Knowledge that Transforms

Reviews the book "Standard Practice in Municipal Accounting and Financial Procedure."

The article presents information on the American Accounting Association's annual meeting to be held from September 8-9, 1944, in Chicago, Illinois and the program to discuss various vital subjects including impacts of war. Tentative plans for a discussion of the termination of war contracts, a subject that is already of vital importance to businessmen and their accountants. As changes in war needs develop, necessitating cutbacks and contract cancellations while one is still actively in the war, increasingly large numbers of businesses will be affected and as one approach and reach the end of the war the problems will be tremendous. Persons who are active in establishing and executing the policies of termination for the government will be on the program, as well as representatives of industries which are materially affected. Of special interest to both teachers and practitioners, is the subject of post-war education in accounting. In that connection it is planned to have discussions of such subjects as refresher courses for returning accountants; the possibility of an accelerated training program along the line developed by the Army and the Navy; possibilities of visual instruction; general requirements essential to a successful professional career.

The article focuses on the issue of the advisability of discarding an old, but still usable, machine, and substituting a newer model, one faces the necessity of writing off the book value of the obsolete machine. It is always disagreeable to write off an asset. The problem has not generally been discussed in accounting texts, which, for the most part, deal with the accounting for the abandoned value, whether it should be charged to surplus, added to the cost of the new machine, or charged against current income. But while the expediency of substituting a new model machine is a problem of management, rather than of accounting, occasionally an accountant transcends the too narrow limits of his own field and discusses factors which should be considered in deciding whether the change should be made. Among these are, the ability of the owner to provide funds for purchasing the new machine, the prophetic estimate that before long the price of the new machine will be substantially lowered, or that still further improvements may be expected in the near future, the effect on income taxes, or on dividends on noncumulative stock and a possible adverse influence on the credit of the corporation, if it shows a large write-off in respect of the abandoned asset.

In June 1943 the Illinois legislature enacted a new CPA law to repeal and replace both the CPA law of 1903 and the public accountant law of 1927. Certain important features of this new law provide for freedom of interstate practice with control of out-of-state practitioners, eventual restriction of public practice to certified public accountants, recognition of general education beyond the high school level, and requirements for accountancy education of a collegiate grade. The Illinois public accountant law of 1927 provided for the licensing of practitioners and the restriction of practice, but it recognized out-of-state accountants only if their states recognized the Illinois license rather than the CPA certificates. Another feature of the 1943 Illinois CPA law is the provision for restriction of practice to certificate holders licensed by the state. Under this provision the State Department of Registration and Education will in the future license only individuals holding CPA certificates issued by the University of Illinois. The 1903 Illinois law contained the earliest statutory requirement of high school education for candidates. Administrative boards in New York and Pennsylvania had set up a requirement of high school education for candidates in an attempt to place certified public accountants on a professional par with attorneys and doctors, for whom similar requirements were then in effect.

The article presents information on the general-purpose terminology and form which should contribute to the effectiveness of annual reports. The question, therefore, is not what income statements actually mean as they are now published, but what they can be made to signify. Consideration of the content of the report is here omitted so far as the important problem of valuation is concerned. The title "Profit and Loss" does not describe the nature of this report as it has been developed in recent years. The name does not suggest the very important accounting category of expense. Moreover, the report contains many elements other than losses. The term profit is somewhat antiquated in comparison with income as a general descriptive term. Profit is definite and meaningful only in the sense of transaction profit; but transaction profit is only a small part of what the report is designed to display. Some income, as well as many kinds of expense, is and must be apportioned as a function of time or other bases, and accordingly the result is not strictly profit based upon a completed transaction or a number of transactions.

In a recent issue of the journal The Accounting Review there is an article entitled "The Name of Paciolo" which treats largely of the book "No Royal Road," and especially of the spelling of the name Luca Pacioli, an Italian mathematician. It appears that the accounting material for the article was furnished by one man who is an accountant, and that it was written by another man who is a linguist. A week or so before the appearance of the article, the author had a letter from a gentleman in the accounting field asking him why he used the spelling "Pacioli" rather than "Paciolo." One of the many names which was used for Pacioli was Luca de Pacioli, which means "Luca of the Pacioli family." The "de" has been dropped in many Italian family names and the ending has not been changed. The Catholic Encyclopedia uses this ending, the Encyclopedia Italiana uses this ending and the Encyclopedia Britannica uses this ending. Most of the authors whom the author considers leading authorities in their respective fields used the spelling "Pacioli."

Reviews the book "State Accounting Procedures," by Fladger F. Tannery.

Reviews the book "How Corporations Conceal Profits and How to Understand Your Corporation's Financial Report."

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

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.