Knowledge that Transforms

Reviews the book "Public Utility Regulation," by W.E. Mosher and F.S. Crawford.

Economists, statisticians, accountants and others have long realized that the various income tax returns filed with the Bureau of Internal Revenue contain a vast quantity of valuable statistical data. The American Association of University Instructors in Accounting, the American Economic Association and the American Statistical Association, designated a Joint Committee to consider the entire problem and to draft suggestions to the Bureau of Internal Revenue for the amplification, revision or elimination of the existing tabulations. This report recommends that the specific recommendations of the Committee as set forth in the report be approved in principle; that a new Joint Committee be appointed to continue the work and that a modest appropriation be made for its traveling expenses. The purpose of this article is to summarize briefly the various problems involved and the Committee's attempts at solution. Certain phases of the problem at least are of considerable importance to accountants and teachers of accounting and it is suggested that a consideration of the statistics as now published would be of interest to all of the members of the Association.

In September 1930, the American Institute prepared a compilation of Certified Public Accountant (CPA) laws of the United States and a study of these laws discloses a most tragic fact concerning educational training as an aspect of the accounting profession requirements. As to college education, there is a great scarsity of recognition in the various state laws. Practically no recognition is given college training in accounting. There still persists the most prevalent idea that practical experience shall be the sum and substance of one's training if he is to be a successful accountant. The years of practical experience thought so essential find the individual with a narrow, limited vision of the accounting profession and no general training. Specifications in laws providing that the university faculties shall aid in examinations are even more restricted than provisions relating to credit for college work. C.P.A. should be on an examination basis. Then too a comprehensive examination works for uniformity in accounting which in itself will raise standards.

The article focuses on different aspects of teaching cost accounting. Commerce students who have had little or no business experience present a problem to instructors in cost accounting because their lack of background keeps them from comprehending the aims sought by a cost system and particularly the managerial aspects of such a system. This condition seems to be general with all classes of students, whether they be those in day classes who are taking a complete commerce course or evening students who have some experience in business and are seeking to develop themselves in a special branch of accountancy. It therefore seems necessary for the instructor in cost accounting to carry on some preliminary work with his students to give them a philosophy of cost accounting whereby they will appreciate the importance of internal transactions in a business, the use that can be made of cost records for managerial purposes as apart from mere record keeping and the general relation that exists between all the manifold activities of a business, as well as some idea of what those activities are.

"Third parties" refers to anyone other than the auditor and his client, the two parties who have agreed between themselves as to the scope of the work to be done in a specific case. It includes the stockholders when examining the certified accounts of their corporation; credit men and others when examining the auditor's statement on a given concern as a basis for granting credit to it; courts and other governmental officials when examining certified statements purporting to set forth certain facts produced as evidence. The auditor's responsibilities include maintaining a balance sheet, creating a test audit. The auditor can best carry out his responsibilities to third parties by removing the common misunderstandings. If auditors and third parties agree on a classification, misunderstandings are avoided because the auditor can readily state within which classification a particular financial statement falls; the third party can quickly satisfy himself as to whether such a financial statement serves his immediate purpose and if it does not, he can ask for a specific modification.

College of Commerce at Louisiana State University offers a four-year course in accounting. The course can be outlined as follows: Freshman year-elementary accounting, six credit hours; sophomore year-intermediate accounting, six credit hours, junior year-cost accounting, three credit hours; auditing, three semester hours; Senior year-income tax, three semester hours; certified public accountant problems, three semester hours; graduate course in research problems, six semester hours. The organization and contents of these courses are given constant attention with a view to improvement and the meeting of the needs of the students. Essentially, the problem method is employed in all courses, with the possible exception of that given in the freshman year. This is based on the belief, justified by years of experience, that well chosen problems, more than anything else, appeal to the student's imagination and help him to correlate theory with situations that, in so far as possible, typify practical work.

In determining the investment base, several alternatives immediately occur to either the accountant or the economist. Total assets is one possibility. Total assets less intangibles is another. The sum of all items of corporate capital structure; bonded debt, capital stock and surplus and undivided profits, is a third. Still a fourth base might be the sum of capital stock and surplus, without the inclusion of funded debt. Capital assets may be stated on the basis of cost or on the basis of a valuation. Just because, in the case of any individual corporation, assets may be stated upon a cost basis or upon the basis of an appraisal, it is often believed that no valid general figures can be developed. Many small companies overvalue their property accounts. On the other hand, a number of large companies are quite conservative in their charges to depreciation, obsolescence and other reserves. If charges to depreciation are not separated from charges to other reserves, if revaluations of plant and equipment are not explained in detail in the annual report, then the task of making allowances for conservatism or extravagance in estimating such margins of error is intensified.

Reviews the book "Value Theory and Business Cycles," by H.L. McCracken.

This article presents information on the bankruptcy legislation. This legislation protects the honest debtor from the greedy shylock and from the moneylender who is keenly alert to the possibilities of securing the preferential positions in and to the bankrupt's assets. To gain precarious positions, some indulgent creditor insists on a receivership or drives the distraught debtor into bankruptcy. Since most receiverships and bankruptcies involve persons in commercial pursuits who at one time or another, as a matter of course, maintained books of account, bank accounts, or other pertinent business records. The properly trained accountant fits well into the proceedings which have as their purpose the true application of the bankruptcy laws in locating, identifying, evaluating, administering, and distributing the property of the estate for the benefit of, first to the claimants who because of the provision of law have a prior position, second, to the secured creditors, third to the general creditors, fourth and finally, to the bankrupt himself. Salary, bonus, commission, special and drawing accounts of individuals, partners, officers and directors particularly demand the attention of the accountant. It does not always follow that these individuals use direct means for illegally transferring assets to themselves or agents. The almost universal spectacle of the friendly receivership in order to avoid excessive rent liabilities under leases may lead the accountant into believing that all the leaseholds there under are valueless.

Reviews the book "Abhandlung über die Buchhaltung," by Luca Pacioli.