accounting procedure; it is independent of any chart of accounts. Moreover, the order in which matrix operators are combined into the procedural matrix implicitly defines the chart of accounts for the related procedure and the accounts' balances. Consequently, it provides an environment in which alternative charts of accounts, and their financial and accounting implications, can be investigated. This approach, though not yet tested for operational efficiency, thus promotes multiple accounting views, such as GAAP, tax, and managerial accounting, that are all based on the same set of basic accounts, and simplifies their reconciliation. Résumé. Les auteurs suggèrent une base algébrique pour les opérations comptables, les precédés comptables et la tenue des livres dans un cadre approprié à divers rapports financiers et non financiers et à diverses optiques comptables. La mise au point de cette base se fonde sur un ensemble d'opérateurs comptables matriciels. Cette méthode, lors‐qu'elle est combinée à la technologie des bases de données, mène à un niveau accru de contrôle et de sécurité de l'information comptable et minimise le traitement requis pour la distribution de l'information sur une base sélective. La matrice comptable de mode opératoire recouvre l'essentiel du procédé comptable complet; elle est indépendante de tout plan comptable. De plus, l'ordre dans lequel les opérateurs matriciels sont combinés dans la matrice de mode opératoire définit implicitement le plan comptable pour le procédé qui s'y rattache et les soldes des comptes. Par conséquent, la matrice est propice à l'analyse des plans comptables de rechange et de leurs conséquences financières et comptables. Cette méthode, bien que l'efficience de son fonctionnement n'ait pas encore été mise à l'épreuve, se prête ainsi à différentes optiques comptables, telles celles des P.C.G.R., de la fiscalité et de la comptabilité de gestion, qui s'établissent toutes sur le même groupe de comptes fondamentaux, et simplifie leur rapprochement.

Auditing, Auditor size, Audit fees, Audit partnerships

Bala V. Balachandran, Ram T. S. Ramakrishnan, [Discussion of Internal Control and External Auditing for Incentive Compensation Schedules]: A Reply, Journal of Accounting Research, Vol. 18, Studies on Economic Consequences of Financial and Managerial Accounting: Effects on Corporate Incentives and Decisions (1980), pp. 182-183

Bala V. Balachandran, Ram T. S. Ramakrishnan, Internal Control and External Auditing for Incentive Compensation Schedules, Journal of Accounting Research, Vol. 18, Studies on Economic Consequences of Financial and Managerial Accounting: Effects on Corporate Incentives and Decisions (1980), pp. 140-171

Ordinary Least Squares regression ignores both heteroscedasticity and cross-correlations of abnormal returns; therefore, tests of regression coefficients are weak and biased. A portfolio ordinary least squares (POLS) regression accounts for correlations and ensures unbiasedness of tests, but does not improve their power. The authors propose portfolio weighted least squares (PWLS) and portfolio constant correlation model (PCCM) regressions to improve the power. Both utilize the heteroscedasticity of abnormal returns in estimating the coefficients; PWLS ignores the correlations, while PCCM uses intra- and inter-industry correlations. Simulation results show that both lead to more powerful tests of regression coefficients than POLS.

In this paper, a service department chooses a fixed/variable cost combination based on the forecasts of two operating departments. The operating departments then make service usage decisions, and the service department provides the level of service demanded. The allocation of fixed and variable service department costs is used to: (1) encourage efficient short term use of the service and (2) encourage accurate forecasting by the operating departments. Three approaches are used to achieve these objectives — incentive compatible allocations, a modified Soviet incentive scheme, and a Groves allocation scheme — and we discuss conditions under which these schemes are successful. Résumé. Dans cet article, un atelier de service retient une combinaison de coûts fixes/ variables fondée sur des prévisions de deux ateliers de fabrication. Par la suite, les ateliers de fabrication prennent des décisions relatives à leurs besoins de services, et l'atelier de service fournit le niveau de service exigé. La répartition des frais fixes et variables de l'atelier de service vise à: (1) favoriser une utilisation efficace de l'atelier de service à court terme et (2) favoriser l'élaboration de prévisions précises de la part des ateliers de fabrication. Trois approches sont utilisées pour atteindre ces objectifs — la compatibilité des répartitions et des mesures incitatives, un système incitatif soviétique modifié et un système de répartition de Groves — et nous examinons les conditions nécessaires au bon fonctionnement de ces systèmes.

