The Third or 1948 statement of accounting principles underlying corporate financial statements is a worthy successor to previous editions by the American Accounting Association. Written in concise and generally clear style, it has restated the principal concepts of accounting in the light of the economic developments of the past seven years. Especially commendable are the emphatic and clear pronouncements on those post-war accounting practices which have tended to distort the significance of income for the period. These statements of concepts and standards provide, reserves may not be created by charges to revenue except in recognition of expense, the income statement for a period should provide an exhibit of all revenue and expense given accounting recognition during the period, reserves created from retained income should be returned undiminished to retained, income when the need for such reserves has passed, the balance sheet should contain no special section for reserves and a permanent distinction should be maintained between paid-in capital and retained income. Perhaps no committee could write a statement of accounting principles without some differences of opinion. Origins, uses and implications of accounting data are much too broad to expect unanimity of opinion.

The lack of exceptions, qualifications, or explanations concerning consistency is somewhat disturbing to the critical reader in a period of rapidly changing economic conditions from phase of the business cycle to another. From one tax law to another with changes in products, distribution methods, and administrative organization, with changes from a controlled economy to one of relative freedom, with labor unrest, inflation, and unsettled international economic conditions, it would seem that an audit would quite often result in some material differences of opinion on accounting principles which failed of reconciliation. The principles of accounting so consistently applied by corporate management that the residual unresolved differences of opinion are almost invariably minor in character and not deserving of mention in the accountant's opinion report of the public accountant which can almost invariably declare that generally accepted accounting principles are applied on a basis consistent with that of the preceding year.

Even the most convincing advocates of the cost basis of valuation and income determination in accounting are impelled to approve an exception in the case of donated fixed assets. Most of the writers agree that donated fixed assets should be recorded at appraisal figures by an entry debiting fixed assets. There are those who see no objection to crediting paid-in surplus or capital surplus, depending upon the sources of the donation and tim suggested breakdown of the surplus accounts. Most sources concede that the admission of donated fixed assets to the accounts at appraisal figures is inconsistent with the cost basis of accounting. But, instead of recommending that the donated assets be recorded at the nominal figure of one dollar, the booking of the asset at appraisal figures is not only recommended but preferred. Those who profess the cost basis of accounting not only advocate the booking of donated fixed assets at appraisal figures, but frequently acquiesce in the charging of depreciation on donated fixed assets to revenue. The recording of donated fixed assets at appraisal figures is not consistent with the cost basis of accounting.

An examination of the statements of condition published by twenty-five representative Chicago banks as of December 31, 1946 reveals the continued publication of condensed statements with stereotyped arrangement and terminology which compare most unfavorably with the published financial reports of industrial and commercial concerns. The arrangement and terminology of these statements are undoubtedly influenced materially by the current regulations, instructions, and uniform forms prescribed by the U.S. Comptroller of the Currency. But, to explain the paucity of data, one must probably look to the influence of heritage, traditions, and customs on the current practices of the modern commercial bank. Since the qualitative and quantitative features of the reported financial data correspond closely to those found in the pocket-sized folder usually distributed to depositors, the published statements may be judged fairly in the light of their services to the interests of the depositors as well as the stockholders.

Reviews the book "Standard Practice in Auditing," by W.J. Back.

Reviews the book "Business Organization and Combination," by Lewis H. Haney.

When the growing conscious recognition of the importance of financial data in the ordering of everyday business and economic life, the need of basic economic facts is providing a constantly enlarging opportunity for the accounting profession. The early conceptions of the functions of the auditor were such as to confine him to the duties of a mere checker and verifier of debits and credits. As business became more complex in its interrelationships there has been a compensating broadening demand for the acceptance of new and formerly unrecognized responsibilities by the auditor. The control of business enterprises within and among themselves has emphasized the importance of the budgetary and managerial aspects of the accountants' reports in enabling business units to coordinate their internal and external activities in the scheme of the economic plan. The principles of auditing are partially adaptations from other fields; they are practices from other fields which it has been found feasible to incorporate into auditing procedure and routine, in the attempt to approach as closely as possible to a realistic presentation of dynamic facts.

Publishers of books are frequently prone to look upon footnotes as added and unnecessary expense. But this can be no more true of books in the field of accounting than in the many other fields of thought. Furthermore, it may be stated that no writer would permit a publisher to delete from his treatise those thoughts which he felt were essential thereto; by the same argument he should refuse to permit the publisher to omit footnotes and references if they are material to his contribution. Publications in other fields have survived the desires of publishers to economize; accounting can do the same if writers see the merit of references and insist on them. In the long run, and for its own best welfare, accounting cannot be judged in the light of its limiting circumstances such as enumerated above. It must be judged in the light of its true possible social value and its position relative to other sciences. If accounting writers are not prepared to uphold the standards ordinarily exacted in other fields, it is accounting that must suffer by comparison.

The article focuses on recommendations presented by the American Accounting Association's Committee on Concepts and Standards, regarding the use of term "reserve" in accounting. The committee recommended that the term reserve should not be employed in published financial statements of business corporations, appropriations of retained income should not be made or displayed in such a manner as to create misleading inferences, and the reserve section in corporate balance sheets should be eliminated and its elements exhibited as deduction-from-asset, or liability, or retained income amounts. In general usage, outside of accounting, a reserve is a fund of cash or other assets. In accounting the term has been used to caption a variety of balance sheet items including segregated retained income, segregated asset, asset valuation and asset amortization amounts, and liabilities. It has been recommended that the word reserve be restricted to captions describing appropriated retained income. The committee believes that the popular understanding of financial statements, and the thinking of the profession, would be promoted by abandoning the term.