Knowledge that Transforms

Abstract To some people an accountant is still a human adding machine. It may be true that his success is dependent to a considerable extent upon his aptitude for handling figures, but the leading positions in this profession rest in the hands of those who combine this aptitude with an even more important qualification, the ability to negotiate. Students specializing in accounting are, for the most part, woefully ignorant of the necessity of developing this ability and therefore concentrate on the theory as found in books and in problems to the exclusion of experience in making contacts with individuals. Students who have a natural aptitude for dealing with people sometimes avoid accounting as a career because they are not sufficiently familiar with the satisfaction, which an accountant experiences in the way of contacts. Therefore, many young men who would succeed as accounting executives select other careers because they want jobs in which they meet people rather than those pore over figures all day long.

Abstract The article presents four additional cases supplied by the U.S. Securities and Exchange Commission as illustrative of the questions raised with public accountants on annual financial statements. In each instance the question has been resolved by acceptance of the recommendations by the Commission's staff. The solutions of the problems raised are not necessarily precedents which the Commission's staff is obligated to follow in the future, but they are without doubt shaping accounting theory into new molds. It is of interest to observe in a case that despite an existing deficit from operations, the Commission has insisted that a write-off of assets be added to such deficit rather than be charged to paid-in surplus. This is a position consistent with the practice of many accountants and with the Association's tentative statement of principles. Attorneys who still insist that an operating deficit dissociated from capital is unthinkable, in view of the fact that it represents a loss of assets, would do well to review the Commission's attitude on the subject. In effect, that attitude has been to regard the detail of net worth as a historical record in which the distinctions between contributed and accumulated capital must be preserved for the information of investors and others until, by formal consent of the stockholders, their contributions have been reduced to the net-asset level reflected in the balance sheet.

Abstract The article focuses on accepted principles of accounting. A person unacquainted with accounting or the work of professional accountants, might suppose that the accepted principles of accounting are embodied in definite form somewhere in accounting literature. He might expect to find an official document-a code, or set of regulations, or series of court decisions on the subject. In any field it may be true that the broad fundamental principles are so generally known and universally accepted that their formal statement becomes unnecessary. It is accepted without argument that the ordinary financial statement of a business enterprise is presented on a going concern basis, that conservative provision should be made for probable losses, while profits are not recognized until fully realized. There are a number of vital points, however, on which no such agreement exists. There is no official declaration covering them, and they are not covered positively and uniformly in the accounting textbooks or elsewhere in the literature of the profession. Accounting practice discloses only a complete uncertainty as to what constitutes the accepted principle which should be applied.

Reviews the book "Cost Accounting," by John J. W. Neuner.

Abstract The article presents a critique of the tentative statements of accounting principles. Characteristics of separate industries, and of units of the same industry differ; and these differences require diverse application of recognized accounting principles to the solution of analogous but nevertheless dissimilar problems. This experimental formulation of principles leaves its mark upon the development of accounting. The ultimate product will come into the hands not alone of the profession but also into those of the banker, business man, investor, and regulatory authorities. The ideal must contemplate clear simple statements which leave no room for ambiguity, in order that there may be a concise meeting of the minds. The author holds that rules should be stated simply as acceptable applications of recognized principles and not as mandatory procedures. This is the philosophy which underlies the standards of Public Accounting practice already established, in respect of audit procedure, which recognize that in a variety of instances other procedures may be substituted and that circumstances may justify the omission of procedures recommended.

Abstract The article presents a report of the twenty second annual convention of the American Accounting Association. The convention was held in Atlantic City, New Jersey, on December 27-29, 1937. The program of the convention has been given. The various topics to be dealt in the convention are as follows. Accounting in transition, accounting history and education, public aspects of accounting, a critique of the tentative statement of accounting principles and development of accounting principles. The business session was called by the President Jacob B. Taylor on December 28. The first order of the regular business was the reports of officers. The official purposes of the association were named as follows. To encourage and foster research in accounting and to publish or aid in the publication of the results of research. To develop accounting principles and standards, and seek their endorsement or adoption by business enterprises, public and private accountants, and governmental bodies. To promote studies of accounting as an agency of control of business enterprise and economic affairs in general.

Abstract The article presents some tentative propositions underlying consolidated reports. Consolidated financial statements, like other human institutions, have enjoyed varying degrees of popularity. From obscure beginnings they rose to a position of eminence in the financial world and were quite generally regarded as the only acceptable means by which the financial data of related business organizations could be presented to creditors, stockholders, income-tax authorities, and the public. Both the strength and the weakness of a consolidated statement lie in its ability to disclose summary information about a number of related enterprises, with a fine disregard for legal entities. Separate financial statements of individual subsidiaries must be submitted to outside stockholders if they are to be given any idea of the significance of their equities, consolidated statements mean nothing to them except insofar as a controlled profit lies in assets not yet disposed of to the public. Conditions may make one or more types of combined financial statements desirable in the published report of a controlling company. These are the overall consolidated statements, group statements of all the subsidiaries or of natural divisions of subsidiaries, and consolidating or grouping statements.

Abstract The problem in contemporary business education of determining the proper emphases of theory and of practice is admirably illustrated in the education of accountants in England. The few universities offering accounting courses, notably the University of London in its Department of Business Administration, stress the development of a general intellectual background which may be drawn upon when future problems are presented.' English business men as a whole do not believe that an academic training in theory is a substitute for practical business experience. They frequently contend that no phase of business can be learned without exposure, over a period of time, to practical situations. That this mind-set exists cannot be denied and anyone attempting to attack an educational problem in England, whether it concerns education for accountancy or for any other business profession, must at the start overcome the prejudice which lies deep in the mind of the older generation of business men in that country.

Abstract On May 28, 1938 in the case of State Street Trust Co. v. Ernst, (15 N.E. (2d) 416), the New York Court of Appeals reaffirmed the major principles of the Ultramares case. In an action against the accountants by third parties not contracting with the accountants (the plaintiff bank made a loan on the basis of the certified statement), the court held that the question of liability could go to the jury on an issue of fraud as to whether the accountants had a bonafide belief in the truthfulness of their certificate. The Ultramares case precluded liability of accountants to third parties on grounds of negligence, but it declared that there could be liability if a jury could find a reckless misstatement, or an opinion based on grounds so flimsy as to lead to the conclusion that there was no genuine belief in its truthfulness. That is, gross negligence could establish liability when mere negligence would not. The nature of the action would be in fraud, and the flimsy grounds stated above would take the place of actual intent to deceive. The right to sue would extend to all who relied on the certificate and whom the accountants might reasonably expect would be making such reliance.

Abstract Professor Perry Mason's monograph on the "Principles of Utility Depreciation" with great interest and consider it as valuable a contribution to the literature of accountancy and public utility regulation as can be made by the traditional discursive method of presentation and by what is still essentially a "single machine" approach. Unfortunately, the subject is far too complex for these limitations. To give its students a bird's-eye view of the main problem unobscured by innumerable conflicting opinions, decision, rulings, etc., it is necessary to make, first of all, an introductory comparison of representative methods of depreciation, as applied to a composite plant consisting of many similar items of equipment which are continuously replaced. After demonstrating, how the "rate" chargeable to the consumer is determined by the method in various circumstances, it is in order to investigate the theoretical requirements, which the "true" method must fulfil. Finally, the enormous practical difficulties may be pointed out and compromises discussed.