Knowledge that Transforms

In support of the theory of renegotiation, the author has mentioned a concept which was not developed last year. It has been a great many years since the theory was developed that the government had the right to regulate and fix the prices of services of public utilities, that is,of businesses which are vested with a public interest. Under that theory, innkeepers and common carriers were regulated a century and a half ago. More recently, the railroad, electric, gas, telephone, telegraph, warehouse, bus and other businesses have been regulated. In wartime, there is virtually a state of monopoly because the government needs everybody's services so badly that competition does not exist. It needs the product of every plant and must have it at whatever price. Certainly the government and the well-being of the public are sufficiently dependent upon the results of the production of war material that it cannot be said that such production is not vested with a public interest. The Revenue Act of 1943, after four rather complete and comprehensive Congressional investigations of renegotiation, substantially amended the Renegotiation. Act.

Everyone is more or less reconciled to the prospect of a relatively large Federal budget in years ahead. No one expects that taxes will be greatly reduced immediately even if and when the happy day comes which sees free spenders kicked out of seats of authority. But the burden of taxes is not to be described merely in terms of the amount of money collected. The total burden includes the cost of compliance on the part of taxpayers and administrative costs incurred by the government. In constructing a system of taxation a serious effort should be made to minimize this additional burden, the taxpayer should be separated from his money with the least possible bedeviling, harassment, and expense. The system, however, could hardly be worse if deliberately designed to maximize the direct and indirect cost of compliance, and to produce gross inequities to boot. No one is in a position to estimate in dollars the amount of the annual burden which represents a total loss to the national economy in the form of excessive compliance cost, but that this unnecessary load is a serious matter can not be questioned.

The article presents information on encumbrance accounting for industry. As soon as purchase orders or contracts are signed, the resulting obligations should be entered at once as encumbrances of the funds and appropriation affected. This is one of the principles laid down for municipal accounting by the National Committee. But it is just as appropriate for all organizations characteristics which make this kind of accounting desirable. The principle has been generally accepted both in theory and in practice, and has been recognized in laws governing this type of accounting. Inspection of published reports of municipalities shows that the principle is used in their accounts in many cases. The laws of several states show a recognition of the principle. For purposes of control and information, and to avoid possible personal liability, it is important that the records be left with full disclosure at all times of the free unexpended, unencumbered balance of appropriations. To assure that this information will be available, it should be made part of the permanent record. If industrial and commercial businesses had such information available as part of the permanent record it would be helpful and valuable in many instances to managers, directors, stockholders, bankers and others.

The article presents information on some problems of labor union auditing. Organized labor has traditionally regarded criticism of its financial machinery as an attempt on the part of employer groups to weaken its influence and bargaining power. The unions believe that much of the criticism has not been of a constructive nature and has emanated from those whose economic interests were, prior to the present war emergency and the resultant cooperation between labor and management, opposed to their own. Along with this has gone a hesitancy to engage independent auditors who, because their work is closely connected with business enterprises, have been associated in the thinking of labor union members with employers who may have done everything in their power to discourage or destroy organization among their employees. Many unions that engage independent public accountants require that audits be made monthly. In some cases the audits are made by a board of trustees selected by the union membership at regular elections or by special auditing committees elected each time an audit is required.

Reviews two books on accounting. "Dickinson Lectures in Accounting," by George O. May, Laurence Halsey and William A. Paton; "Improvement in Financial Accounts," by George O. May.

In recording of transactions and preparation of periodical statements, accountants are supposed to be governed by accounting principles and accountants' certificates which usually include an expression to the effect that the statements have been prepared in accordance with generally accepted accounting principles. And yet there is nowhere a compilation or code of accounting principles. Accountants' reports provide ample evidence that accounting is not controlled by a body of principles which result in uniformity of procedure and treatment. In the first place, many rules and procedures of accounting are not of a fundamental nature. In the second place, principles, principles cannot be established in accounting by experimentation or by authoritative pronouncements. In the third place, it is not desirable that accounting procedures should be reduced to a rigid uniformity by any detailed statement of conventions and rules. Accountancy must meet varying requirements of different businesses operating under differing conditions and must be prepared to adjust itself to changes in the economic system.

Reviews the book "The Position of the Public Accountant in Relation to Business and Government in Great Britain," by Laurence Halsey.

A study of authorities in the U.S. and Great Britain leaves much to be desired as regards the exact procedure to be followed in incorporating the results of foreign branch transactions on the books of the home office. It is evident that several variants in procedure are possible. The simplest arrangement for recording branch and home office relationships is the use of one account current in each record The home office Branch Current account will show in domestic currency the amount of the home office investment in the branch and the Home Office Current account in the branch ledger will show the home office proprietorship or residual liability of the branch to the home office stated in foreign currency. The credit balance in the Home Office Current account represents net assets whose various debit balances may have arisen under various exchange conditions and been converted into terms of domestic currency at various rates. Substitution of the balance of the Branch Current account for the balance of the Home Office Current account would be easier and more effective than conversion of the balance of the latter account.

The article presents information about problems that were presented by the Board of Examiners of the American Institute of Accountants as the second half of the May, 1944 examination in accounting practice. The first question asked for the preparation of a balance-sheet and an income account for the year ended December 31, 1943 of Moran Realty Company on the basis of some information provided. The second question asked for the preparation of a statement of factory accounts, showing costs, variances and inventory balances of the Taylor Manufacturing Company on the basis of given data. The third question required computation of net income of The Baltic Corporation for its 1943 federal income-tax return and preparation of a reconciliation of taxable net income and net income as per information provided by their books. The first question carried 25 points, the second question was assigned 15 points and the third question was allotted 10 points. All questions had to be solved within a time frame of 240 minutes.

The article presents information on the accountants in the Office of Price Administration (OPA). The operation of OPA are divided into two parts, the national office in Washington D.C. and the offices in the field. In the national office, interest is primarily directed toward preparation of regulations, formulation of general over-all Policy; making surveys on a national scale of those commodities subject to price control, post-auditing the decisions of the regional office and in certain instances, handling some price adjustment. The Accounting Division in its national office and field operations acts more as an integrated unit than do the operating departments. Within this division, there are also certain well-defined areas of authority and responsibility; but the individual offices come to the aid of each other whenever it is necessary and convenient. Personnel of the national office will come to the assistance of the District Accountant and District Accountants have sent members of their staffs to another district for short periods.