Knowledge that Transforms

Abstract Reviews the book "Surplus and Dividends," by Henry Rand Hatfield.

Abstract The purpose of periodic financial statements of a corporation is to furnish information that is necessary for the formulation of dependable judgments. Even in normal times this is a substantial challenge to accountants, considering the complexity of the corporate system. During a period when the entire business economy is geared to the exigencies of total war, the task of preparing accounting statements adequate for the formulation of dependable judgments assumes immense proportions. The current popularity of provisions for war contingencies and postwar adjustments or some such titled reserve seems to invite a review of this practice. Its popularity is disclosed in a study by the Research Department of the American Institute of Accountants reported in the November, 1943, "Journal of Accountancy." And since such reserve provisions may accomplish or at least open the way for-profit-smoothing, perhaps a review of "accepted" practice in this area of accounting is justified. In this paper the concern will be with general accounting theory and practice and will not include the problem of tax policy in relation to postwar conversion expenditures.

Abstract The article presents information on simplifying the presentation of compound interest formulas. The author presents the following plan as his recommended method for the teaching of this subject. The salient features of the plan are to limit the number of required formulas to three. First to restrict the number of symbols in all formulas to three or four. Secondly, it does not require an analysis or development of any formula and thirdly concentrate upon demonstrated analyses of an unlimited number of representative problems in terms of the three selected basic formulas. The writer is convinced that the intermediate accounting student should be given the benefit of the most simplified technique for solving his compound interest problems. By so doing a greater amount of classroom time can be made available for the analysis of each problem for the basic factors involved. Since practically all problems may be analyzed in terms of the basic formulas, the scope of such analyses is restricted to three principal categories.

Abstract Reviews the book "Square Pegs in Square Holes," by Margaret E. Broadley.

Abstract Many problems arising as the result of wartime conditions will continue to perplex for years after the war. Uncertainties which will be resolved only by future developments have in the past presented difficulties in accounting practice and have been a basis for criticism by some who hold the erroneous conception that accounting statements are by their nature intended to be exact and accurate representations of fact. Industries expect after the war a more or less protracted period of retooling, plant reconversion and rehabilitation and redevelopment of markets. In conclusion, a brief word should be said as to the general bearing these thoughts may have on accounting education. The educator is always confronted with the question of where the emphasis in curriculum and instruction should be placed as between teaching accounting techniques and development of understanding of principles, policies and underlying social sciences. Obviously, the man trained to recognize the significance of new situations and to meet them on the basis of an experienced judgment and a command of basic principles has been a more useful member of the profession in wartime than the narrowly-trained technician. This is likely to be true also in years to come.

Abstract The article presents information on accountant-attorney cooperation. In order to recognize an accounting problem and the consequent need to call in an accountant on a case, the author is of the view that every attorney and especially a tax attorney-should have some understanding of accounting principles. It is equally true that an attorney can best serve the interests of his client by having a sufficient understanding of the accounting problems involved in a case and being able to recognize the advantages to be gained from a proper audit or accounting. The converse of this situation is equally true. An accountant studies commercial law, not to enable him to practice law, but to give a knowledge of legal principles sufficient to prepare reports in such a way as to satisfy the legal duty of one's client to render an accounting and to enable the accountant to recognize the type of problem for which his client needs a lawyer. And the practice of law from the very first demonstrated the importance in modern life of cooperation between both professions. Every tax case involves both legal and accounting problems.

Abstract A capacity for a professional career in accounting has a relation to technical aptitude which is comparable to the relation of the genius of an artist to his skill with the brush or the chisel. The skill is essential, but it won't carry him far in a professional career. According to the dictionary a profession is a calling in which one professes to have acquired some special knowledge that is used either by way of instructing, guiding, or advising others or of serving them in some art. This is all right so far as it goes, but the essential thing about a profession is that the layman is not capable of judging services rendered, because the special knowledge or skill of the professional man is beyond the power of the layman to evaluate. One can weigh the coal, or measure the lumber, or test the motor, but one cannot tell, unless one is a doctor, whether tonsils were well or poorly removed, or, unless one is a lawyer, whether or not the legal advice received is sound. Therefore the professional man may mislead or betray those who rely on him. The only protection they can have is in such standards of competence and integrity as are maintained by or on behalf of the profession.

Abstract There is something wrong with charging a long-lived asset to expense in the period of its acquisition. To follow this practice in ordinary commercial accounting is, however, no more unreasonable than various retirement proposals that would take no depreciation until the unit is retired. For the accountant the criteria for writing off assets are independent of the initial bricklayers and of the wrecking crew that removes the last debris. What then should be signals for taking depreciable assets to expense? Perhaps the most common argument is that assets should be depreciated as their services are rendered. This approach has been emphasized as an ideal toward which accountants are working and by which their practical measures may be tested, yet this ideal is based mainly on a vague feeling of justice which seems to be in need of independent support. It is the primary purpose of this article to examine once again the income concept and to suggest an alternative for the ethical approach. Many small businessmen do not think they have any profit until the original investment has been entirely recovered, although this type of thinking is contrary to the attitude accountants attempt to instill in their clients, it is sometimes not unreasonable.

Abstract Reviews the book "Advanced Accounting," by Howard S. Noble, Wilbert E. Karrenbrock and Harvey Simons.

Abstract In the ten years from 1896 to 1905, seven states of the U.S., had issued 644 certificates, largely, of course, upon waiver of examination. In that period the examiners in those states had decided upon subjects and scope of their examinations, and in each state they had prepared, given and rated from one to twenty examinations. Quite likely their bases for ratings differed, but they were in complete agreement upon the scope of the tests. In those first ten years all examinations were in four subjects, Commercial Law, Commercial Law, Practical Accounting and Auditing. Later some states added a few related subjects. In 1907 Pennsylvania combined the last three subjects into one test entitled "General Accounting," and from 1916 to 1942 those states which used the service of the American Institute of Accountants combined the second and third subjects into Accounting Theory and Practice. At the present time in 1943, the fifty-two Boards of Examiners are composed of one hundred and ninety-seven members besides the nine members of the Board of Examiners of the American Institute of Accountants. In 1905 the nine boards then existing were composed of twenty-nine accountant members.