Knowledge that Transforms

Abstract In an examination of the 1959 published corporate financial reports of 600 companies in 1960' it was found that 421 or more than 70% referred to an employee stock option plan. It has been asserted in fact that well over 50% of the companies whose stock is listed on the New York Stock Exchange have adopted some form of stock distribution plan for their employees. The courts have permitted stock option plans to be upset by litigation on the part of minority stockholders. One particularly sensitive matter involves developing, recommending, and adopting of stock option plans by parties directly benefiting even if later ratified by the stockholders. Stockholders have some basis at least to judge the adequacy of the consideration given by executives to the corporation. Certainly accountants can do no less than clearly indicate the total consideration given by the corporation and its relative significance. According to the author, no real effort is made to inform the stockholders fully as to the real cost of their managerial services.

Abstract University professors of accounting, and the American Accounting Association as their representative organization, have a vital interest in continuing professional education. The evolution of the art of accounting has become so rapid as to demand numerous changes in degree programs. Unquestionably one of the greatest benefits derived from continuing education programs comes from association with other businessmen and accountants. Every effort should be made to insure that the participants are drawn from a variety of business backgrounds. The diverse ideas and experiences brought to the courses by the participants are of great benefit. Industry-oriented, or company-sponsored programs cannot provide the breadth of ideas as well as one conducted by a university. The program faculty can choose its students to provide a controlled "mix." The universities are in a position to furnish high caliber faculty. This is not to aver that all professors are necessarily qualified to teach in continuing education programs. Certainly the majority of teaching personnel in our universities are capable of providing stimulating leadership in certain kinds of courses. As mentioned earlier, careful faculty selection is necessary to insure good and effective teaching. Continuing education is of great importance to this Association and its members. There are some forms of continuing education programs particularly suited to university sponsorship. Accounting departments must be selective in their offerings and astute in their choices of faculty to provide the best educational opportunities to the accounting profession.

Abstract The article examines the development of the stated capital concept in an attempt to gain better understanding of the legal view of permanent capital. The discussion begins with an investigation of the trust fund doctrine and extends to the major modifications in the concept of legal capital down to the present day. Stated capital is a legal limitation on stockholder withdrawals. As defined in law it is an absolute quantity, capable of direct computation, and not a residuum. Since only surplus beyond this amount generally is available for charges resulting from dividend declarations, creditors are provided a buffer which absorbs losses in asset values in the event of an insolvency. The stated capital concept is the cause of many differences between accounting and legal views of corporate net worth. In law, stated capital is determined by statutory formula and does not necessarily equal aggregate par or stated value of outstanding shares. In some instances, a stock split, reverse stock split or other similar capital readjustment does not result in a reduced stated capital, even though the aggregate par value of outstanding shares after the transaction is less than the former par or stated value aggregate.

Abstract This paper makes four points: (1) The justification of interest methods of depreciation is not attainment of a constant operating rate of return; rather, they are the only time-based methods of depreciation that (a) can avoid showing changes in reported net earnings over the life of the asset simply because recovered "depreciation funds" can interest, (b) can disclose the amount that can legitimately be paid out in dividends, and (c) can maintain parity between renting and buying fixed assets. (2) For these purposes the formula usually given for "the interest method" applies only to a special case. (3) It is easy to avoid the principal disadvantage of the interest method-neglect of increasing maintenance costs-by creating a surplus reserve according to certain formulas. (4) Price-level adjustments can be incorporated easily if desired, but the procedure usually used is valid only for a special case. It is often said that the principal reason for charging depreciation as a current expense is to allocate the cost of long-lived assets to individual accounting periods. But this is depreciation. The question remains:Why is it reasonable?

Abstract Statistical decision theory is concerned with making decisions under uncertainty. One shall define uncertainty as being a situation where the underlying probability model is not known. Tossing a fair coin fairly is an example of a probability model which is known. There is 0.5 probability of a head and a 0.5 probability of a tail. However, if a person took a coin out of his pocket and threw it in the air, the coin might not be perfectly fair, or with enough practice his pitching arm could be taught tricks. With either event, the underlying probability model is not known and the process of placing a bet on the toss of a coin is the type of problem to which one may apply statistical decision theory. The schools offering the Ph.D. have responsibility to see that their graduates are better equipped than the present generation to solve the complex problems of the business community. One of the tools available, and which will be widely used in the future, is the tool of quantitative analysis, including the very important tool of statistical decision theory. Teachers of prospective practitioners of the art of business administration have to instill an appreciation of quantitative skills so that the businessmen of the future are receptive to the ideas that will be generated in industry and in the academic community.

