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On May 28, 2015 the Public Company Accounting Oversight Board (hereafter, the Board) issued Staff Consultation Paper No. 2015-01 (hereafter, the Staff Consultation Paper) to seek information and input on the potential need to improve standards related to the auditor's use of the work of specialists. The Board requested input from investors, accounting firms, specialists, companies, and others (such as academics) about (1) current practices, (2) the potential need for changes, and (3) possible alternative regulatory approaches, and any associated economic implications, for potential improvement in standards related to oversight and assessing the objectivity of employed and engaged specialists. The comment period ended July 31, 2015. This commentary summarizes the contributors' views on selected questions posed in the Staff Consultation Paper. [ABSTRACT FROM AUTHOR]

This article discusses the teaching of social accounting. In the last ten years, the two fields--accounting and economics have been drawn closer together, because professional accountants and professional economists increasingly utilize the same data in their work. The highly technical literature on depreciation policy and inventory valuation is sufficient to indicate that an unequivocal concept of either business income or national income is scarcely possible under current conditions. In other words, an accountant or an economist frequently must outline his own set of definitions, the over-riding consideration being the usefulness of the definitions, with the long-term aim of achieving greater uniformity. In the development of useful accounting principles, the practitioner has not confined himself to transactions made within business enterprise. Generally speaking, practicing and teaching accountants have not devoted enough effort to the bold experiment of correlating their discipline with that of the many-faceted field of modern economics.

The paper investigates strategic interactions between an independent analyst and an affiliated analyst in the context of issuing stock recommendations. Compared to the independent analyst, the affiliated analyst has superior information, but faces a conflict of interest. I show that the independent analyst disciplines the affiliated analyst's biased forecasting behavior. Meanwhile, the independent analyst sometimes herds with the affiliated analyst to improve his recommendation accuracy. Because of the affiliated analyst's conflict of interest, the value the independent analyst expects to derive from his ex post herding option is endogenous and can motivate him to acquire more information up front. As a result, herding and disciplining not only coexist, but also mutually reinforce each other. That is, there is an endogenous complementarity between the independent analyst's ex ante disciplining role and his ex post herding behavior in equilibrium. [ABSTRACT FROM AUTHOR]

During and after the first World War, France, like many other belligerents, failed to meet her current budgetary expenditure from the revenues arising from taxation. The result of the inflation created many problems for the business man. Depending upon the attitude one holds with reference to the quantity theory of money, inflation either created these problems through its effect in bringing about a very rapid increase in prices, or these problems, created by other economic processes, than by action on prices, finally resulted in a marked increase in prices. French accounting theoreticians had the advantage of the earlier German experience and some of the new accounting methods proposed were but adaptations of German inflation accounting theory and practice. The elaboration of these methods by both French and German accounting theorist constitutes a definite contribution to general accounting theory. An understanding of the principles involved may help in settling some of the controverted questions of principle which attract the attention of accountants.

Two cases help students identify the influence that self-interest can have on ethical decision making and encourage them to practice "giving voice to values." The learning objectives are to: (1) increase student awareness of the role of ethical fading in unethical decision making; (2) develop critical-thinking skills for ethical decision making; and (3) practice applying moral imagination to resolve ethical dilemmas. Specifically, we designed these case scenarios to develop skills in recognizing and resolving ethical dilemmas. Post-case survey responses indicate that beyond meeting the learning objectives, students personally relate to the protagonists. The cases are appropriate for graduate or undergraduate accounting courses, including capstone accounting courses, in which ethics, auditing, forensic accounting, and/or the professional code of conduct are discussed. Implementation guidance and Teaching Notes are provided to aid instructors seeking to motivate in-class discussions of the current and future ethical decisions students may face. [ABSTRACT FROM AUTHOR]

This paper studies the reliability of financial reporting when the credibility of the manager, represented by his misreporting propensity, is unknown. We show that credibility concerns affect the time-series of reported earnings, book values, and stock prices in ways that seem consistent with empirical evidence. When investors are uncertain about the credibility of the reporting process, earnings response coefficients, as well as market-to-book values (MTB), are random and time-varying; relatively low MTB reflect poor credibility of financial reporting; stock prices are s-shaped in earnings surprises and relatively insensitive to bad news. Finally, when the manager is more likely to have reporting discretion, discretionary accruals tend to be larger and more volatile. We estimate the model using U.S. earnings announcement data during 2002-2012 and find that the probability of misreporting is 7 percent. A counterfactual analysis reveals that ignoring the possibility of misreporting leads to overestimation of the mean (3.5 percent), volatility (13 percent), and persistence of earnings (17 percent). [ABSTRACT FROM AUTHOR]

