Knowledge that Transforms

Reviews the book "Accounting: A Management Approach," by Thomas M. Hill and Myron J. Gordon.

In this article the author explains, illustrates and compares the mathematical computations and resulting valuations of three primary methods of accounting for unavoidably spoiled units in process cost industries. According to the first method, spoiled units are assumed to be taken out of production at the start of operations. In second method, spoiled units are assumed to be discovered by inspection after they are completely processed. In the third method, spoiled units are taken out of production when spoiled and loss on spoiled and loss on spoilage treated as overhead of the department in which the spoilage occured. Under the first method, the spoiled units are weighted by zero and loss on spoilage is allocated beteen the units completed and the units still in process on the basis of the equivalent production. Under the second method, the spoiled units are weighted by unity and the units remaining in process are costed as though there were no spoiled units thereby making the good completed units absorb all spoilage loss.

The Council of the American Institute of Certified Public Accountants, at its 1959 Spring meeting, approved a new accounting research program, which is now being implemented. The program includes an Accounting Principles Board of eighteen, who have been elected by Council for staggered three year terms. This enlarged program replaces the activities of the committee on accounting procedure which goes out of existence at the end of the Institute's current fiscal year after twenty-one years of active and meritorious service to the accounting profession. The number of CPAs in the United States has more than tripled during the last 20 years. At the same time, the stature of the CPA in the eyes of the public and the extent of his recognition as a professional man has increased even more. It is in the audit function that the CPA makes the greatest use of his professional skill and his specialized knowledge, gained from his years of study and experience. Here is where his reputation is placed at stake as he lends his name to financial statements to increase their credibility.

Reviews the book "The Education of American Businessmen," by Frank C. Pierson and others.

The course program herein offered is a possible path for accounting to follow in seeking its role in answer to the challenge thrown out to business education. It should, perhaps, not be called a program for it is much too incomplete for such a formal characterization. It is intended, rather, as a point of departure from a pattern of teaching which, without question. must be revised in order to meet the demands which are increasingly being leveled at it. It is to be hoped that many different paths will be attempted and there is much evidence in the accounting departments of our universities that such will be the case.

Reviews the book "Accounting Systems," 3rd ed., by John J.W. Neuner and Ulrich J. Neuner.

As indicated above, the increasing demands on CPAs and the ever-widening scope of their activities calls for a professional development program which is a combination of university education, self-study and research, and an organized program of courses directed to the professional accountant. The responsibility of each professional accountant to strive to improve his own capabilities through continued study is paramount. A mature profession likewise assumes a responsibility to develop a program to provide the means by which individuals within the profession can continue to develop in a professional manner throughout their careers. In the accounting profession this responsibility falls largely upon the national organizations of professional accountants.

When products are transferred among the corporate units of a family of corporations, a "sales" price must be established to properly ac- count for the transfer. The intracompany transfer price may or may not contain an element of profit to the selling unit. The decision to use one basic type of system, i.e. containing an element of profit or not, has, therefore, a definite effect upon the amount of net income and consequently upon the amount of tax paid by a family of corporations. The fact that by intracompany pricing a corporation may transfer net income from one unit to another assumes importance because of the structure of the United States corporate net profits tax. The application of this section is limited to transfers of property from a corporation to a newly created or reactivated corporation under common control. The purpose of this section of the code is to prevent the arbitrary shifting of net income among taxable units of a family of corporations in order to prevent the evasion of tax liability. The requirement that transfer price be the equivalent of fair market value could be difficult. If strictly applied by the Director of Internal Revenue and if upheld by the courts, this requirement could, for tax Purposes, restrict intracompany pricing to one method-market.

The article discusses the idea of an accounting court which will establish authoritative accounting principles and which may tend to demonstrate errors in reasoning. An accounting court is a dubious method of arriving at an acceptable principle, since there are no laws which are to be used as a guide, no method of appealing any verdict, nor any means of changing laws to obtain equity. Since the professed purpose of the court is one of establishing principle it would seem that its function would be more legislative than judicial. The objective of disclosing errors in reasoning is admirable, but when differences in opinions are due to value judgments as to the credibility of a particular reason and, therefore, the probabilities of an assumption, the objective may be impossible to achieve. What might prove useful for the best value judgment of all accountants is an extensive compilation and critical analysis of reasons that have been advanced through the years for the basic assumptions of accounting.

Reviews the book "Basic Accounting," vol. 1 and vol. 2, by Homer St. Clair Pace and Edward J. Koestler.