Harry Zvi Davis

HISTORY OF LIFO

The history of LIFO illustrates the interplay of taxes and the general acceptance of accounting principles. In this paper, the gradual acceptance of LIFO in the United States is traced. The study focuses on both the theoretical evolution of LIFO and its acceptance by taxing authorities and accountants.

Accounting Choice, Economic Environment and Employee Demographics

The accounting for defined benefit pension and postretirement benefit plans requires substantial managerial judgment and therefore allows for managerial discretion in the choice of plan assumptions. Previous research has shown that firms tend to increase their assumed discount rates to minimize their Projected Benefit Obligation (PBO) and the magnitude of the increase is negatively related to the duration (time to maturity) of the firm’s pension liabilities, since the impact on the PBO is greater (smaller) the longer (shorter) the duration. Ultimately, the duration of the firm’s plan is a function of the characteristics of the firm’s current workforce relative to its retirees. This paper investigates whether cross-sectional differences in the duration of firms’ plans are related to the firms’ discount rate choices. Specifically, when interest rates are low, firms whose pension plans have short durations may be motivated to lower their discount rates (rather than increase them), since a lower discount rate will decrease their pension expense. We find that for shorter duration firms, duration is positively related to the discount rate. These results, which are contrary to the findings in prior research, are especially relevant in the present climate of low interest rates and more firms freezing their defined benefit pension plans, thereby shortening the duration of their obligations.

On measuring serial correlation: Implications for finance and accounting research studies

Accounting and finance studies that measure serial correlation implicitly make two assumptions. One, the studies assume that the sample estimate of the autocorrelation coefficient is unbiased. The assumption is intuitively appealing, but incorrect. This article provides a measure of the size of the bias. Two, the studies assume that the target of the time series is constant over time. However, over a long period target values may change. This article models the general case in which not only do random shocks affect actual values, but also random changes affect target values.

The Duration of the Adjustment Process of Financial Ratios: Further Remarks

In a recent paper, Yoram C. Peles and Meir I. Schneller (1989) ignore the sampling autocorrelation bias. A replication of their work that removes the bias changes their results. With the bias removed, there is no evidence that their three long-term ratios follow an adjustment process. Copyright 1992 by MIT Press.

Finding an internal optimum in the classification of management accounting information: The role of fuzzy sets

This article contributes to the fuzzy logic application literature in accounting by examining a key issue in the use of fuzzy logic: how to find an optimum number of classes to minimize the decision makers cost. Two costs are assumed: (1) we assume fuzziness is costly and thus should be minimized and (2) we assume that adding categories is costly. In order to address the issue of finding the optimal number of classes, we define the objective function as being cost minimization. We seek to determine the costs and benefits of increasing the number of classifications and ask whether an internal optimum is identifiable and achievable. We assume, ceteris paribus, less fuzziness is preferable to more fuzziness, but fuzziness can only be reduced through the use of more categories whose creation is costly. More fuzziness is costly, but so is the creation of additional categories to alleviate the fuzziness. When we arrive at the optimal number of clusters that corresponds to a minimal total cost, that number may not be the same as the “natural” number of categories. It is, nonetheless, a useful and practical way of deciding on the number of classifications. The approach we employ in this study is not confined to a management accounting information environment. It can be applied to any information environment where measurable classifications exist.

The Application of Perceptual Bias to Negative Compensation Situations in Management Accounting Research

The findings of our study support the wisdom that, whenever managers must implement managerial plans that will be perceived as “negative,” the plans should be implemented all at once. Spreading the implementation over a period of time produces more discontent on the part of the personnel affected. The findings lend credence to a generalization that peoples’ discontent is minimized when the number of observations (and thus the number of chances for forming a negative perception) of undesirable events is minimized.

ACCOUNTING MEASUREMENT AND CAPACITY LIMITS OF TECHNOLOGICAL DEVICES

In this paper the capacity limits of technological devices used in ancient Egypt are used to explain the Biblical phrase that in accounting for grain the Egyptians ran out of numbers.

Note on the First Recorded Audit in the Bible

According to an early commentary on the Bib e, Joseph is the first auditor of accounting records in the Bible.