This paper reviews emerging attempts to bridge the gap between economics- and sociology-based research on management accounting and discusses how such research may be advanced. Particular attention is paid to research combining insights from various economic theories such as agency theory and transaction cost economics, and institutional theory. This body of research has made important contributions by opening up a discussion of how different kinds of institutions constrain as well as enable economic agency. However, I argue that the two dominant approaches in this area of research still display strong, paradigmatic legacies of economics- and sociology-based research, respectively, and that they have not yet produced a unified, socio-economic perspective on management accounting. I advance a third research approach, rooted in critical realism, that transcends the paradigmatic constraints of these approaches. I discuss the paradigmatic premises of this approach and how it may be applied in empirical research. [ABSTRACT FROM AUTHOR]

Various articles and textbooks have developed different models for the calculation of the direct material variances. This has led to considerable confusion. This paper examines the area of direct material variance, provides definitions, and establishes evaluation criteria. Correct calculation of direct material variances (i.e., price variance, direct material mix variance [MY], and direct material yield variance [YV]) are a function of the production function assumed and the calculation model's ability to comply with the established variance analysis criteria. The three production functions are: (1) partial linear substitution, (2) the fixed proportion production function, and (3) the nonlinear production function. The three criteria are: (1) the computational models of MV and YV must be constructed in conformity with their definitions, (2) the computational models of MY and YV must be consistent with the characteristics of the underlying production function, and (3) the total of MV and YV must be equal to the total direct material quantity variance. This paper reviews the existing direct material variance calculation models. It suggests that Hasseldine's fixed-proportion production function model is the only one that meets the criteria and recommends its use. For partial linear substitution, this paper recommends the model proposed by Killough and Leininger, and for the nonlinear production function, none of the existing models fit all of the established criteria, so this paper develops a new model and recommends Its use. [ABSTRACT FROM AUTHOR]

The tenth annual meeting of the American Association of University Instructors in Accounting was especially noteworthy because of the able papers given on the subject "Research Work in Universities." Inspired by these papers the present writer decided to ascertain approximately what graduate work in applied economics the American universities were doing. As there were no data available on this subject, a survey was started. This paper is the result of the survey conducted by the Association. The basic courses in commercial law are so fundamental that practically all graduate schools of business offer them. The commercial law courses are 8.4% of the total applied economic courses in non-urban schools and 6.2% in urban schools. This variation is due to the difference in the total number of courses offered in non-urban and urban schools as the number of commercial law courses offered is practically constant. The unusual number of commercial law courses offered at American University and Pennsylvania University is doubtless due to local conditions, the excellent standing of the graduate law school at the former and unusual complexities of the State law code at the latter. Business management ranks first or is tied for first among the applied economic groups in five out of the twenty-seven schools.

This paper investigates the effect of internal information asymmetry (IIA) within conglomerate firms on the quality of management forecasts and financial statements. We develop a novel measure to capture IIA between divisional managers and top corporate managers, computed as the difference in their respective trading profits on their own company's stock (DIFRET). Numerous validation tests indicate that DIFRET indeed captures the information asymmetry between divisional managers and top managers. In our primary tests, we find that DIFRET is associated negatively with the accuracy, bias, specificity, and frequency of management forecasts. Furthermore, the likelihood of error-driven accounting restatements increases with DIFRET. Our results, thus, suggest that external communication quality suffers when the information asymmetry between divisional managers and top managers is more severe. [ABSTRACT FROM AUTHOR]

This paper examines the stock market reaction to 15 events relating to IFRS adoption in the United States. The goal is to assess whether investors perceive the switch to IFRS as beneficial or costly. Our findings suggest that investors' reaction to IFRS adoption is more positive in cases where IFRS is expected to lead to convergence benefits. Our results also indicate a less positive market reaction for firms with higher litigation risk, which is consistent with investors' concerns about greater discretion and less implementation guidance under IFRS for these firms. Overall, the findings are relevant to the current debate on IFRS adoption in the U.S. and highlight the importance of convergence to investors. [ABSTRACT FROM AUTHOR]

Prior studies propose four explanations for accounting conservatism, and recent studies classify conservatism into two forms: conditional and unconditional conservatism. This paper examines whether each proposed explanation applies to conditional conservatism, unconditional conservatism, or both. The findings are as follows: (1) contracting induces conditional conservatism; (2) litigation induces both forms; (3) regulation induces unconditional conservatism; and (4) taxation induces unconditional conservatism. These findings indicate that the two forms of conservatism play distinct roles in contracting, regulation, and taxation, as well as a common role in litigation. They also play an interrelated role, as suggested by the finding that unconditional conservatism reduces conditional conservatism. The combined evidence implies that because the two forms meet distinct needs but are negatively interrelated, it is necessary to trade them off. [ABSTRACT FROM AUTHOR]

