Knowledge that Transforms

Historically, corporate pension plans in the U.S. are largely a product of the twentieth century. Their development and growth have been influenced by a number of factors. The greatest stimulation probably came from the Revenue Act of 1942 and the Inland Steel Decision of 1949. The 1942 Revenue Act provided the first major definitive legislation on corporate pension trusts, providing tax benefits to both employer and employee. The Inland Steel decision opened the way for union bargaining on pension benefits. By and large, the very early industrial plans recognized pension costs on a pay-as-you-go or cash disbursement basis. This was attributable to the fact that most of the early plans did not guarantee life-time benefits. Rather, continued pension payments were predicated upon the financial ability of the company to maintain such payments. This increasing financial drain influenced a gradual change from a pay-as-you-go financial program to one based upon actuarial procedures. It was also about this time that the insurance companies entered the field.

The article presents information about the unit cost denominator in process costing. It informs that equivalent production is generally defined as the number of units that would have been produced had all of the dollars and effort that were expended during the current period been used in producing whole, good units. The understanding of process cost problems is facilitated when the solution is approached through a periodic inventory approach. First, the dollars to be accounted for are determined; then, the dollars remaining in the final inventory are traced, and the balance of dollars are associated with the transferred out units. The problem is to determine the unit cost of the goods remaining in the final inventory. Basing a solution upon a periodic approach does not imply that the dollars of transferred out units cannot be reconciled. With numerous cost concepts demanded of the students, the difficulties are minimized when all impacts are visualized through the costing of the final inventory.

Increasing use of consolidated financial statements by corporations in the U.S. and expanding incidence of investment in foreign lands means that more and more parent firms of the U.S. are faced with the problem of making objective decisions as to whether or not to include foreign subsidiaries in consolidated reports. Unfortunately, authoritative guides in this matter are lacking. The only official statement on this subject has been issued by the American Institute of Certified Public Accountants. These statements fall short of providing specific and definite standards. Attempts to apply them could lead to subjective and inconsistent policies. An objective consolidation policy requires careful evaluation of each foreign subsidiary against a set of generally accepted criteria. Four criteria have been proposed namely financial control, operating control, homogeneity and fiscal period. If the above attributes exist to the extent that the foreign subsidiary is operating as an integral part of the world wide group, then it should be included in consolidation.

The article examines flow of funds approach to accounting theory. It is quite common now for a firm to publish a statement showing the flow of funds during its financial year. These statements are known by such various titles as "source and use of funds," or "financial inflow and outflow." All attempt to show the finance which has become available and the uses to which it has been put. The presentation of the third statement, in addition to the statements of profit and financial position, has developed in an attempt to provide meaningful and intelligible information for investors, analysts and other interested persons. If the flow of funds statement is a useful summary of a firm's activities, it is possible that this statement is a useful starting point for two other purposes. On the one hand, it may be possible to use the statement for introducing accounting to first-year students, whether accounting or non-accounting majors. On the other hand, it may be helpful to use the flow of funds statement as a focal point in discussions about accounting concepts.

The article presents information about comments presented by some writers in their books related to accounting. "Handbook of Sampling for Auditing and Accounting" by Herbert Arkin constitutes an intelligible exposition of statistical sampling problems and techniques. Advantages of using statistical sampling procedures are clearly stated and fundamental steps in the sampling process are well treated. William J. Bowe's book titled "Tax Savings Through Estate Planning" provides an introduction into the field of estate planning for the student of taxation without previous exposure to this area. Yet another book "Pricing Decisions in Small Business" by W. Warren Hayne contains a description of the pricing practices of 88 firms in a wide variety of markets. About 44 per cent of the text is devoted to a summarization of the basic data. In the remainder of the text, the author focuses on the really conflicting problems of price determination as a temporal activity of the manager of an individual firm and as a mechanism which the economist uses for general statements about the functioning of the micro-economy.

This article is presented as a supplement to Accounting and Reporting Standards for Corporate Financial Statements-1957 Revision. Unlike previously published supplementary statements, this statement uses a discussion format. This format was selected as being most appropriate for revealing the diversity of opinion on a point-by-point basis. Given the objectives for measurement of cost of goods sold and inventory stated in the 1957 revision of Concepts and Standards Underlying Corporate Financial Statements, to single method for pricing inventory quantities has been found completely satisfactory. The Executive Committee and Director of Research have instructed the researchers to investigate the problems of inventory measurement with particular emphasis on current values. This report uses the 1957 revision of accounting and Reporting Standards for Corporatate Financial Statements as the springboard for assumptions and analysis. Financial statements are intended to help users appraise performance and financial position, thereby aiding them in their major analytical tasks of comparison and prediction. Most of those interested in an enterprise are concerned with something other than the value of individual assets.

The article explains the position and activities of the American Institute of Certified Public Accountants (AICPA) regarding education and the author's views regarding the proper kind of education for the profession. AICPA has long had a vital interest in the education of public accountants because its leaders appreciate that education helps to maintain and improve the standards of the profession. It has expressed this interest by engaging in a number of activities over the years that have resulted in the approval of educational policies by the Council of the Institute. The logical starting point for a description of the Institute's educational policies that are currently in effect is the report of the Commission on Standards of Education and Experience for CPAs, issued in 1956. Though the Commission was set up at the suggestion of the American Institute, it was an independent body made up of outstanding practitioners and educators who did not represent organized groups of accountants or educators.

The article informs that developments in information processing over the past decade have triggered changes in the design and purposes of systems that provide management with information for planning and control. These developments have had an impact that can be compared to that of factory automation. The role of corporate and governmental accounting executives, Certified Public Accountants, and others concerned with information processing has been significantly affected. The magnitude and significance of changes in the systems area motivated the Executive Committee of the American Accounting Association to appoint the study committee. The committee had no difficulty in agreeing that a college level curriculum for accounting students should include sufficient instruction to provide a fundamental understanding of accounting systems upon which students could build their future career.

In any attempt to investigate accounting in search of general principles, one is immediately impressed by the difficulty in determining exactly what accounting is. For anyone looking at accounting is confronted with two rather distinct well-springs of accounting thought. In one case accounting is a practical art attempting to record, classify, and summarize certain facts and events relating to business operations. On the other hand, accounting can be viewed as a theory of financial communication, founded on assumptions and containing logically derived and internally consistent conclusions. The fact is that there has actually been a dual or concurrent development in accounting. While accounting was developing as a practical art, it was also evolving a body of theoretical knowledge. The practical development can be traced back five hundred years, the theoretical evolution is of much more recent vintage. This paper will discuss the differences between the theoretical and practical development of accounting and why these differences exist.

The article informs that the new investment credit which entered accounting thought as a result of the Revenue Act of 1962, has stimulated some penetrating thinking regarding the accounting nature of the tax credit which arises because of some financial or accounting move by a firm. In addition, there appears to be a direct relationship between the accounting treatment of the investment credit and so-called "deferred income taxes." While many accountants argue the merits of showing "deferred income taxes" as a liability or as a component of storkholders' equity, it seems to this writer that here again the only acceptable treatment is an integration of financial and tax accounting with the result of showing the "deferred income taxes" as contra asset. The first question to be resolved is how to measure the cost of the asset involved-be it one which is subject to the investment credit or one whose depreciation method gives rise to "deferred income taxes." The American Accounting Association has stated that the value of an asset is the money equivalent of its service potentials. Conceptually, this is the sum of the future market prices of all streams of service to be derived, discounted by probability and interest factors to their present worth.