Knowledge that Transforms

This article presents a project report of the 1954 task committee on internal auditing education. In 1951, the American Accounting Association set up a Committee on Cooperation with the Institute of Internal Auditors. As one of its first activities, this Committee conducted a survey of college courses in internal auditing. In view of the increasing interest in internal auditing courses evidenced by this survey, it seemed appropriate to give further thought to the place of the internal auditing course in the college curriculum, and the problems of organizing and establishing such a course, its content, and manner of presentation. In view of the present crowded condition of the undergraduate accounting curriculum and the much-discussed dangers of excessive specialization, a recommendation for the addition of a new course such as internal auditing cannot be given in a light or casual manner. As the large corporation becomes a more and more significant element in the economy, internal auditing is receiving increased recognition as a valuable aid to top corporate management.

Reviews the book "Productivity Accounting," by Hiram S. Davis.

This article presents questions related to accounting and finance, that are of importance to students of the Certified Public Accountants (CPA) course. The following problems were prepared by the Board of Examiners of the American Institute of Accountants and were presented as the second half of the CPA Examination in accounting practice on May 19, 1955. The total weight assigned to this section of the examination was 50 points and the examiners point out that the suggested time allowances for each problem are closely proportional to the point values of the various problems. Each question has been assigned a time limit. Questions include preparation of journal entries for financial transactions, preparation of product warranty balances and estimation of insurance claims. There are also questions asking the examinee to criticize the system of overheads applied to direct labor cost by a heavy equipment manufacturing company; and another one demanding the preparation of a statement of cost for a steel company involving the value and composition of inventory of the company from given data.

It is often suggested that the high income tax rates of modern times have exerted seriously repressive effects on growth of small business enterprises. The argument is that high income tax rates curtail the funds available to individuals and corporations for investment, thus reducing the amounts, which otherwise would be used to finance growing enterprises. In most cases, the primary source of increase in the owner's equity is reinvested earnings. Prospective outside investors with large incomes will be taxed at high rates on any profit they realize from investments in growing enterprises. Thus, there is danger that they would be discouraged from making investments of this sort. If income taxes have been restricting the growth of small enterprises, then it would appear that fundamental tax revision ought to be undertaken. This is an important question, but a very difficult one to investigate and dispose of, because of lack of objective evidence, which would prove what the nature, and extent of the effects have actually been.

Many of the reported applications of statistical methods to auditing situations have involved acceptance sampling, a technique which has found its most fruitful expression in the area of industrial quality control. Acceptance sampling is fundamentally a special adaptation of general principles of probability and statistical analysis to the problem of economically inspecting the quality of industrial products. Various tables have been made generally available for the purpose of facilitating the application of these methods; but these tables represent an even further specialization of the general field of statistics. This specialization needs to be considered before the use of acceptance sampling tables is extended to the accounting-auditing area. Neither accounting nor auditing, however, seem to be likely candidates for such routine applications, because of many subtle interlinkages of accounting data and systems, which do not permit compartmentalization of problems such as is possible in the usual quality control approach to acceptance sampling.

This article analyzes coverage of the theory of account examinations conducted by the Association of International Accountants, Great Britain. The questions and problems which have appeared in the past are probably a good indication of what may be expected in future examinations for Certified Public Accountants course and the analogy developed by the author would indicate that over 90 per cent of the questions are either under the category of inventories or the application of overhead in process cost, job cost, or standard cost systems. This article will direct the reader's attention to the non-inventory phases of cost accounting appearing in the examinations studied. Examiners expect a candidate to be familiar enough with the field of cost accounting to be able to define and interpret the basic terms and principles of this phase of accounting. To attempt in this study to define all of the cost accounting terms in general use would result in a supplementary paper. Accounting for inventories presents a myriad of acute problems and the accounting profession as a whole has directed considerable thought to this area in recent years. Many separate studies and texts have been developed on this subject.

Reviews the book "Spicer & Pegler's Practical Auditing," by Walter W. Bigg.

Reviews the book "Practical Distribution Cost Analysis," by Donald R. Longman.

The article focuses on financial value of early tax deductions for depreciation. The timing of depreciation allowances is of very little or no significance in terms of financial gain to a taxpayer. In the long run, only the tax basis can be deducted in arriving at net income subject to tax. The statement is a very familiar one and has not been challenged sufficiently to make those concerned aware of its inadequacy. Substantial financial gain or loss may accrue to the taxpayer in the timing of depreciation allowances. The allowance of special amortization on emergency facilities may be used to illustrate this point. It will be recalled that Section 124A of the 1939 Internal Revenue Code, as amended, provides for deductions over sixty months of the cost of facilities certified as necessary in the interest of national defense. Partial certification of such facilities is made possible and the cost of the certified portion is to be allocated evenly over sixty months without regard to the actual life of the facilities.

Reviews the book "Problems in Finance," by Pearson Hunt and Charles M. Williams.