The Resource-Event-Agent (REA) enterprise model is a widely accepted framework for the design of the accountability infrastructure of enterprise information systems. Policy-level specifications define constraints and guidelines under which an enterprise operates, and they are an extension to the REA enterprise model, adding the "what should, could, or must be" to the "what is." This paper aims both at comprehensive understanding of policy-level definitions as part of REA enterprise systems and at understanding of the semantic constructs that enable such definitions. We first explore two distinctive semantic abstractions essential to policy-level specifications: typification and grouping. The typification abstraction links instances of an object class to concepts for which they are concrete realizations, while the grouping abstraction aggregates objects into collections. We next present a number of patterns for the semantic modeling of policies. Following, we look at policy-level applications for REA enterprise information systems. We explore type and grouping definitions for the REA primitives (resource, event, agent) and discuss enterprise applications for three different kinds of policy definitions: knowledge-intensive descriptions, validation rules, and target descriptions. Our discussion of specific enterprise applications includes internal control applications (e.g., limit checks), variance analysis based on standard specifications (e.g., bills of materials), and budgeting applications. [ABSTRACT FROM AUTHOR]

It has long been recognized that padding of budgets is a concern that can complicate the practice of resource allocation. At the same time, experimental evidence suggests budget padding is somewhat restrained by a managerial preference for honesty. This paper models the confluence of these two incentives and considers the effect on optimal budgeting policies. In the model, budgetary transfers are established so as to reduce the manager's gain from padding which, in turn, forces the manager to think twice before seeking more funds. An effect of this optimal contract is that when facing a manager whose preference for honesty is uncertain, the firm encourages honesty but is resigned to the fact that padding may appear. Contrary to casual intuition, the extent of equilibrium budget padding is not necessarily monotonic in either the extent of information asymmetry or the prevalence of managers who value honesty. [ABSTRACT FROM AUTHOR]

Effective February 05, 2001, publicly traded companies are required to disclose audit and nonaudit fees paid to their external auditors. These fee data have been used to test whether auditor independence is impaired when the external auditor provides nonaudit services to a client, usually by examining whether certain earnings characteristics are related to nonaudit fees in ways that suggest impairment. This paper follows in that tradition by testing whether the earnings response coefficient (ERC), a proxy for earnings quality, is associated with engagement profitability. Residual fees derived from a two-stage regression model that prices audit and nonaudit services simultaneously are used to proxy for engagement profitability. If the market perceives abnormally profitable engagements as a threat to auditor independence, then we would expect the ERC to be lower for firms with positive fee residuals. The paper examines the residual fee-ERC relation for annual earnings announcements immediately before and after first-time fee disclosure. We report results for alternative measures of unexpected earnings (I/B/E/S forecast errors and deviations from a seasonal random walk), different formulations of residual fees (as a dichotomous and continuous variable) and different samples. For total fees and audit fees, there is a positive association between ERCs and the level of residual fees. For nonaudit fees, there is only one combination of unexpected earnings and residual fee formulation where we observe a significantly negative association between ERCs and residual fees. The findings for audit fees are consistent with a market that interprets abnormally high audit fees as a signal of a firm's commitment to high earnings quality. The restrictive conditions under which we find a negative association between nonaudit fees and ERCs provide limited support for the contention that perceived auditor independence is impaired by abnormally high nonaudit fees. [ABSTRACT FROM AUTHOR]

A recent study by Jacobs [2003] examines economic class bias in the contemporary recruitment practices of public accountancy firms. The study bases its argument on a historical review that suggests such bias has its origins in early Scottish chartered accountancy. This paper challenges the Jacobs thesis by examining the notion of economic class in relation to the social status of professions, and provides archival evidence of the effects of the recruitment practices of Scottish chartered accountants from mid 19th century until the beginning of the First World War. This evidence demonstrates a dual effect. The first is a considerable change during this period in the economic class origins of the general community of chartered accountants in Scotland and the second is relative stability in the economic class origins of their leadership. Scottish chartered accountancy immigrants to the US provide a clear example of the general community effect. They also reveal how economic class was not a significant factor in the success of their American professional careers. The data also highlight differences in these matters between chartered accountants from each of the three Scottish bodies and suggest generalizations about early Scottish chartered accountancy are inappropriate. Overall, therefore, and contrary to the argument of Jacobs, the early Scottish chartered accountancy bodies did not maintain their social status in terms of the economic class origins of their general memberships. Instead, they coped with the economics of a growing market for their services by increasingly recruiting men from lower middle class and working class backgrounds while maintaining their social respectability as a professional grouping with leaderships almost exclusively of upper class and upper middle class origins. [ABSTRACT FROM AUTHOR]

