Knowledge that Transforms

Reviews the book "Stabilized Accounting," by Henry W. Sweeney.

The article discusses the proper method of disclosing all executory contracts into which a firm has entered. Such contracts, also known as future contractual commitments, are agreements between two or more parties in which no party has yet performed any of the acts required of him by the agreement. In accounting texts such agreements are usually illustrated by purchase commitments or lease agreements, transactions where the single most salient feature is usually considered to be one firm's potential cash obligation. When a firm enters into an agreement to receive service potentials of varying types in return for cash, another must agree to provide the service potentials at some future date in return for the promise to pay. This emphasizes the potential liability of the firm. All executory contractual commitments that are material ought to be disclosed wherever and whenever possible. Contingent assets, like, a significant backlog of unfilled orders, are as important to the shareholders of the firm receiving the order, as the contingent liability is to the investors of the firm ordering them. Both rather than just one facet of the transaction should be disclosed.

Reviews the book "The Mathematical Dimension of Accountancy," Thomas H. Williams and Charles H. Griffin.

The article discusses the overwhelming influence of legal documents on pension trust accounting and report preparation. The term pension trust is used in the conventional manner to refer to an arrangement whereby a corporation deposits contributions to pay pensions with a trustee, usually a bank or trust company. The discussion does not relate to insured pension plans because benefits under such plans are, in effect, guaranteed by the insurance company to the extent that corporation makes the agreed upon premium payments. Since the pension trust is a form of self-insurance, actuarial science should heavily influence accounting and reporting procedures applicable to the trust. The two disciplines, accounting and actuarial science, must be integrated or combined to produce reports which disclose pension trust operations for a period of time and status as of any point in time. It is reasonable to assume that in the near future pension trust accountings will evidence a long-run flavor based on general applicability of the entity concept and enterprise continuity to the trust. Only then will sufficient recognition be given the boundaries of entities, the corporation and the pension trust.

Reviews the book "Reliance on Other Auditors," by T.A.M. Hutchison.

The article discusses the concept of declining-balance depreciation. The article consists of three formulas which can be useful where computations as to periodic or accumulated depreciation under a declining-balance method are required. Just as a premature disclosure of the guilty party of a good mystery can spoil the plot, so can the disclosure of the derivation of a formula spoil the fun for those interested in such. The calculation of periodic declining-balance depreciation is provided by a formula. For purposes of illustration, the author assumes that an asset costing $10,000 has an estimated life of twenty years, or a ten percent rate for double-declining balance depreciation. Accumulated depreciation at the beginning of the nth year is computed by the formula, when declining-balance depreciation is used. The article presents a table which indicates the undepreciated balance of the asset at the end of the period. Where a large number of unit accounts are maintained and tests are to be made of the computations of depreciation, similar tables with appropriate values can be constructed to facilitate such test checks.

A programmed instruction contains a teaching machine with a series of small and carefully planned steps by which the teacher's message is revealed, with the requirement that the student makes a response at each of the steps, and with feedback in the form of immediate information about the response expected of the student. The article presents a study on the use of the programmed content of first college course in accounting designed by the author. The program was tried to be made a complete substitute for the textbook exposition and for most of the routine, mechanical work normally carried on in the first semester of college accounting. The programmed material accounted for improved recognition of the needs of people having responsibilities and the often-tentative ways in which accounting data can assist them. According to the author, programmed instruction is important because it provides a means for experimentally improving instruction. The study points to the achievement of advances as the program is experimentally modified and to tentative confirmation of the hypothesis that programmed instruction is effective as a means for teaching introductory material.

History provides many instances of artists and thinkers in a variety of fields whose work has not been adequately appreciated at the time it was carried out. The instinctive opposition of people to radical change may be overwhelmed by a work of genius, but provides a stubborn barrier to the acceptance of the findings of the patient seeker after truth. No matter how logically sound the new ideas may be, there is almost certain to be opposition both to the ideas and to the changes in practice which would flow from them. The history of accounting research in the last five years provides further evidence of this. Accounting practice has followed the double entry system, and historical costs, for so long that it has worked its way into a rut. Now a rut is a comfortable thing so long as one stay in it. The accountant who is operating "comfortably" in the double entry and historical cost ruts does not think sufficiently about the adequacy of his objectives. Nor has he much time to think about basic objectives, for the pressures of the business world make heavy demands.

The article presents information on activities and accomplishments of the American Accounting Association during 1964. At the close of 1964, membership was at an all-time high. During the year the Executive Committee took several steps to establish a sound foundation for future growth in research, educational activities, and in service to the membership. The increasing scope and excellence of the journal "The Accounting Review," continued as a primary service to the membership. Editor Lawrence L. Vance deserves special commendation for the excellence of his work during the past year. Eight research committees functioned during the year under the effective leadership of Director of Research John H. Myers, Northwestern University. The Research Review Committee examined fifteen doctoral dissertations, of which four were selected for presentation at the annual convention by the respective writers. During 1964 the Fellowship Committee reviewed and evaluated fifty-eight applications for Association fellowships.

This article focuses on the 1964 Concepts and Standards Research Study Committee of the American Accounting Association, which aimed to expand and to amend in part the statement on realization in "Accounting and Reporting Standards for Corporate Financial Statements--1957 Revision." That statement says the essential meaning of realization is that a change in an asset or liability has become sufficiently definite and objective to warrant recognition in the accounts. In considering this statement, and realization principles generally, attention will be focused on the problems of asset recognition and valuation and revenue recognition. The committee concurs with the statement of the 1957 Revision that primary emphasis should be given to the use by investors of published financial statements in making investment decisions and in exercising control over management. The committee recognizes the difficulty of developing a definition of realization that will have general applicability. Nevertheless, four of the committee members feel there is sufficient significance in the difference between realized and unrealized changes in value to justify making the distinction.