Knowledge that Transforms

Expansion in state and local government operations has been one of the most significant features of the U. S. economy in the postwar period. State and local expenditures for goods and services climbed to $51 billion in 1961 approximately 10% of gross national product and are rising at the rate of 6% per annum. This growth has been attended by increasing criticism of governmental accounting, particularly published reports. As part of a governmental accounting project conducted at the University of Hawaii Bureau of Business Research, the published reports of the fifty states was examined. It was found that only 20 per cent of the states present a statement in which revenues and expenses are combined for all funds. Reports range in length from three to 142 statements, and generally present no comparative data. None show the cost of services rendered. It is impossible to obtain vital information from even the best of the state reports. Hawaii is one of three states distinguished by the National Committee on Governmental Accounting Certificate of Conformance, for example, its reports do not disclose something as important as the cost of education.

The Jenkins Report, issued in June 1962, is the popular title of Report of the Company Law Committee, a 14-member body including, apparently, but two accountants, appointed late in 1959 by the President of Great Britain Board of Trade, the latter organization having, among its other regulatory powers, the responsibilities for licensing corporations and a number of functions. The Committee, headed by Lord Jenkins, a prominent British jurist, was asked "to review and report upon the provisions and working of the Companies Act of 1948" and upon certain other acts of Great Britain Parliament; and "to consider in the light of modem conditions and practices, including the practice of takeover bids, what should be the duties of directors and the rights of shareholders; and generally to recommend what changes in the law are desirable." At the outset one is impressed with the restricted approach to the problems confronting the Committee. Its chief concern is with ownership and controls; the public interest in the interrelations of directors and stockholders only by indirection received the Committee's attention. The Committee's report supplies a valuable source for the comparison of British corporate practice with that in the United States.

This article is an attempt at explaining more clearly the objectives and reasons underlying the Funds Provided by Operations analysis. The schedule contains nothing new, radical, or magical; it is merely an aid in the explanation, and may serve as a black-and-white reminder to the accounting student of what has happened and what must be done. The main benefit of the schedule, probably, is that its use helps to structure the teacher's explanation, beginning with the known events of the Income Statement and ending with the Working Capital change resulting from that Income Statement. Prior to the introduction of the schedule to the class, there should be a full explanation of the purpose of the Funds Statement and of the sources and applications of funds, with operations stressed as one (albeit important) source. The purpose of the present analysis, then, is to determine what net effect the revenue and expense items thereon have had on working capital. A line-by-line explanation of the schedule seems to work best.

Reviews the book "Quantitative Analysis for Business Decisions," by Harold Bierman Jr., Lawrence E. Fouraker and Robert K. Jaedicke.

Reviews several books on accounting. "Economic Analysis for Engineering and Managerial Decision Making," by Norman N. Barish; "College Accounting," by Clem Boling; "Cases in Management Statistics," by Norbert Lloyd; "Accounting Practices in the Netherlands," by Gerhard G. Muller.

Reviews the book "Intermediate Accounting," by Edward J. Koestler.

At the May, 1961 meeting of the South-eastern Section of the American Accounting Association, it was the author's privilege to participate in a panel presentation entitled "Teaching Current Accounting Theory at the Undergraduate Level." The discussion centered around the inclusion in accounting curricula of topics receiving current attention in accounting literature, such as accounting for long-term leases, "direct" costing, and "deferred" income tax liability. This paper represents a distillation of some of the more important ideas presented and discussed at that session. There was general agreement as to the propriety of including current topics in college and university accounting programs. The study of current accounting topics certainly has a place in college and university accounting curricula. Treatment of these topics in a separate course is feasible only in institutions with broad, diversified accounting programs. Even in such schools, the desirability of such a course is open to question. The approach to teaching current accounting topics depends in large part on the basic objectives of the accounting program in each college and university.

This article focuses on controversies regarding the construction of financial statements. One of the primary areas of controversy revolves around a misunderstanding as to who should be expected to use financial statements or, stated differently, to whom the statements should be directed. Many people, both accountants and others, seem to be concerned with the notion that financial statements frequently are not clear and comprehensible to the "man on the street" or the uninformed layman. On the other hand, accountants certainly should strive to improve the usefulness of their statements to informed, qualified users. Such techniques as the use of charts and graphs to supplement conventional statements, the use of comparative statements, and the constant search for more meaningful accounting terminology serve as examples of this type of worthwhile endeavor. Equally clearly, the accounting profession has a concurrent duty to educate the public in the proper use of financial statements.

This article focuses on the post audit program in Illinois established in the U.S. General Assembly in the year 1957. The post audit program deals entirely with post facto audits of all offices, departments, boards, commissions, institutions, and other bodies "expending or encumbering State funds by virtue of an appropriation from the General Assembly, or handing money on behalf of the State or holding any trust funds from any other source thereof." For the audit program now covering over 200 state agencies (separate offices and institutions being considered distinct agencies even though under some State Department) the Auditor General each year has engaged over 50 firms and individual accountants, and in addition has performed a number of minor audits with his own staff. Contracts are confirmed by a letter of engagement setting forth the general conditions and the basis of compensation, which is a per diem with a maximum limit. Itemized bills of time and expenses are required.

Germany, in recent history, has experienced two serious inflations. Each was a consequence of her defeats in the two World Wars. Germany's industrial capacity survived World War I without suffering serious damages, but a large part of her production was used for reparations and never reached the domestic market. Internal political strife and occupation of a major industrial area by the victorious allied powers further reduced the production available for domestic consumption. During the years of inflation, sound financial reporting was almost impossible. Scholars and practicing accountants examined and experimented with various proposed methods of inflation accounting without discovering any fully satisfactory results. The German balance sheet law of 1948 represents an attempt to achieve uniform balance sheet values at current prices. Although the final results were not ideal, the overall purpose of establishing a new and sound basis for financial reporting and taxation was certainly attained. The financial statements of the years following the currency reform are somewhat distorted because in Germany, as in the United States, price levels have been rising gradually and consistently.