Budgeting is one of the most extensively researched topics in management accounting and has been studied from the theoretical perspectives of economics, psychology, and sociology. Thus, budgeting offers opportunities for research that chooses between competing theories from these perspectives or combines theories from different perspectives if they are compatible, to create more complete and valid explanations of the causes and effects of budgeting practices. In the first part of the paper we analyze budgeting research in the three theoretical perspectives, focusing on important similarities and differences across perspectives with respect to the primary research question, levels of analysis, assumptions about rationality and equilibrium, budgeting and nonbudgeting variables, and causal-model forms. In the last part of this paper we identify four interrelated criteria for selective integrative research and provide an example of using these criteria for research on participative budgeting. [ABSTRACT FROM AUTHOR]

This paper examines whether and to what extent repatriation tax costs constrain U.S. multinational companies' (MNCs) distributions to shareholders. During the 1987-2004 sample period, I find that repatriation tax costs decrease U.S. MNCs' dividend payments, and the economic magnitude of the effect is substantial. I do not find evidence that repatriation tax costs decrease U.S. MNCs' share repurchases, on average. I find cross-sectional variation in the effect of repatriation tax costs on share repurchases based on U.S. MNCs' opportunities to fund repurchases through external borrowing and to minimize the incremental U.S. cash tax cost of repatriations. I do not observe an association between repatriation tax costs and U.S. MNCs' dividend payments or share repurchases during a more recent time period (2009-2014). This study contributes to our understanding of the impact of the current U.S. worldwide tax system on U.S. MNCs' real decisions and of the determinants of firms' payout policies. [ABSTRACT FROM AUTHOR]

In this paper, we examine how CEO succession and succession planning affect perceptions of financial reporting risk among stakeholders who are responsible for and oversee firms' financial reporting (e.g., auditors, management, and audit committees). Management succession introduces uncertainty about firms' future operations, financial policies, and potential motivation for earnings management, which we predict elevates the perceived risk of financial reporting improprieties. Consistent with this prediction, we find that audit fees are higher for firms with new CEOs. Importantly, however, we note that careful CEO succession planning (i.e., promoting an "heir apparent") attenuates perceptions of higher risk, as evidenced by a lack of an audit pricing adjustment. These results are robust to several alternative specifications and analyses designed to mitigate the concern that the association between audit fees and CEO succession and succession planning is driven by factors leading to the CEO change. We also show that audit fee increases dissipate over time as the new, non-heir CEO stays longer at the firm, reinforcing the inference that audit fees increase in response to the uncertainty surrounding a new CEO. Additionally, we do not find evidence of a deterioration in audit quality with new CEOs, independent of the succession plan. [ABSTRACT FROM AUTHOR]

The article presents information on news related to accounting. The Association of Canadian Schools of Commerce and Business Administration held its seventh annual conference June 2, 3 and 4, 1963 at the Faculty of Commerce, Laval University, Quebec. Papers were given on the economy of the firm, education for operations research and developments in behavioral science theory. The thirteenth annual Tulane Tax Institute was held September 18, 19 and 20, 1963, in New Orleans. Current developments in federal taxation, tax planning, tax accounting and oil and gas tax problems were discussed. The University of Hawaii and the Hawaii Society of Certified Public Accountant's jointly sponsored a second annual Conference on Government Accounting at Honolulu May 8, 9 and 10, 1963. The next conference of the Australian Association of University Teachers of Accounting will be held at the Australian National University in Canberra on January 25, 26 and 21, 1964. Papers will be presented on the accounting research studies, on financial mathematics and accounting and on "Accounting in the Administrative Arm of Government-The Scope for Reform." The 21st Annual Institute on Hospital Accounting was held at Indiana University in July.

The purpose of this paper is to examine the nature of the ordinary stock dividend, common shares issued to common stockholders, and to relate the accounting treatment of this type of transaction to the entity theory of corporate accounting. Whether or not entity theory, proprietary theory, fund theory or some combination of theories provides the most useful and meaningful frame of reference for accounting practice, which is a fundamental issue that deserves discussion. Such a discussion is beyond the boundaries of this paper. The issue is circumvented by the assumption that the entity theory is the most useful frame of reference for the following analysis. In support of this approach, current accounting practice may be cited. Today the entity concept is generally used in accounting for corporate transactions. Thus, the underlying concept is that the corporation is an entity separate from any of the parties at interest. Therefore the accounting processes revolve about the corporation and not the stockholders or creditors.

