International accounting, Accounting principles, Environment, Financial reporting

In a recent note O. Bashan, Y. Goldschmidt, G. Levkowitz and L. Shashua (BGL&S) developed a formulation for traditional variance analysis in cost accounting by expressing the changes in prices and quantities in percentage terms. In this article, BGL&S also suggested a way to allocate the joint variance between the price and quantity factors. In summary, if one is willing to accept the convention of using the previous period's results as an appropriate basis for comparing actual results along with a continuous revision of standards, then the procedure outlined in this note provides a method of decomposing a change in total costs solely to price and quantity factors, and the consequent elimination of the joint variance. To implement this procedure in a specific application, the time paths of the unit price and usage rate over the entire period are specified. The limit is found for the price and quantity variances as the number of subperiods is made arbitrarily large, either analytically or through a computer enumeration.

The article reports that using an input-output or output-input framework for solving cost accounting problems has several advantages: It provides a general framework which can be applied to a wide variety of cost accounting problems, it focuses on the basic accounting relationships underlying a problem situation, it provides an application of mathematics to accounting in which matrix algebra techniques can be applied to conventional accounting problems, it embodies a computational approach which can be easily implemented through computer programs. Although some instructors may wish to emphasize the mathematical formulation of an input-output problem, other instructors may simply wish to provide a prepared computer program to students to perform the extensive arithmetic involved in solving complex cost accounting problems. With only a modest nonmathematical introduction as to the conventions involved in placing data in a coefficient or transaction matrix for financial planning and cost allocation problems, students would be enabled to use such a program to solve a wider variety of problems, thus enabling them to concentrate on the accounting aspects of a larger number of problems and to relegate to the computer the time-consuming computational aspects.

Evaluation of wage incentives in some cost accounting texts emphasizes the significance of reductions in unit fixed costs. By placing the emphasis on unit fixed cost reduction rather than on the increase in total variable contribution margins, however, students are encouraged to focus on the wrong elements of the problem. An alternative incremental approach is illustrated in this paper along with a "breakeven" variation which can be used to lessen the data requirements of the full incremental model.

Convertible Debentures, Prediction model, APB Opinion No. 15, Share dilution

Reviews the book "Management Control in Nonprofit Organizations: Text and Cases," by Kavasseri V. Ramanathan.

This article examines whether the classification of countries into groups based on their accounting practices is the same whether measurement or disclosure practices are used to do the grouping. Data from the Price Waterhouse & Co. survey relating to these two subsets of accounting practices for 38 countries in 1973 and 46 countries in 1975 formed the data base. The groupings yielded by analyzing disclosure practices were found to be different from groupings based on measurement practices. A further analysis was then done to determine whether the same underlying environmental variables (such as the structure of the economy and trading affiliations of each country) were associated with the two groupings. It was found that although economic variables were related to the groupings, the specific variables most closely related to each subset were different. Because of these differences, it may be more difficult for policy makers to achieve harmonization of accounting practices than was previously realized.

Reviews the book "Managerial Accounting," 3rd ed., by Carl L. Moore and Robert K. Jaedicke.

The article focuses on considering the value of conversion rights attached to the security for purposes of determining the fair value of the security. The decision of the Accounting Principles Board (APB) to compare cash yields on risky securities with an essentially riskless rate not only creates the relative bias but also tends to reduce absolutely the probability that any convertible issue will be classified as equivalent of common stock. A reduction in the absolute probability that any given convertible issue would be classified as a common stock equivalent could be compensated for by an appropriate choice of a cut-off level for the cash yield /price ratio index. Short-run effects can distort the picture such that bonds, which were attractive, originally go unconverted and vice-versa. It was suggested that the APB should not have any real responsibility for predicting these types of movements, and therefore it would be better for the APB to develop an index that is relatively highly correlated with ultimate conversion, assuming some normal long-term upward movement in stock prices.

Problem recognition and formulation are usually more difficult than problem solution. However, problem recognition situations are difficult to devise, and educators in most cases seem to rely on structured problems or other prescription approaches. During the past two years a computer-simulation project has been used in auditing classes at the University of Wisconsin, principally to provide an unstructured approach to the study of sampling and confirmation techniques. This paper provides a description of such a simulation.