Knowledge that Transforms

This article presents an account of the examination of the auditing section of the November, 1962 Uniform C.P.A. examination that was given on November 8, 1962 from 8:30 to 12:00 noon, and included seven questions, all of which were to be attempted. One of the question stated that If a person is auditing the Alaska Branch of Far Distributing Co. This branch has substantial annual sales which are billed and collected locally. As a part of the audit it is found that the procedures for handling cash receipts are as follows: Cash collections on over-the-counter sales and C.O.D. sales are received from the customer or delivery service by the cashier. Upon receipt of cash the cashier stamps the sales ticket "paid" and files a copy for future reference. The only record of C.O.D. sales is a copy of the sales ticket which is given to the cashier to hold until the cash is received from the delivery service. Mail is opened by the secretary to the credit manager and remittances are given to the credit manager for his review. The credit manager then places the remittances in a tray on the cashier's desk. Finally the examinee had to describe the irregularities in the cash handling system.

Although the product warranty has been in effect for many years, it is surprising to note that the existence of these warranties has almost been completely ignored in accounting literature. Very few, if any, of the standard textbooks at any level discuss the accounting problems concerned with the cost of product warranties. In addition, very little has appeared in the journals of the accounting profession on this subject. Probably one reason for this lack of knowledge is the circumstances surrounding the warranty itself. The long-term product warranty started small and was considered to be of little consequence. As its applicability increased, it was still ignored. An investigation to discover the practices that various companies used to account for the warranty cost revealed that warranties fall into three categories. These three are the reimbursed warranty, sales warranty, and expensed-warranty. As charges occur in connection with the warranty, they are treated as an ordinary sale except that the deferred revenue account is reduced rather than a receivable being increased.

Expansion in state and local government operations has been one of the most significant features of the U. S. economy in the postwar period. State and local expenditures for goods and services climbed to $51 billion in 1961 approximately 10% of gross national product and are rising at the rate of 6% per annum. This growth has been attended by increasing criticism of governmental accounting, particularly published reports. As part of a governmental accounting project conducted at the University of Hawaii Bureau of Business Research, the published reports of the fifty states was examined. It was found that only 20 per cent of the states present a statement in which revenues and expenses are combined for all funds. Reports range in length from three to 142 statements, and generally present no comparative data. None show the cost of services rendered. It is impossible to obtain vital information from even the best of the state reports. Hawaii is one of three states distinguished by the National Committee on Governmental Accounting Certificate of Conformance, for example, its reports do not disclose something as important as the cost of education.

The Jenkins Report, issued in June 1962, is the popular title of Report of the Company Law Committee, a 14-member body including, apparently, but two accountants, appointed late in 1959 by the President of Great Britain Board of Trade, the latter organization having, among its other regulatory powers, the responsibilities for licensing corporations and a number of functions. The Committee, headed by Lord Jenkins, a prominent British jurist, was asked "to review and report upon the provisions and working of the Companies Act of 1948" and upon certain other acts of Great Britain Parliament; and "to consider in the light of modem conditions and practices, including the practice of takeover bids, what should be the duties of directors and the rights of shareholders; and generally to recommend what changes in the law are desirable." At the outset one is impressed with the restricted approach to the problems confronting the Committee. Its chief concern is with ownership and controls; the public interest in the interrelations of directors and stockholders only by indirection received the Committee's attention. The Committee's report supplies a valuable source for the comparison of British corporate practice with that in the United States.

This article is an attempt at explaining more clearly the objectives and reasons underlying the Funds Provided by Operations analysis. The schedule contains nothing new, radical, or magical; it is merely an aid in the explanation, and may serve as a black-and-white reminder to the accounting student of what has happened and what must be done. The main benefit of the schedule, probably, is that its use helps to structure the teacher's explanation, beginning with the known events of the Income Statement and ending with the Working Capital change resulting from that Income Statement. Prior to the introduction of the schedule to the class, there should be a full explanation of the purpose of the Funds Statement and of the sources and applications of funds, with operations stressed as one (albeit important) source. The purpose of the present analysis, then, is to determine what net effect the revenue and expense items thereon have had on working capital. A line-by-line explanation of the schedule seems to work best.

Reviews the book "Quantitative Analysis for Business Decisions," by Harold Bierman Jr., Lawrence E. Fouraker and Robert K. Jaedicke.

Reviews several books on accounting. "Economic Analysis for Engineering and Managerial Decision Making," by Norman N. Barish; "College Accounting," by Clem Boling; "Cases in Management Statistics," by Norbert Lloyd; "Accounting Practices in the Netherlands," by Gerhard G. Muller.

Reviews the book "Intermediate Accounting," by Edward J. Koestler.

At the May, 1961 meeting of the South-eastern Section of the American Accounting Association, it was the author's privilege to participate in a panel presentation entitled "Teaching Current Accounting Theory at the Undergraduate Level." The discussion centered around the inclusion in accounting curricula of topics receiving current attention in accounting literature, such as accounting for long-term leases, "direct" costing, and "deferred" income tax liability. This paper represents a distillation of some of the more important ideas presented and discussed at that session. There was general agreement as to the propriety of including current topics in college and university accounting programs. The study of current accounting topics certainly has a place in college and university accounting curricula. Treatment of these topics in a separate course is feasible only in institutions with broad, diversified accounting programs. Even in such schools, the desirability of such a course is open to question. The approach to teaching current accounting topics depends in large part on the basic objectives of the accounting program in each college and university.

This article focuses on controversies regarding the construction of financial statements. One of the primary areas of controversy revolves around a misunderstanding as to who should be expected to use financial statements or, stated differently, to whom the statements should be directed. Many people, both accountants and others, seem to be concerned with the notion that financial statements frequently are not clear and comprehensible to the "man on the street" or the uninformed layman. On the other hand, accountants certainly should strive to improve the usefulness of their statements to informed, qualified users. Such techniques as the use of charts and graphs to supplement conventional statements, the use of comparative statements, and the constant search for more meaningful accounting terminology serve as examples of this type of worthwhile endeavor. Equally clearly, the accounting profession has a concurrent duty to educate the public in the proper use of financial statements.