The purpose of the present paper is to ascertain just what graduate courses in accounting are offered by the universities listed by the collegiate department of the United States Bureau of Education as giving graduate work in applied economics. In order to simplify the figures, no distinction is made between a term course and a semester course. Likewise, no distinction is made between courses given only to graduates and those given to both graduate and undergraduates; strictly undergraduate courses are ignored. Data presented in the article shows that the graduate courses in accounting are largely concentrated in the basic subjects. While twenty-one different accounting studies are given, 71.7 per cent of the courses are given in the subjects that a student already familiar with the elementary principles of accounting must pursue. In order to become a professional accountant; and although prospective Certified Public Accountants (C.P.A.) candidates form only a small portion of the total number of accounting students, it still is advisable to offer adequate preparation for the C.P.A. examinations. The relatively weak showing of the subjects not absolutely needed in the professional accounting curriculum is due to the fact that accounting must be studied in logical sequence.

This paper reviews 107 academic research publications appearing between 1988 and 2011 that studied accounting changes in post-communist economies. While there has been a significant amount of prior research focusing on accounting changes in economies undergoing the transition from communism to a market economy, there has been a lack of synthesis and overview of the literature in this field. In order to develop such a synthesis and overview, the reviewed publications have been categorized according to a framework proposed by Barbu (2006), and then further classified into changes pertaining to accounting institutions, changes in accounting systems (i.e. legislation, principles and standards), and interactions between economic changes and accounting changes. We then interpret our findings through several theoretical frameworks that provide explanations regarding relationships between economic changes (i.e. in particular the transition from communism to a market economy) and accounting changes. This analysis has led to a proposed new framework to better understand relationships between economic changes and accounting changes during the transition from communism to a market-based economy. [ABSTRACT FROM AUTHOR]

This paper examines determinants of sticky cost behavior, costs that increase faster than they decrease as demand fluctuates. The majority of the literature infers that sticky costs arise because managers retain idle capacity as demand falls, but add capacity as demand grows. I use United States Air Transportation industry data to confirm that managers do retain idle capacity when demand falls. However, I also find that sticky costs arise because managers lower selling prices to utilize existing capacity when demand falls, but add capacity (rather than raise selling prices) when demand grows. Finally, I find that sticky costs arise because managers incur more cost when adding capacity as demand grows than they incur when they add capacity as demand falls. Conversely, I find evidence of anti-sticky costs that occur because managers save more cost by removing capacity when demand falls than they save by removing capacity when demand grows. [ABSTRACT FROM AUTHOR]

Our paper examines three related questions: Will directors who have friendship ties with the CEO manage earnings to benefit the CEO in the short term while potentially sacrificing the welfare of the company in the long term? Will public disclosure of friendship ties mitigate or exacerbate such behavior, and will disclosure of friendship ties influence investors' perceptions of director decisions? We conduct an experiment involving 56 active and experienced corporate directors from U.S. firms and a second experiment with M.B.A. students. We find that friendship ties caused directors to be more willing to approve reductions to research and development (R&D) expenses that cause earnings to rise enough to meet the CEO's minimum bonus target more often than when the directors and CEO were not friends. However, disclosing friendship ties resulted in even greater reductions in R&D expenses and higher CEO bonuses than not disclosing friendship ties. In a second experiment, we find that shareholders were more likely to agree with directors' decisions to approve cuts to R&D when friendship ties were disclosed. These findings have potentially important implications for corporate governance because they suggest that friendship ties between the CEO and board members can impair the directors' independence and objectivity, and that disclosure of the relationships can worsen this effect. [ABSTRACT FROM AUTHOR]

The article explores the goal congruence of net realizable value (NRV). The NRV model would have various properties after the evaluation of a decision at the end of period T to hold an asset. A correct decision was made if the NRV income for period T+1 is positive. The NRV income for period T+1 will be negative if an incorrect decision was made at time T. The decision at the end of period T to hold an asset may have been correct is the NRV income for period T+1 is negative. However, if it was correct, another condition must hold.

I examine the effect of ex ante management forecast accuracy on the post-earnings-announcement drift when management forecasts about next quarter's earnings are bundled with current quarter's earnings announcements. I build a composite measure of ex ante management forecast accuracy that takes into account forecast ability, forecast difficulty, and forecast environment. The results show that the bundled forecasts with higher ex ante accuracy mitigate investors' under-reaction to current earnings and reduce the magnitude of the post-earnings-announcement drift. [ABSTRACT FROM AUTHOR]

