Knowledge that Transforms

The article says that the recommendations of the Commission on Standards of Education and Experience of the American Institute of Certified Public Accountants are a plea for professional education that is both broad and realistic. Although the Commission believes that the university can accomplish a large portion of the desired professional training, it does suggest that the curriculum be enriched with, an internship program, the use of case materials developed from the files of public accounting firms and arrangements permitting accounting faculties to maintain close contact with those active in the practice of the profession. Comptrollers and Personnel directors in private industry also are seeking similar goals. They desire that the young men destined for accounting positions with major administrative responsibilities come to industry at an early age, well fortified with an education that is broad, intensive and realistic. For various psychological reasons not all questions will be brought before the panel. This difficulty may be overcome by asking the students to submit unsigned written questions and comments to the instructor during the first accounting class after the panel discussion.

Reviews the book "Principles of Accounting-Advanced," 5th ed., by H.A. Finney and Herbert E. Miller.

In addition to the criteria set forth above, additional sets could be given for the realization of a capital contribution, a capital withdrawal, an investment, a liability liquidation, and a loan. It is felt, however, that those presented illustrate adequately the type of criteria currently used in practice. There are, of course, some instances where they are not strictly followed. The criteria are not thereby discredited, however, they apply in the vast majority of situations, and the exceptions perhaps point to inconsistencies in accounting theory. It should be understood that the writer does not advocate that these criteria necessarily should be followed. They are merely those which seem currently to be in effect. The criteria presented embody the factors of measurability and permanence, and serve as guides to the accountant in determining if a change in an asset or liability is sufficiently definite and objective to warrant recognition in the accounts. It should perhaps be pointed out here that the sale and the purchase are often the signal to the accountant that certain criteria have been met. In the normal situation, the sale is the signal that revenue has been realized and the purchase is the signal that a cost has been realized. They merely serve as prime facie evidence, however, that specific criteria have been met. It can be seen that the judgment of the accountant plays an important part in all these criteria. He must reach conclusions in each case as to the degree of permanence and objectivity present. His decision, one way or the other, will determine whether or not a particular item is to be considered realized.

The aim of this article first to indicate very broadly the principal areas of systematized learning, and secondly to compare and contrast accountancy and economics within the framework of these areas. Methodology and content are two integrated aspects of any area of systematized learning, so it should be made clear that sometimes dichotomizing accountancy and economic studies into either their content or methodology is merely an analytical device. It has been clarified that economics is mainly concerned with the study of behavior, while accountancy is concerned with the study of the quantification and analysis of the resultants of behavior. Metaphysics may seem a far cry from either accountancy or economic studies, yet the basic postulates of science, including the postulate of the orderliness of natural and social phenomena, stem from metaphysical analysis. Epistemology embraces studies of the nature and criteria of human knowledge, including the role of definitions, postulates, as well as inductive and deductive analyses. Both accountancy and economics have some stake in the development of metaphysics, but much more stake in the development of epistemology. In the area of accountancy the ethics principal is most often that of the practicing accountant. On the other hand, the problem of ethical behavior in economics almost always involves the behavior of others, namely the behavior of the makers of economic policy.

In conclusion, I should like to summarize in outline form a suggested approach to tile selection of an appropriate formalized depreciation method. For the asset, or preferably for the group of homogeneous assets in question, we must first determine: (1) the amount of services in terms of volume and earnings that may lie expected of the asset over the years, (2) the amount and timing of the operating costs that may be incurred over the life of the asset, (3) the impairment of service quality and adequacy, as evidenced by the decline in physical efficiency, of the asset, (4) the amount of competition which may be expected from improved substitutes, and (5) the implicit rate of return which the type of asset earns. From this information we must project a pattern of net service values for the asset or group of assets. Then we should match this curve with the appropriate curve implied by the correct formalized method. For example, if we have a projected net service value curve, which is a horizontal straight line, then the sinking-fund method is the appropriate one. If we have a net service value curve which declines by the rate of return multiplied times the equal periodic depreciation charge, then the straight-line method is the correct one. If we have a net service value curve which declines by a fixed percentage of the diminishing balance of the remaining sum of the net service values, then the diminishing balance method is appropriate and the proper fixed rate is that rate by which the net service values decrease. If some other method is a correct one, then the choice would be made in the manner just outlined. Even if the formalized depreciation methods do not fit precisely the actual life history of particular assets, results in the aggregate for all plant assets should be reasonable provided that the broad pattern applicable to major asset groups are wisely chosen.

The allocation of income taxes on financial statements is a relatively new development in corporate accounting. It is an extraordinarily important development because of its significant effect upon the determination of corporate net income and because, also, it seems to represent somewhat of an erosion of certain of our long-tested and long-standing definitions and concepts as to principles of accounting. As a general rule, accounting procedures for the allocation of income taxes have resulted in the placement of certain credit values for deferred income taxes in the balance sheet. The accounts representing these credit values have been called "deferred credits." Since these accounts are not part of corporate net worth they must be liabilities. It is an accepted procedure of auditing that the revenues and revenue charges of a business must be supported by evidence, preferably written evidence. There is no billing by a creditor, no evidence of legal liability, no evidence of the erosion of the accounting value of an asset, and no evidence of the consumption of accounting value. In short, there is no factual evidence, whatsoever, to support the accounting propriety of charging current income with a provision representing deferred income taxes.

In the fast moving world, every segment of the society, government, industry, labor, etc., in the U.S. has been forced to find ways to meet the challenges of a period of unprecedented change. Education is no exception. However, this general preoccupation with the status of education in the U.S. is certainly not without benefits and should not obscure the continuing need for sound improvements in U.S. educational program. The Ford and Carnegie reports represent the kind of basic analysis most useful to the approach of any program of change or improvement. The author opines that any study of such broad scope, objections or disagreements with the analytical techniques used and, in certain cases, the conclusions drawn, are raised but there seems to be little reason to doubt the validity of the basic conclusions reached. He considers the report from a business point of view and discusses three basic facets of the report--The question of over-specialization, the area of instructional approach and the problem of academic standards.

This article focuses on the theory tax planning. Tax planning can be defined as the tax-payer's capacity to arrange his financial activities in such a manner as to suffer a minimum expenditure for taxes. When the designation tax planning is used, it really means effective tax planning. All tax planning does not reduce the tax liability to the desired minimum level. The tax planning that is not cut properly to suit the individual taxpayer may have the ultimately adverse effect of maximizing the tax. Tax planning involves the use of foresight and consequently it is concerned with future matters. Unfortunately, tax planning is often the product of a certain amount of hindsight. The taxpayer who learns, much to his distress, too late about the six-months holding requirement for securing the long-term capital-gains advantage is apt to profit by his mistakes in his future activities. Having been burned once, he is ready and willing to engage in the tax planning process. Tax evasion and tax avoidance should be distinguished. All too often these terms have become interchangeable with each other in the minds of the taxpayer. The failure to make any distinction between these separate concepts works to the discredit of the tax planning process and may lead to serious legal consequences.