The goal of any cost management system is to provide relevant and timely information to management. This information supports better management of corporate resources in production of products or provision of services, and improves competitiveness in terms of costs, quality, and profitability. In this context, a cost management system can also be viewed as a planning and control management system (Berliner and Brimson 1988). Cooper (1988a, 1988b, 1989a, 1989b) provided a comprehensive discussion of activity-based costing (ABC), following the pioneering work of Kaplan (1983, 1984). Extension of ABC to the service industry was provided by Rotch (1990). ABC has also been extended into activity-based management (ABM) to include other considerations, such as customer profitability, manpower utilization, distribution channels, and other management issues. Thus, ABC is the information system that reveals the cost and profitability structure of products and services in an organization, while ABM describes the actions taken to improve quality and reduce costs and cycle time, once information about activities' costs is known. In this article, ABC is used as a generic concept without any loss of generality. An ABC system achieves improved accuracy in estimation of costs by using multiple cost drivers to trace the cost of activities to the products associated with the resources consumed by those activities. In this respect, a cost driver is an event, associated with an activity, that results in the consumption of firm's resources. Since the number of events performed in a firm is often vast, it may not be cost-effective to use a distinct and different cost driver for each activity. Thus, many activities may be grouped into a single driver to trace the costs of all the grouped activities for a product or service. For Instance, each setup may be associated with a single cost driver that accounts for moving, grouping, sequencing, and segmenting. At the same time, there may be other competing cost drivers, such as setup hours, better correlated with the resources consumed by these grouped activities. In activity-based costing, these different cost drivers are not necessarily all proportional to unit volume, in contrast to traditional volume-based cost systems (Kaplan 1988, O'Guinn 1990, Dewan and Magee 1992). "The art of designing an ABC system can be viewed as making two separate but interrelated decisions about the number of cost drivers needed and which cost drivers to use. These decisions are interrelated because the type of cost drivers selected changes the number of drivers required to achieve a desired level of accuracy" (Cooper 1989a, 1989b). In this article, we provide an optimization model that balances savings in information processing costs with loss of accuracy. We show how to determine the number of drivers, and identify the representative cost drivers. The model Is formulated as an integer program and is solved efficiently by using a composite greedy algorithm.

[The goal of any cost management system is to provide relevant and timely information to management. This information supports better management of corporate resources in production of products or provision of services, and improves competitiveness in terms of costs, quality, and profitability. In this context, a cost management system can also be viewed as a planning and control management system (Berliner and Brimson 1988). Cooper (1988a, 1988b, 1989a, 1989b) provided a comprehensive discussion of activity-based costing (ABC), following the pioneering work of Kaplan (1983, 1984). Extension of ABC to the service industry was provided by Rotch (1990). ABC has also been extended into activity-based management (ABM) to include other considerations, such as customer profitability, manpower utilization, distribution channels, and other management issues. Thus, ABC is the information system that reveals the cost and profitability structure of products and services in an organization, while ABM describes the actions taken to improve quality and reduce costs and cycle time, once information about activities' costs is known. In this article, ABC is used as a generic concept without any loss of generality. An ABC system achieves improved accuracy in estimation of costs by using multiple cost drivers to trace the cost of activities to the products associated with the resources consumed by those activities. In this respect, a cost driver is an event, associated with an activity, that results in the consumption of firms' resources. Since the number of events performed in a firm is often vast, it may not be cost-effective to use a distinct and different cost driver for each activity. Thus, many activities may be grouped into a single driver to trace the costs of all the grouped activities for a product or service. For instance, each setup may be associated with a single cost driver that accounts for moving, grouping, sequencing, and segmenting. At the same time, there may be other competing cost drivers, such as setup hours, better correlated with the resources consumed by these grouped activities. In activity-based costing, these different cost drivers are not necessarily all proportional to unit volume, in contrast to traditional volume-based cost systems (Kaplan 1988, O'Guinn 1990, Dewan and Magee 1992). "The art of designing an ABC system can be viewed as making two separate but interrelated decisions about the number of cost drivers needed and which cost drivers to use. These decisions are interrelated because the type of cost drivers selected changes the number of drivers required to achieve a desired level of accuracy" (Cooper 1989a, 1989b). In this article, we provide an optimization model that balances savings in information processing costs with loss of accuracy. We show how to determine the number of drivers, and identify the representative cost drivers. The model is formulated as an integer program and is solved efficiently by using a composite greedy algorithm.]

ABSTRACT: An optimization model for the audit-staff scheduling decisions faced by public accounting firms is developed in this paper. The model is an integer programming model designed to assign audit-staff to audit engagements in the most effective way. It is shown how the model can be incorporated into a decision support system for audit-staff scheduling. Other components of the decision support system include a judgmental scheduling system and a data base containing relevant scheduling information. The interrelationship between these components is described in detail. Finally, the optimization model is compared with other models which have been developed for this decision.