Periodic examination is a critical feature for assurance but not insurance; accordingly insurance is potentially a lower-cost alternative to assurance. Unlike assurance, however, whether insurance inspires consumer confidence remains an unexplored empirical question. This paper compares consumer receptiveness to the concepts of assurance and insurance in an e-commerce setting. Results (n = 360) in a controlled experiment indicate equivalent consumer receptiveness to assurance and insurance; both significantly increase purchasing intention. Results further indicate that consumer preference for CPA versus non-CPA insurance providers depends on consumers' assurance knowledge. High-assurance knowledge consumers prefer insurance provided by insurance companies while low-assurance knowledge consumers prefer insurance provided by CPA firms. Our finding suggests that the CPA profession could potentially leverage its brand name in a service area outside the profession's traditional markets. An extension to our study assesses the feasibility of CPAs providing insurance service solely or in collaboration with insurance companies. [ABSTRACT FROM AUTHOR]

This paper explains why the question is how, not if, today's financial statements should include estimates of the future. Including such estimates is not new, but their use is increasing. This increase results primarily because standard-setters believe asset and liability measures that reflect current economic conditions and up-to-date expectations of the future will result in more useful information for making economic decisions, which is the objective of financial reporting. This is why standard-setters seem focused on fair value accounting. How estimates of the future are incorporated in financial statements depends on the asset and liability measurement attribute, and on financial reporting definitions of assets and liabilities. The present definitions depend on identifying past transactions or events that give rise to expected inflows or outflows of economic benefits and, for inflows, control over the expected benefits. Thus, not all expected inflows or outflows of economic benefits are recognized. Disclosures in the notes can help users understand recognized estimates and can provide information about unrecognized estimates. Including more estimates of the future in today's financial statements would result in an income measure that differs from today's income, but such a measure arguably provides better information for making economic decisions. [ABSTRACT FROM AUTHOR]

This paper introduces a model in which the firm's returns depend on trading volume when the firm defers disclosure, because market makers use volume to draw inferences about better-informed investors' private information on firm value. In addition, we show that a firm's commitment to a policy of timely disclosure of a broader range of outcomes dampens the slope coefficient on volume in a Taylor expansion of the log of the absolute value of returns on volume. The reason for this is that when a firm commits to a policy of timely disclosure of a broader range of outcomes, the deferral of a report indicates that the outcome is extreme. This heightens adverse selection. In turn, this makes informed trade more costly and hence less likely, thereby rendering returns less dependent on trading volume as a source of information about firm value. This result predicts that firms committing to more disclosure should experience a smaller slope coefficient on trading volume. Thus, the slope coefficient offers a potential tool for measuring the economic consequences of shifts in disclosure regimes. [ABSTRACT FROM AUTHOR]

In this paper, we report the results of an experiment designed to determine whether the manner in which income is obtained (earned vs. endowed) affects the relation between tax rates and taxpayer compliance. Our experiment consisted of an income phase and a tax-reporting phase. In the income phase, participants were either endowed with $20 or were required to earn $20 by performing a one-hour multiplication exercise. In the tax-reporting phase, participants decided how much of their $20 in income to report on their tax returns. Consistent with prior experimental evidence, we find that when income is endowed, participants respond to a tax rate increase by reporting less taxable income, in contrast, but consistent with economic theory and some archival-empirical evidence, we find that when income is earned, participants respond to a tax rate increase by reporting more taxable income. Collectively, the results suggest that income is not a fungible commodity and that taxpayer responses to changes in policy variables such as the tax rate may depend critically on the amount of time and effort required to generate income. Additionally, our results may help explain differences between the results of taxpayer compliance experiments (which typically endow individuals with income) and archival-empirical studies (which use data that typically include earned income) regarding how changes in the tax rate (and other factors) affect taxpayer compliance decisions. [ABSTRACT FROM AUTHOR]

This paper reviews behavioral accounting research (BAR) from the perspective of nonbehavioral researchers (information economists). The role of BAR in identifying the demand function for accounting information is discussed. A brief review of trends in the types of BAR published in three major journals provides a background for general observations about the current state of BAR. Seven inherent difficulties of BAR are presented, followed by five areas where significant progress has been made in the past 20 years and seven areas of potential improvements. The paper concludes that BAR will have an important influence on the accounting products of the future. However, despite significant progress in the 1970s and 1980s, BAR is still a broad, unfocused discipline, with increasing quality of research and researchers, but not yet to the point of having a unified set of research results that are generally accepted. [ABSTRACT FROM AUTHOR]

