Knowledge that Transforms

Reviews the book "An Introduction to Corporate Financial Statements," by Robert W. Greenleaf.

Accountant and economist are a sensible combination on matters of income determination, as Professors Robert L. Dickens and John O. Blackburn demonstrated, that their several-pronged analysis demolishes the case for replacement cost as an ingredient in accounting net income is, however, deserving of a demurrer. This present article is a criticism of their criticism, the purpose being to return the argument to what the economists regard as its proper grounds. The criticisms embrace three areas, methodology, economic theory, and accounting theory. The methodological criticisms are, of course, general and independent of the subject matter treated. The criticisms on economic theory refer primarily to economic concepts which underlie many of the questions discussed by Dickens and Blackburn and are, of course, specific to economic theory and its applications. The criticisms on accounting theory are principally concerned with the charges, both express and implied, by Dickens and Blackburn that the use of replacement cost is incompatible with the informational needs of stockholders, and significantly less conventional than the use of conventional accounting, thus being an invitation to easy manipulation of accounting data by managers.

Reviews the book "Selective Inventory Management," by Kenneth R. Lavery.

Reviews the book "Paton on Accounting," edited by Herbert F. Taggart.

Reviews the book "On the Accuracy of Economic Observations," 2nd ed., by Oskar Morgenstern.

As well known, the practitioner must operate within his own frame of reference that is, he can give recognition only to those economic changes which affect financial position and results of operations as determined by generally accepted accounting principles. Thus, he cannot stray far beyond the concepts that are presently understood and accepted by the business community or those that he believes could become acceptable. This does not mean that he cannot look forward to the day when the balance sheet and income statement will present financial position and results of operations in an absolute or economic sense. He must realize, however, that the latter is a different frame of reference, which is far from attainment. The report on the realization concept and the supplementary statements also appear to stress an objective of recognizing holding gains and losses resulting from increments and decrements in the value of assets as they occur, rather than postponing their recognition and inclusion in the measurement of income only at the time the asset is disposed of.

Reviews the book "Decision Making: An Annotated Bibliography Supplement, 1958-1963," by Paul Wasserman and Fred S. Silander.

Reviews the book "Budgeting: Profit Planning and Control," by Glenn A. Welsch.

Acting as a management consultant does suggest a conflict of interest to 33% of the reasonable observers. Thus, the contention of the American Institute of Certified Public Accountants' Committee on Professional Ethics that the rendering of management advisory services would not suggest to a reasonable observer a conflict of interest is challenged by the findings of this study. Whether this challenge is serious depends, of course, on one's value judgment. It is inevitable that there will be some doubt with respect to complete independence whenever a Certified Public Accountants (CPA) provides both management services and auditing services to the same client. Surveys generally show, however, that respondents are relatively free with their praise and are loath to criticize. Therefore, in the opinion of this investigator, criticism reflected in this survey by the substantial group of third parties who do see a conflict of interest represents a serious factor about which the public accounting profession should be concerned. The importance of independence to the CPA is so great that the profession cannot afford to ignore a finding to the effect that one third of the best informed users of CPAs' audit reports are in doubt about his independence as a result of his management consulting activities.

A considerable controversy has arisen during the past decade concerning the task of defining and codifying generally accepted principles of accounting. The efforts of the American Institute of Certified Public Accountants to narrow differences in the definition and application of accounting principles have become increasingly pronounced since the formation of the U.S. Accounting Principles Board in 1958. In 1963 the Board began a special research study to define accounting principles that might be said to enjoy current general acceptance. It is time that an integrated effort to develop accounting principles for and by the areas, which desperately need them, was accomplished. If the quest for these principles is to be satisfactorily consummated, it requires the abandonment of the artificial barriers to a combined effort. The accounting profession, regulatory authorities, specialized enterprises, investors, and American business all want and need a codification of accounting principles and reporting standards. It would appear reasonable that a task force comprised of these factions could command the unification of effort and of funds with which to get the job done.