Journal Article Control of Investment versus Control of Return: A Criticism Get access R. S. Meriam R. S. Meriam Graduate School of Business Administration, Harvard University Search for other works by this author on: Oxford Academic Google Scholar The Quarterly Journal of Economics, Volume 44, Issue 3, May 1930, Pages 549–552, https://doi.org/10.2307/1885797 Published: 01 May 1930
Abstract Accounting at the outset was concerned largely with the financial relations existing between a concern and its customers and creditors. Very soon, however, this narrow aspect of accounting was modified so that the accounts would record all assets and liabilities and make possible the construction of the balance sheet directly from the ledger. Then followed additional changes which permitted the presentation of a profit and loss statement. In all instances, however, the accountant was concerned largely with recording the historical changes in the financial and operating aspects of the business. Although some thought was given to the uses to which these statements might be put the primary consideration involved showing the chronological events from the point of view of what had happened and whether any irregularities were disclosed. Later when it became evident that accounting possessed an important relationship to management, the accounts and particularly the statements, were modified. Accrued and deferred items became recognized, with consequent changes in the balances of the income and expense accounts, so that the latter displayed incomes earned and expenses incurred by periods.
Abstract No one knows precisely what portion of the income-streams of corporations goes to the "insiders." Insiders are the executive head of a business firm. He is typically on the board of directors and is acquainted first-hand with practically all the policies, the future plans and past operations of the business unit in question. Practically always bankers and very often the members of professional firms, such as, management, legal, accounting or engineering concerns might be considered "insiders." The indicated income-stream of a given business firm over short periods of time can be changed radically by the "insiders." And these changes can be so made that over a long period of time the income-streams to the "insiders" will be enhanced over what they would otherwise be. They can manipulate the accounting practices of the business unit, thereby affecting the amount that will be considered as the profit-share during any given period of time. The manipulation of accounts-takes the form usually of tampering with the valuation of assets and liabilities.