Although the goal of government is to maintain or improve citizens' well-being, governmental commitments are subject to fiscal constraints. Given constraints on resources, governments need to "live within their means" (GASB 1987, para. 59). Concepts Statement No. 1 (GASB 1987, para. 61) discusses the notion of interperiod equity (IPE), i.e., whether "current year revenues are sufficient to pay for the services provided that year." From a financial reporting perspective, the Board believes that the appropriate concept is that of "yearly balance" and that services rendered during the current year should be paid for by revenues raised during that year. The public economics literature (e.g., Aguilar et al. 1991; Mattoon and Testa 1991) suggests that the time horizon of public officials is longer than a single fiscal year and that taxes and spending are smoothed over a multi-period time frame. This literature indicates it would be unrealistic for governmental revenues and expenditures to be balanced each and every year. Despite the potentially wide disparity between a one-year and a multi-year budgeting perspective for governments, we are not aware of any extant research on the issue. This paper provides an empirical analysis of three interperiod equity-related performance measures for 40 large cities over a 35-year period in order to examine which budgeting perspective seems, in fact, to exist. We use a partial adjustment model under the hypothesis that cities' performance measures tend to move toward governmental norms in a manner similar to Lev's (1969) findings for businesses. Our empirical results (1) are consistent with a multi-year budgeting horizon, (2) provide bench-marks for each of the three performance measures against which users of financial statements can compare governmental results, and (3) suggest that the speed of adjustment toward governmental norms (which varies across cities) could be useful to users of financial statements as a measure of a government's capacity to adapt and adjust to changing economic circumstances. [ABSTRACT FROM AUTHOR]

Recent developments in financial reporting have highlighted the role of the actuarial profession. This paper discusses those actuarial services that have an impact upon the financial reports prepared or audited by members of the accountancy profession. The evolution of actuarial influence on financial reporting is traced through the passage of the Employee Retirement Income Security Act and the subsequent promulgation of pension and other postretirement benefit reporting standards. A summary of the actuarial functions and their effect on financial reporting is presented. The potential for future interaction between the actuarial profession and the accounting profession with regard to financial reporting is briefly discussed. [ABSTRACT FROM AUTHOR]

Historical studies have played an increased role in economics and sociology in recent years and, thus, have come to influence management accounting research as well. This paper summarizes and critiques historical research in management accounting in the last decade and suggests its uses for expanding our understanding of present-day management accounting practice. Research on current practice has focused strongly on efficiency- based demand for management accounting information. Historical research also has elaborated efficiency-based explanations; but, in addition, it has expanded our view by providing examples of other sources of demand (shifts in bargaining power among contracting parties) and emphasizing the importance of changes in information supply and patterns of thought, as well as changes in demand. Moreover, historical research underlines the need for dynamic theories of management accounting change, which can explain the path of change as well as its final outcome. [ABSTRACT FROM AUTHOR]

This paper describes the application of experimental economics to research examining the Impact of tax policies on individual and aggregate behavior. The paper discusses the benefits and limitations that arise from using experimental economics as a supplement to existing methods in tax policy: research. In addition, with the aim of providing guidance to tax researchers interested in adopting the method, various methodological issues are examined, including a description of how markets are created in the laboratory and a survey of practices commonly applied in experimental economics research. Last, a review of the limited tax research to date using the method is presented, along with a discussion of some tax policy Issues that experimental economics can be used to address. [ABSTRACT FROM AUTHOR]

This paper presents the results of a survey on the use of the Stringer method of monetary unit sampling (MUS) by 12 large public accounting firms (including all "big eight" firms). Our survey results illustrate that the sample size planning methods and use of understatement errors by these firms differ significantly from the procedures presented in the 1983 AICPA Audit Sampling guide. Following up on these survey results, the paper presents some technical results on determining sample sizes and on using understatement errors with the Stringer method of MUS. The latter results are based on simulation studies of the reliability and comparative performance of two methods for using the understatement errors: the Meikle [1972] approach and the Leslie, Teitlebaum and Anderson (LTA) [1979] approach. While half of the 12 firms surveyed are using one of these two methods, to our knowledge no prior evidence has been made public on the comparative performance of these two methods. Both methods were found to be highly reliable over a wide range of simulations. In terms of efficiency, the LTA approach was found to have a relatively modest advantage over the Meikle approach. [ABSTRACT FROM AUTHOR]

According to the author, the topic to which he addresses himself is a challenging one. It is of paramount importance to all concerned with a vital segment of our system of higher education and the continued advancement of the dominant social and economic institution, the business corporation. The author approaches the subject with humility. The author hopes that this paper will serve as a catalytic agent encouraging others to think deeply and perceptively on the role of business schools in a changing environment, and subsequently that faculty of business schools will forget their vested interest and act to make modem education for business the vital force required in the dynamic world economy. Within the business schools one need also to utilize the integrated systems approach that has characterized post-war management. Too often today there is no integration of different functional subject matter. Each discipline is frequently taught as though other business areas don't exist, or if they are recognized, they are assumed to be peripheral. The false barriers of subject matter specialization by traditional functional business areas must be breached; the areas must be integrated into a related systems approach.

