Knowledge that Transforms

Abstract The substantial fall in interest rates which began in the early 1930s resulted in a widespread exercise by corporations of the option to call bonds before maturity, where such provision had been incorporated in the bond terms. Even though a call premium had to be paid, the resulting saving in interest cost often was sufficient to make bond refunding appear mandatory. Other reasons which might have tipped the scales in situations where the interest saving may not have been significant, were the substantial saving in taxes based on income in a high tax year if a relatively large amount of unamortized bond discount and expense, applicable to the refunded bond, was present, and secondly, the opportunity to issue refunding bonds which omitted restrictive covenants found in the old bonds. The true nature of unamortized bond discount or bond premium and the correct presentation of the bond liability can be inferred from the ordinary compound interest computations used to arrive at the present worth of bonds.

Abstract Reviews the book "Accounting Fundamentals," 2nd ed., by George A. MacFarland and Robert D. Ayars.

Abstract Many accountants have long been dissatisfied with the valuation hypothesis. It has not only resulted in wide variations in actual practice but has failed to provide principles from which we can reason logically and arrive at conclusions that correspond with observable facts. As the accountant faces unfamiliar problems, he cannot meet them by applying principles of valuation; he has to learn how to handle these individually. His first ideas on accounting are conveyed to him in terms of valuation; but he soon learns that accountants do not usually practice valuation but account for a certain type of costs. The valuation hypothesis can be proved to be false by demonstrating that it does not correspond with observable facts. All one need do is consider his own experience, and he will realize that accountants practice valuation only in exceptional instances. The Executive Committee of the American Accounting Association has for many years been working on the unsatisfactory situation in accounting theory, and as is well known has produced two reports, both considered tentative. In these reports the Committee has adopted, among others, two hypotheses: (1) that accounting is primarily a process of accounting for monetary outlay costs; and (2) that it is a process of matching costs with revenue.

Abstract Reviews the book "Accounting Principles," by J. Hugh Jackson.

Abstract The subject of packing-house accounting is very broad. If only those phases are discussed which relate to the slaughtering of cattle and calves, no more can be done than to touch upon the more important salient points. This segment of the meat-packing industry has been selected for discussion because bovine animals furnish nearly half of the meat produced in the U.S. today and it is the source of about fifteen per cent of the farmers' gross cash revenue from the sale of farm products, as of July 1947. In the installation of an accounting system, the certified public accountant or management consultant should be familiar with the activities of the client, the sources of supply, problems of marketing, methods of distribution, the outlets for the client's products and with problems of personnel. For such knowledge is lacking, the accountant may experience difficulty in satisfying management that he possesses the necessary qualifications to handle the engagement properly. Although the author is primarily concerned in this article with the accounting problems related to the slaughtering of cattle and calves, the article also discusses briefly other activities which the board of directors of a packing-house plant may be empowered to undertake.

Abstract According to public opinion polls taken in recent years, many people actually think that corporations make a profit of 25% on sales. They say a profit of 10% would be about right. And many people still identify ownership with management, and think the boss gets all the money. It is interesting that whether polls cover industry in general or a specific industry, whether they cover the general public or employees, the results as to these points are just about the same. In other words, the misconception as to profits, and who gets the profits, is well-nigh universal. If a company is not bound by past precedent, the problem is fairly simple. Take the case, for instance, of a company which is not publicly owned. Such a company is not compelled to issue any report at all. But nevertheless some companies, not publicly owned, are issuing financial reports to their employees because they consider it good employee relations as well as good public relations. In this connection, the author certainly hopes that in formal reports some method can be devised whereby the item of Net Profit can be broken down into its component parts: namely, dividends paid out, and money reinvested into the business.

Abstract The training of students in auditing courses for the passing of the CPA examination in auditing is, of course, considered secondary to the successful training of those students to the extent that they are enabled to enter the public accounting profession well qualified to perform expeditiously the auditing tasks assigned to them. While this examination is not the major objective of the students or their instructors, it does provide the accepted measurable means by which the technical knowledge of the applicants is judged. This article, presented from the viewpoint of one who has had years of public accounting experience and who is a teacher of auditing in a metropolitan university; reviews this medium, the auditing phase of the CPA examination, in an objective manner, and presents material for consideration and discussion on various phases relating to the subject. This paper has made a review of the examinations prepared by the Board of Examiners of the American Institute of Accountants as presented from 1942 to May, 1946.

Abstract The role of accounting in public utility regulation is merely one aspect of the role of accounting in the broader field of economic control. Of course, the general development of accounting is a process of evolution which has gone on for many centuries whereas the use of accounts in public utility regulation is a matter of recent origin, as of July 1947. It is, in fact, considerably less than 100 years old. Nevertheless, the use of accounts as a tool of regulation is, in a sense, a forerunner of the current dominant trend in general accounting. The procedure in this article will be to consider first, public-utility regulation and some of the accounting problems associated with it. On the basis of that discussion the author shall turn to the broader problem of general economic control in the expectation that the broader view will help to appraise better the place of accounts in public utility regulation. The regulation of public utilities developed as a practical expedient designed to correct certain injustices and abuses which had arisen in the prevailing economic system of competitive control. From the start regulating commissions have been heavily dependent upon accounts.

Abstract Reviews the book "Investment Analysis," by John H. Prime.

Abstract Reviews the book "Embezzlement and Internal Control," by Albert K. Keller.