Knowledge that Transforms

The interpretation phase of accounting has been receiving an increasing amount of attention in accounting literature in recent years. While it is true that supporting schedules have been advocated for special purposes, the presentation of interpretive data generally has been neglected. The purpose of this article is to examine the problem of developing and presenting such supplementary data for income reports. The nature of an income report must be that of an activity report in which are reflected, in varying degrees of detail, certain of the activities of a business entity. If the conception of the income report as a presentation of data on the activities of a firm is accepted, it is necessary as a part of the underlying analysis of business reporting to establish an agreement on the nature of an activity in the accounting sense, for the term "activity" is an arbitrary term. The inevitable conclusion falls that accountants must provide supplementary data to facilitate estimations of activities under different concepts of income. But there are additional types of supplementary data, which should be provided.

The three principal requirements usually set for entrance into the accountancy profession have reference to the candidate's educational qualifications, his experience in accounting matters, and his ability to pass an examination covering accounting principles and practices and related subject-matter. Under present conditions, the examination is the major if not the sole test of the candidate's qualifications to practice public accounting. Presumably the purposes of the education and experience requirements are to enable the accountant to acquire skill and knowledge in the science and practice of accounting, and to develop judgment in accounting and financial affairs. The purpose of the examination is to determine whether the accountant has acquired sufficient skill, knowledge and judgment in accounting and financial affairs to be certified by state boards as being one who is "skilled in the knowledge, science and practice of accounting and is qualified to render professional services as an accountant."

It is the purpose of this article to describe some of the sampling tables, how they may be used, on what assumptions they are based, and their limitations. Interest in the use of statistical sampling techniques by auditors has grown recently. Articles in the journal "The Accounting Review," (1) The Arthur Andersen Chronicle, (2) The Woman C.P.A. and (3) the Journal of the American Statistical Association (4) testify to this development. The use of statistical techniques can furnish an auditor not only with more objective criteria as to the sample size required and the interpretation of the sample, but it would also probably reduce costs. These advantages have been stressed already. When applying statistical techniques to auditing, it is of great importance that these techniques be used correctly. This is particularly true at the initial stage of application, because poor results from the first uses of statistical tools may very likely lead an auditor to abandon them entirely. While there are definite limitations in the use of the sampling tables discussed in this article, it nevertheless appears clear that these tables can be of great help to the auditor. The selection of an appropriate sampling plan becomes simple, indeed, with the tables.

Reviews the book "Cost Accounting," by Adolph Matt, Othel J. Curry and George W. Frank.

Many executives and accounting supervisors have frequently wished for some worthy means of determining the real potentialities of college graduates as prospective employees. Some attempt has been made in this respect by the use of accounting and aptitude tests. This alone has proved to be inadequate. Further, employers often have not been able to place much reliance on or derive much real information from, letters of recommendation prepared by the student's professors. This is often due to the fact that the professor has very little information regarding the student, the recommendations are hurriedly and haphazardly prepared, there are no provisions made to avoid burdening the professor with repetitious recommendations and the requests for letters of recommendation are usually made very near the dose of the year when the number is large and academic activities are at a peak. Accounting professors, particularly those who have had the experience of employing and supervising accountant in industry, have an unparalleled opportunity to judge the possible future effectiveness of the accounting student as an employee.

The problem of apportioning revenue and costs to the proper time period is one of the most difficult problems in accounting-some persons would claim that it is the only important accounting problem. Most of the discussion in this area is concerned with what cost should be apportioned to what time period. There are fewer instances in which the issue is what part of total revenue should be apportioned to what period. This article reports practice with respect to such a problem, the apportionment of revenue received from magazine subscriptions. The practices as reported here are based on information obtained from 16 companies which publish magazines of large, national circulation and which sell a considerable fraction of these magazines on a subscription basis. This group includes nearly all the large magazine publishers. Subscriptions commit the publisher to deliver the magazine to the subscriber for a specified period in the future, usually one, two, or three yeas. Generally speaking, longer subscriptions bring in more money per subscription, but less money per copy, than shorter subscriptions.

Reviews the book "Fundamentals of Federal Taxation--Federal Estate Tax," by Adrian W. DeWind and Herrick K. Lidstone.

The periodic determination of net income and the clear reporting of income events recognized during a period are generally granted to be fundamental objectives of corporation accounting. The consistent treatment of extraordinary income events has been termed one of the most controversial problems in this important area. Two outstanding questions concerning this problem are, first, what extraordinary income charges and credits; may or should be excluded from the determination of net income and, second, what use, if any should be made of a financial statement other than the income statement to report income items excluded from net income. For a number of years the disagreement concerning the all-inclusive standard and alternative concepts has been marked, and any further progress toward resolving the differences would undoubtedly be welcomed by accountants. The all-inclusive standard, as concerns the measurement and disclosure of income results, is a concept of comparatively long standing in accounting thought.

In summary, the following points should be emphasized. Considering the way the research department has defined its project, there are limitations that keep one from drawing valid conclusions about accounting practices of American corporations from the study of 525 corporations. First, the use of corporate annual reports as a source of information is not entirely suitable because they are not designed to give information about accounting practices. Furthermore, they tend to emphasize new and unusual accounting practices at the expense of well-established practices that are more or less taken for granted. Second, the sample of corporations selected for study is heavily weighted with large corporations that are generally served by nation-wide accounting firms. It appears (although substantiating information is not presented here) that the large corporations have more readily adopted new and unusual accounting practices than have the smaller corporations. The two foregoing limitations can be overcome only by making the fundamental changes of adopting a new or supplementary source of information and selecting a new sample of corporations. Other deficiencies of the five surveys that have been pointed out, but that can readily be corrected in future editions, include: lack of comparability of information in individual tabulations; unannounced (and unadjusted for) changes in the sample of corporations included in the survey; and clerical and editorial inaccuracies arising from dropping or adding groups (without revision of the prior years' data) in a tabulation given in one survey when it is repeated in a later survey. Let me repeat the point made at the beginning. Some of the comments may seem to be highly critical. However, all comments are made in a friendly, constructive spirit. It seems only fair.

Reviews the book "Handbook on Accounting, Statistics and Business Office Procedures for Hospitals: Uniform Hospital Statistics and Classification of Accounts."