The great inflation of the last twenty years has caused, if not a revolution in accounting thought, at least a civil war among accountants. It is not possible in this paper to examine the reasons for this failure among accountants to agree on a course of action that will avoid the pitfalls of conventional practice. In particular, since accounting is primarily a process of classification and measurement, it is necessary to agree on what the accounts are designed to measure and how the measurement may best be carried out. The need for relatively easy measurement is stressed because many of the solutions that are advanced to deal with the price level problems, while reasonably meeting conceptual or theoretical requirements, seem altogether too complicated to apply in practice. One of the major reasons for the confusion that has resulted from the price-level controversy, and the failure of accountants and economists to agree on remedial action, has been the attempt by nearly everyone engaged in the argument to find a unique measure of business surplus-one that will be suitable for all purposes and acceptable to all parties making use of accounting data.

The direction, nature, emphasis and objectives of accounting education, since its beginning at the collegiate level, have been influenced by a number of ideas, conditions, and relationships with other segments of academic work. This paper attempts to outline and assess the roles which the more important of these influences have played in the development of accounting education. The movement for collegiate training for accounting quickly ran aground in some colleges, due to the opposition of departments of economics. The dominant attitude of the economists in this group of colleges was that business courses in general, and accounting courses in particular, had no place in the college catalog. The study of Marshallian economics, it was asserted, was adequate intellectual nourishment for everybody, supplemented perhaps by a half-dozen courses in the periphery of the field dealing with "applied" studies. In other colleges, the movement to establish accounting programs met a different, though equally determined, tactical opposition from the economists.

The article discusses about the planning concepts in the "tentative statements of cost concepts." In this article, a portion of that document is discussed from the point of view of the business manager who would attempt to apply it. It is the purpose of this paper to examine the cost for planning portion of the statement. The business manager has been told that he is to discount future outlays, necessarily measured outlays, at an appropriate rate of interest; again he is later told that future costs, that lend themselves to measurement, are to be discounted at a rate which reflects time, risk, uncertainty, etc., and finally he is told other costs which cannot be measured, but must be "considered." To the business manager's way of thinking, any cost to which a dollar and cents figure is attached has been measured; and in essence he has been told to handle these costs in three quite different ways. All costs in the future, by the very nature of the uncertainty of the future and the time element involved, carry some element of risk which must be allowed for. In conclusion, the authors stated that it is much, much easier to criticize original thinking than to do that same thinking. The tentative statement has certainly accomplished one of its main objectives, i.e., to stimulate further study and discussion of the accounting information needed by management, but also has gone well beyond.

The article focuses on starting a career in public accounting. To make it worth one's while to enter the field of public accounting, one must have a considerable portion of courage, strong ambition and a full measure of persistence. One must be willing and physically able to work hard. A career in public accounting calls for long hours of high quality work, frequently done under pressure. A man without fortitude should look elsewhere for a career. A successful accountant must have imagination. The public accountant is not a human calculator who arranges data fed into him. He is a man with the ability to visualize the abstract, to see as a finished product a work paper, an audit program, a report, an accounting system before it has ever come into existence. Perhaps the thing that one should do that is of the greatest importance is to provide oneself with a sound formal education. There is a trend toward ever increasing the educational requirements for the certified public accountant.

The accounting course for economics concentrators can and should integrate accounting concepts with those of economics. No attempt is made in this paper to consider the equally important problem of how integration with economics may be brought to accounting courses taught for concentrators in business administration, accounting and other subjects. If one turns to the authors of textbooks one gets little more help. Among the multitude of accounting textbooks while there are a few written from a management point of view there is none that attempts to integrate accounting with economics or even to present those aspects of accounting which are especially important from the point of view of economics. Before accounting and economics can be studied together, a knowledge of the rudiments of each must be acquired. The economics concentrator normally studies accounting after at least one semester of elementary economics. To supply a background in accounting, the accounting course must start with a brief training in bookkeeping technique.

The title of this paper, College Education As a Requirement for Public Accountants in New York State, is rather ambiguous. It suggests that all public accountants practicing in New York must meet certain scholastic requirements. Of course, this is not true. There is no law in New York State restricting the practice of public accounting to certified public accountants (CPA). The college education requirement mentioned in the title refers to the New York CPA law which became effective from January 1, 1938. This law specifies that candidates for the examination leading to certification must be graduates of colleges or schools of accountancy registered by the State Education Department as maintaining satisfactory standards. To meet satisfactory standards, a school must offer a four-year course, or its equivalent, in cultural and business subjects including 24 hours of accounting, 8 hours each of business law and finance, and 6 hours of economics. This law, which for the first time set minimum scholastic requirements at college level, did not become effective until January 1, 1938.