The article seeks to state a few provocative thoughts that may result in some stimulating and, hopefully, instructive ideas on this important topic. Scholarly interest in what the American Accounting Association calls "basic accounting theory" and one's own needs as a part-time investment analyst have led the author to continuing consideration of the feasibility of getting current-cost information for financial reports. Many accountants view getting current costs as a difficult, non-objective task. The author's first thought on the subject, however, is that there really is no need for discussion: simply use current practices for determining "market" under the lower of cost or market rule. Seriously, perhaps the main reason for discussing the controversial topic of current costs is that in the decade of the Sixties has had some important authoritative statements supporting the essential ideas of many thinkers. The goal of objectivity is an important one, but it is far from being achieved. For example, when a client's new auditor follows another auditor, he does not really find depreciation, bad debts, amortization of development costs, factory overhead allocations, and the like to be objective determinations.

The article comments on a manuscript "The Accretion Concept of Income," by professor G. Edward Phillips. The Philips article demonstrates quite well that progress in accounting theory should begin with developing a single income concept, rather than a variety of income concepts, and that this single income concept should also aid various interested parties in making a variety of decisions. His point that simply because accountants must supply varied data for many different uses, does not imply a need for more than one concept of income is well taken. He says, agreement on a meaningful concept of income is essential to improvement of the financial reporting function of accountants, and there is no inherent reason for this concept to interfere with the collection, analysis and interpretation of data relevant to particular decisions. Philips does not ignore the price-level problem in his paper, but concludes that even a severe inflation or deflation would not necessitate eliminating unreal gains or losses from income statements. He also states that his suggested accretion concept eliminates the bunching effect of realizing periodic accretion gains all at one time, as is presently done.

The article discusses the revolution in the area of accounting which gives the beginners a firm foundation upon which to build a consistent, meaningful structure of accounting theory. Primarily, the "revolution" involves a willingness, whenever necessary, to modify the orthodox historical cost and realization "principles" of accounting. In addition to emphasizing the forward-looking aspects of accounting, a complete revolution will emphasize the importance of economic theory, historical accounting development, and a consistent theoretical construct. The utility of using the economists' forward-looking approach, when prices rise as well as when they fall, must be compared with the difficulties and possible errors of so-doing. Bases for a rational choice of methods, however, will have been developed. Choice will no longer have to be made solely on the basis of custom or reference to authority. The accountant, hopefully, will be prepared with an independent, analytical, approach to solving important accounting problems. A host of decisions, not just managerial decisions, may then be made by various groups in society, based on relevant data and sound, consistent accounting theory.

It is generally agreed that the purpose of any financial statement is to present useful information for decision-making by its readers. The growing popularity of the sources and applications of funds statement (hereafter referred to as the funds statement) indicates that this report presents information which is not readily found in the typical income statement or balance sheet. In meeting this need, accountants should determine what information is desired by readers of funds statements and then should design an appropriate report. A contemporary accounting scholar, Louis Goldberg. strongly dissented from this acceptance in 1951, stating that the shift in emphasis has been in the wrong direction and that the earlier concepts were more cogent, more satisfying and more rational. A shift out of cash into inventories, voluntary, or vice versa, might he one of the most significant financial changes during a period. Similarly a large decline in notes payable and increase in open accounts, or vice versa, may foretell an important change in financial or credit policy. These and analogous types of changes within working capital are not revealed in the orthodox statement.

Reviews the book "The Business Enterprise As a Subject for Research," by Howard R. Bowen.

The article presents a case study of price-level adjustments to the financial reports of a large department store. The method outlined is designed for a study of a twenty-year period. The results of the adjustments to dollars of constant value revealed the expected distortions in periodic income reporting. In as much as the general price level rose during the year ended January 31, 1947, the adjusted balance sheet reveals that the non-monetary items, such as inventories, land, and depreciating assets, exceeded the historical costs by material amounts. In the proprietorship section, the value of the stockholders' original investments in common stock was increased by $6,368. The retained earnings are not as high as reported by $3,621, due to the continual overstatement of "real" income during the inflation years. The net income after taxes was distorted in the annual report by almost a half million dollars. In addition, an unrealized loss of $946 was omitted entirely from the report to stockholders. It appears that this type of information would have been very informative to existing and prospective stockholders.

All business firms have felt the impact of rising prices in one way or another. In many cases their financial statements have yielded peculiar results. On the balance sheet, the historical cost basis of valuation of plant and equipment, and the "lower of cost or market" method for the valuation of inventories have tended to undervalue assets grossly. Credit ratings, current ratios, and insurance coverage often cannot be determined adequately from these figures. On the income statement, reported earnings have often soared to unprecedented heights, due mainly to the matching of out of date inventory and depredation figures against current, higher selling prices. Accompanying this exaggeration of profits are the problems of higher replacement costs of inventories and plant, of sharing these illusory profits among the government taxing agencies, laborers, and stockholders, of the determination of future selling prices, etc. The accounting records become much less useful as aids in solving these perplexing problems, in as much as they have not been adapted to the changing price level.