Knowledge that Transforms

Business management and the members of the accounting profession have a real opportunity to increase their usefulness to society if they will take steps to bring the principles and standards of financial accounting and reporting into closer conformity with the social and economic situation that exists in the world today. To a considerable extent the prevailing principles of accounting ignore the problem of price-level changes. Further more, these principles reflect a narrow proprietary view of business operations. A corollary of this condition is the tendency to overlook the fact that others besides management and stockholders have an interest in the financial reports and affairs of business corporations. Finally, in treating each business as an independent entity, accountants may fail to fully recognize that each such unit is but a part of the total economy. A shift to the one economy concept is needed in the interest of the individual businessman who must have reliable information on which to base decisions, and in the interest of social harmony between the various segments of society within the country and among nations.

The article focuses on the role of the accountants in the present economy and his role in the expanding defense program. In author's references to the accountant, he is referring to him in both public practice and private employment, since the author sincerely believes that every real accountant is, broadly speaking, a public servant. He renders a public service by seeing to it that accounting data disseminated to the public fairly presents the financial facts of the business or activity involved. Recognition of this responsibility by accountants themselves will serve to establish their professional status. The accountant's knowledge of business and financial matters and his reputation for integrity equip him to exercise economic and ethical leadership so greatly needed in today's society. As a tool of management, in industry, and in government, the accountant must now, more than ever before, measure up to the highest professional standards. The present day problems facing business present a challenge to the accountant, which he cannot safely ignore, to be of greater service to his client and to his country.

The article discusses the significance of invested cost. Accountants have shown reluctance at submerging the long developed techniques related to double entry accounts and historical cost. So they are sometimes charged with being unbending traditionalists. The current impact of changing price levels has stimulated a spirited discussion of accounting ideas. Accounting has always been concerned with doing with its present day ramifications and such, it would seem, as to show that people are in need of other experience also, particularly experience in dealing analytically and persuasively and verbally with controversial ideas. Invested cost seems to embrace more of the concept involved here than any of the other terms alone. It does this in part because invested cost is a phrase that can speak of liabilities and income as well as of assets and expense. It must be clear that expressions such as replacement costs, income expectations, fluctuation profits, lack the concreteness attached to the term invested cost.

Reviews the book "Classification in Accounting," by A. A. Fitzgerald and L.A. Schumer.

Reviews the book "Executive Accounting," Part One, "Internal Business Control," 6th ed.

Reviews the books "Advanced Accounting," vol. 1, by George Hills Newlove and S. Paul Garner and "Advanced Accounting Problems," by George Hills Newlove and S. Paul Garner.

Reviews the book "C.P.A. Review Manual," by Herbert E. Miller.

Abstract 1. In the several statements of "Accounting Concepts and Standards Underlying Corporate Financial Statements" issued by committees of the American Accounting Association in 1936, 1941, and 1948, fundamental a concerning the functions of accounting in respect to revenue realization, costs, income, and capital were set forth. The objective in so doing was to present a coordinated statement of principles and suggested applications representing levels of accounting practice "departures from which should be viewed with concern." 2. Under the tax laws of the United States, Congress has enacted taxes on the net incomes of corporation. In the enactment of then laws and in their administration, by regulation or as a result of Court decisions, there have developed determinations of net income for financial statement purposes under generally accepted accounting principles. 3. These income between taxable income and accounting net income may be classified generally into two principal categories: deny or limit deductions as a matter of economic control or for purposes of raking revenue. (b) Differences of timing-those which the time of recognition of income or of deductions, usually resulting from legalistic interpretations of the tax statutes by Court or regulative decisions (thereby setting a precedent for subsequent administration). 4. The differences result largely from differences in purpose. The purpose of the revenue laws is to establish practical formulae for the collection of taxes (and at times to regulate the economy).

Accounting uses a universally known measuring stick, the dollar. Yet the common dollar is not an invariant measuring unit. Dollars in 1950 do not measure the same purchasing power as did 1940 dollars. Accounting, in other words, assumes a stable measuring unit. In periods of major price movements this assumption is clearly invalid for certain purposes, as has been pointed out by various writers in recent years. Undoubtedly interpretive accounting faces a challenge at this point. Management and accountants should remember that their primary responsibility is still to the investors, those who seem to be the forgotten men. The absentee investor, unlike the owner-operator, has no opportunity to combine reported information with first hand knowledge of the conditions and activities of the business. Management and accountants have the responsibility to provide information to aid the stockholder in wise decisions. The stockholder requires information to aid him in decisions to hold, sell or buy more stock, in other words, information concerning the comparative merits of his stock and alternative investment opportunities.

Reviews two volumes of the book "First Year in Accounting," vol.1, "Fundamentals," vol.2, "Principles."