Knowledge that Transforms

This article presents questions on accountancy, which formed the part of the second half of the May 1943 certified public accountant examination in accounting practice, prepared by the Board of Examiners of the American Institute of Accountants. The candidate was allowed four and a half hours to solve all problems. Points allotted for each question are also given in the article. Question 1 carried 12 points, second question carried 22 points and third question carried 16 points. In the first question, from the given data the examinees had to prepare a summary of cigar-counter transactions, also showing amount of shortage, recommendations for maintaining adequate internal check and general-ledger accounting control. In the second question, from the given audited balance sheet, statement of profit and loss and summaries of ledger accounts of a company, the examinees were asked to prepare a statement of receipts and disbursements, condensed statement of application of funds, showing how the decrease in the net current and working assets came about, statement of profit and loss and statement of receipts and disbursements.

In this article the author presents an interpretive observation of the examination questions in auditing. He analyses, whether the examination questions changed as auditing has developed during the past forty-five years. According to the author, the observation of the studies conducted in this field shows the tendency for questions on auditing procedure to grow less prominent. Auditing theory and non-auditing questions increase. The ranking of question types in these studies also provide some suggestions of the change. The first ranking item in the earlier period was number ten in the list for the lastest period, the second later became fifth, the third was seventh, the fourth practically disappeared later, the fifth item became fourth, and the sixth became eleventh. It is clear in the studies that changes are taking place. Broad general questions on the nature and purpose of auditing are of late being replaced by questions that are more pointed and specific. Earlier auditing examinations made frequent use of questions on the theory of accounts. The trend has been away from this type of theory question and toward theory as it involves accounting statements.

There has been considerable public criticism of what appeared to be unduly high costs for the administration of public assistance and relief. Administration expenses have generally been contrasted by legislators and the public with the cash payments made directly to public assistance beneficiaries. Grouping and contrasting expenditures for assistance, on the one hand, and administration, on the other, have encouraged the assumption that costs of administration represent merely the cost of distributing the money expended for assistance. Persons familiar with public assistance operations realize that other functions are also performed. They realize further that the cost incurred for investigating cases, which never receive relief, may be more in the interests of the taxpayer than haphazard and inappropriate disbursements to individuals not entitled to benefits under the public assistance program. The standard classification of public assistance costs is a joint recommendation of the American Public Welfare Association and the Social Security Board. Official participation by staff members of the Social Security Board made it possible to incorporate the thinking and recommendations of the experts concerned with national phases of public welfare administration and accounting.

Reviews the book "Federal Tax Course," by George T. Altman.

The need of an accounting for depreciation of capital assets is generally recognized. It is known, however, that depreciation and repairs are related, for, to establish a reasonable depreciation rate, it is necessary to consider the policy pursued relative to repairs, since repairs affect the useful life of property. Proper treatment of depreciation is not possible if a neglectful policy in regard to repairs is pursued. Also an inadequate depreciation policy is liable to render unsatisfactory any attempt to treat repairs scientifically. The word "repairs" has been used with so many varying meanings that its place in the terminology of accounting is questionable. Sometimes it is used synonymously with "maintenance," sometimes synonymously with "renewals," sometimes in a sense different from either maintenance or renewals. As distinguished from additions and betterments, repairs render a machine better than it was immediately before such repairs were made, yet they do not constitute a betterment, because they do not lengthen the life of the machine and do not make it essentially mere serviceable. Repairs prevent the loss of service which a machine normally possesses and result in more efficient operation, both present and future.

The fact that the complicated business of making war can be epitomized for certain purposes into a few guiding principles suggests that accounting also may rest upon certain leading ideas which we may call principles. The military strategist would not thumb through a pocket list to choose the principle to be applied next to his situation. Neither would an accountant. Principles probably serve their purpose best after their essence and their interrelations have been made so thoroughly a part of a man's thinking processes as to have been forgotten as verbal propositions. In times like these, generalizations about the science of making war are interesting for their own sake to laymen. But they can be of more than passing interest to accountants because they illustrate so well the useful art of generalization. About a year ago a compact summary of the principles of war was published, as of October 1943. The nine principles stated in the summary are briefly summarized in this article to give further emphasis on the factor of interdependence.

The subject of internal auditing is receiving increasing attention because of the recognition given by accounting authorities and governmental regulations to its importance in determining the scope of audit necessary as a basis for an independent accountant's certificate. Sometimes people are inclined to think of accounting and auditing standards as those of large business concerns and forget that the majority of business organizations are relatively small. Most public accounting work is with relatively small business concerns. It is well to look at the highest possible accounting standards that can be developed and what can be done where cost is not a major controlling factor. Yet one must remember that small business enterprises still exist and furnish a problem of what can be done best to meet their needs. Hence one need to consider internal audit and control in the small as well as in the large business. Manifestly, if the independent auditors, in making their examination and tests, find that every feature of the accounting has been subject to a careful and adequate internal audit, the auditors can place much reliance on the internal auditing and correspondingly shorten their own work.

Reviews two books "Survey of American Listed Corporations," and "Statistics of American listed Corporations."

In this article the author focuses on the problem of evaluating the progress and achievement of students who take courses in business subjects in collegiate schools of business. The author remarks that too little attention is given to the subject, and yet, no matter how carefully the curriculum may have been planned, if the instructor errs in the evaluation of the achievements of any student by grading him at or above the passing mark when such a mark is not really deserved and earned, an injury has been done to the student, to the college, and to the business community in which the student will later seek employment. Many instructors base their grades solely upon the proportion of the subject matter of the course that the students give evidence of having learned. Students regard the grades they receive as evidence of their attainments. If their grades are high, they rightly consider that they have done well, if low, they consider that something is wrong. It is very important that the instructor, before grading the students at 90, should take into consideration everything that is necessary to enable him to do well in his first employment.

This article focuses on the recent accounting publications by the U.S. Government. Some of the published books are "Municipal Budget Procedure and Budgetary Accounting," "Work Measurement in the City of Los Angeles Building and Safety Departments," "Governmental Cost Accounting in the Los Angeles Area" and "Cost Accounting and Work Measurement in the Federal Government." Most of the text is devoted to a discussion of budgeting for the general fund. However, budgeting for the other usual municipal funds is treated briefly with a three page discussion being given to capital budgeting in the first book. General fund budgeting is presented in the traditional three phases, namely, preparation, adoption, and execution. In the three chapters devoted to budget preparation the importance of the work program as being the basis of expenditure estimates is well brought out. A model work program is presented in the appendix. Most works on budgeting recommend the "accrual basis." Others advocate the "cash basis." This bulletin not only describes detailed procedures under both of the traditional bases but presents a very practical method of budgeting revenues on a "cash basis" and expenditures on an "accrual basis."