Reviews the book "Prediction and Optimal Decision: Philosophical Issues of a Science of Values," by C. West Churchman.

Abstract This article focuses on the current trends in accounting theory. Two such movements seem to be apparent at the present time. One of these is the trend toward a closer relationship between accounting income and economic income; the other, a trend toward less reliance upon income tax regulation in the formulation of accounting theory. These two items are listed as trends, not as accomplished facts. With this in mind, this article may briefly examine some evidence of the existence of the trends. One current trend is the resurgence of the balance sheet. Partly as a result of the rush to LIFO, the income statement has been given primary emphasis in most areas of accounting during the past twenty years. The assertion that the measurement of income is the important task of accounting, and the balance sheet is nothing more than a receptacle for carrying forward amounts to be shown on future income statements, has been heard from many quarters. On the other hand, those who are concerned about the effects of inflation on depreciation have objected that the balance sheet does not show the proper amount to be carried forward to future years. Both groups then, deplored the balance sheet, although for different reasons.

Abstract The interdependence of law and accounting, too well established to be denied, is inbred in the professions. Law plays a vital role in the training of the accounting student; in fact, much of accounting is law. The course commonly called "Business Law" is but one concentrated exposure to problems in law which accounting students encounter in various forms in other courses. On the other hand, the commercial courses in law school-partnerships, corporations, bankruptcy, and taxation, to name a few-lose a great deal of their meaning unless the law student has a good understanding of the financial, or accounting, basis underlying the transactions. The accounting curriculum certainly does not purport to train the accounting student for the general practice of law, but, of necessity, the accounting student must be extensively exposed to many areas of the law or he will not be qualified to fulfill his purpose as an analyst, examiner of accounts, or as an interpreter of financial statements. Without question, some accounting students acquire, and in some areas retain, more legal knowledge, than do some legal practitioners, but the legal knowledge of an accountant is admittedly incidental to his principal purpose.

Abstract The article presents questions and answers of the auditing section of the November 1961 Uniform C.P.A. Examination, which was given November 9, 1961 from 8:30 to 12:00 noon and consisted of seven questions, all required. The suggested time allotments were as follows: Problem 1:20 minutes; Problem 2: 15 minutes; Problem 3: 20 minutes; Problem 4: 25 minutes; Problem 5: 25 minutes; Problem 6: 25 minutes and Problem 6: 35 minutes. First problem was that a client, without consulting its CPA, has changed its accounting so that it is not in accordance with generally accepted accounting principles. During the regular audit engagement the CPA discovers that the statements based on the accounts are so grossly misleading that they might be considered fraudulent. It was asked to discuss the specific action to be taken by the CPA. In response to this question, it was suggested that the first step by the CPA should be to discuss with the client the fact that the changes in accounting made during the year are not in accordance with generally accepted accounting principles. The CPA's objective in this discussion should be to persuade the client to discontinue the unsatisfactory practices and to make such changes as are necessary to permit a fair presentation in the financial statements. If the client will not agree to such revisions the CPA should withdraw from the engagement, since he certainly does not want his name to be associated in any manner with financial statements which are so grossly misleading that they might be considered fraudulent.

Abstract This article examines the status of professional accountants in eastern nations like Pakistan, India, Burma, and Thailand. Emphasis has been placed upon rapid industrialization, but the accounting profession currently finds itself in a seriously handicapped position in these countries. The profession has not been able to cope with the pace of industrial progress, and with the burgeoning demands for professional services there is an acute shortage of highly trained and qualified professional accountants. Serious attempts have been made to remedy this but qualified skilled accountants cannot be generated over night. Essentially this problem involves the entire educational and practical training system and the present governmental control over the profession. The more important features of professional qualifications, aside from a written examination, are the experience and educational requirements which are quite different from those found in the United States. The problem of formal education is most serious. University students may major in accounting while working towards their Bachelor of Commerce degree, but it is an accepted fact that they are far from being adequately prepared for the professional accountants examinations upon completion of their program.