Knowledge that Transforms

Abstract The article presents some problems that were presented by the Board of Examiners of the American Institute of Accountants as the second half of the May, 1942 Certified Public Accountants Examination in accounting theory and practice. In one of the question, examinees were asked to prepare a columnar work sheet summarizing the foregoing data in rational manner and form. They were also asked to prepare a concise statement showing the realization of assets, liquidation of liabilities and operations during the receivership; also unsecured creditors' claims and available assets on November 20, 1941. In another question a transcript of "Insurance account" and "note" covering unrecorded liability was given for the period starting from July 2, 1940 and ending December 31, 1941 and examinees were asked to prepare a columnar analysis showing proper distribution of debits and credits. They were also asked to prepare there from the entries that will adjust surplus, profit and loss and other December 31, 1941, balance-sheet headings involved.

Abstract The main aim of this article is to review some of the serious criticisms of cost valuation of inventory and to formulate a concept, which might be considered an "earning power" valuation. The system of income reporting which identifies costs with units of product and matches the cost of individual units with revenues resulting from sale of the units has been said to rest upon an analogy between the determination of the ultimate profit for an enterprise and the periodic computation of income. Proponents of the thoroughgoing cost method recognize this and make partial allowance for it. Since these compromises are made the door is left open for further adjustment of the concept of acceptable accounting procedure. It is difficult to see why a recognizable loss of usefulness, or "earning power," in the case of obsolescence, which is admitted by cost adherents, should be treated differently from a loss of sales value through the change in demand. Merchandise has only one quality significant to accounting: the power to bring in revenue.

Abstract Twenty-five years ago the U.S. Council elected the first Board of Examiners of the American Institute of Accountants. The date exactly was September 20, 1916. At that time the Institute was known as the Institute of Accountants in the United States of America and had just become the successor organization to the American Association of Public Accountants and shortly thereafter the name was changed to American Institute of Accountants. At the outset the purpose of the Board was to conduct examinations into the qualifications of applicants for membership in the Institute and that function it continues to exercise. Accordingly, the first rules and regulations of the Board, which were adopted November 13, 1916, related to requirements for membership in the American Institute of Accountants. Uniformity in examinations for the C.P.A. certificate throughout the nation is today nearer the goal which was envisioned back in 1917 than it has ever before been. The examinations for the C.P.A. certificate in the U.S. states continue to be of high caliber and are comparable with the standard examination used by the 46 State and Territorial Boards as prepared by the American Institute.

Abstract This article stresses the need for both practical and theoretical accounting training in the U.S. Probably the ideal situation for a school is to have its accounting faculty include both the theoretical and the practical types of teachers, the natural leaning and emphasis of each offsetting and complementing the other. By planning the sequence of courses with this in mind, the students will receive some instruction heavily freighted with theory and some devoted mainly to the mechanics of accounting procedures. The results should be stimulating to both students and faculty. Whether a special service course in accounting is designed for a group that will not pursue the subject further, or whether the same introductory course is offered to all students, the proper balance between practical and theoretical training should be considered. When the elementary course is available to diverse types of students, it can be planned to give all of them a proper and satisfactory introduction to the subject. The teacher's presentation to the class should supplement material in the text, and should often disagree with some of it.

Abstract The article discusses various aspects of cost inspection in the U.S. Navy. The writer has made a number of appointments of college graduates who have had training in accounting, but have had limited or almost no experience. These have, of course, been in the lower grades under civil-service classifications. The results produced by such appointees have been extremely gratifying. In the opinion of the writer, there is neither a basis nor justification for any adverse criticism or reservation concerning the adequacy of the training, the capacity, the devotion to duty, the loyalty, or the general adaptability of these appointees. It is believed that many employers of college graduates who insist upon the "top ten or fifteen per cent" of a senior class are overlooking many fine opportunities for obtaining capable, loyal, and efficient workers. It must not be overlooked, however, that the excellent results observed in the experiences mentioned above may be attributed in part to a capable and trained technical principal accountant and accountant, thus affording excellent supervision and direction of the less experienced personnel.

Abstract The Dominion Companies Act of 1934, amended in 1935, and the English Companies Act of 1929 have many sections, which are identical or almost identical, and this is particularly true of the sections that deal with the audit of accounts. Both acts require that the accounts of companies granted limited liability shall be audited by an auditor or auditors appointed annually by the shareholders in general meeting; that the auditor shall report to the shareholders; and that a copy of the balance sheet, profit and loss account, and auditor's report shall be sent to shareholders before their annual general meeting. In practice, of course, the management chooses the auditor, and the board of directors has the power to fill vacancies during the year in the office of auditor, but no change in the auditor can otherwise be made without notice being given in advance to the auditor and to the shareholders of intention to propose a change. The auditor is entitled to attend any meeting of shareholders at which the audited accounts are to be discussed.

Abstract Auditing performed before a transaction is completed and the results thereof recorded in the accounting records is preauditing. This type of auditing is an administrative responsibility and provides for an examination, analysis and review of the component parts of a transaction during the time the transaction is in the making, or at least before it is finally consummated and recorded. Internal check, a second type of internal auditing done before the results or analysis of a transaction are recorded finally, relates to a logical and systematic arrangement of the procedures and methods for analyzing, classifying, processing and recording accounting documents and data. The work of the independent post auditor provides an examination, review, analysis and appraisal of the following after the transactions of the municipality have been analyzed and recorded by its accounting staff. The failure of municipalities to utilize the services of the professional auditors and the comparative low quality of municipal auditing is due in a large measure to the lack of a statement of independent audit standards.

Abstract While it is entirely proper, for purposes of discussion, that the American Accounting Association's statement of accounting principles underlying corporate financial statements be divided into parts, no section or part of the statement can be intelligently discussed without considering the statement in its entirety. The original or tentative statement was predicated by its authors on the assumption that corporate financial statements should be continuously in accord with a single coordinated body of accounting theory. The same idea is indicated in the revision, where the achievement of the desired objectives in accounting is said to be dependent upon the existence of a unified and coordinated body of accounting theory. Every part of the statement must therefore be considered in the light of its relationship to the whole. Rules found to be unsatisfactory were changed as conditions indicated the necessity therefore, the charge has frequently been made that the system failed to keep abreast of social and economic developments.

Abstract In considering the cost section of the statement of accounting principles underlying corporate financial statements, which was issued by the American Accounting Association in June 1941, the author assumes it is the wish of those who arranged the program for this session that he speaks from the standpoint of the practicing accountant rather than deal with the subject from the viewpoint of pure theory. It may seem trite, but nevertheless necessary for the record, to point out that cost is one of those words which sounds as though it were a very simple concept, but which proves to be anything but simple in many of situations in which cost must be determined or applied. When cost is to be determined for goods which have been sold, the practical questions which arise in a business with modern production methods and with a variety of products and a highly departmentalized manufacturing organization obviously makes the determination of the cost of sales, a process which inherently rests on many different assumptions and sometimes only intelligent guesses.

Abstract Reviews the book "Economic Analysis," by Kenneth E. Boulding.