Knowledge that Transforms

From June, 1917 to November, 1945, in semiannual examinations, the American Institute of Accountants submitted to candidates a total of 724 problems and questions on Accounting Theory and Practice. It is of interest to cost accountants to note that of the 724 problems and questions presented by the Institute 88, or 12.15 per cent of the total, were based on cost accounting or the related subject of inventory valuations, 34 of the 88 being related to inventories. This represents the greatest number of problems based on any one subject. Consolidated financial statements provided the basis for 55 problems and questions, Accounting for Mergers and Reorganizations was the subject of 32 and 32 more were concerned with Municipal Accounting. The obvious inference is that the American Institute Board of Examiners considers the subject of cost accounting to be of in creasing importance. Cost problems encountered in American Institute examinations cover both job order and process cost systems.

Reviews the book "Code of Higher Accounting and Auditing," by Orlando López-Hidalgo.

Reviews the book "Elementary Accounting for Colleges," by Fayette H. Elwell.

One of the most important reports in recent British experience is that of the Company Law Amendment Committee appointed by Great Britain Board of Trade in June 1943, to consider and report what modifications are desirable in the Companies Act 1929, as of January 1946. This document not only provides the best available resume of traditional and contemporary accounting and financial practice in Great Britain but offers eighteen major sets of recommendations for the improvement of company law. Although the detailed testimony of experts appearing before the committee may not merit the consideration of American accountants, specific proposals offered for the improvement of auditing and business procedures provide interesting contrasts between current English and American accounting techniques as well as vital areas open for improvement. Asserting its belief that the system of limited liability is essential to the nation's prosperity, the committee envisages the necessity of protecting the investor and enhancing his control over company managements without imposing unreasonable restraints upon ethical business.

British accountancy as an organized profession is still relatively young when thought of in relation to law and medicine; nevertheless, it has been called upon to shoulder a wide range of important practical duties within a comparatively short space of time. It has been possible to detect a new spirit creeping into tile statement of accounts; the accounting art itself has become discernible as an instrument of truth in the field of economic enquiry. Society has begun to expect published financial accounts to serve all kinds of purposes, and it has asked of them, as a matter of prime importance, such a disclosure of information as will give a clear and orderly picture, which can be readily assimilated and understood, of the working of business enterprise. In England the Institute of Chartered Accountants has formed a Taxation and Financial Relations Committee, which has initiated subjects of accounting principle for the consideration of the Council. In March, 1943, it was recommended that "provision be made in the books and in the annual accounts for proposed profit appropriations, those subject to confirmation by shareholders being so described.

Public accounting is in its infancy as compared with the older professions of medicine, law, and engineering, as of January 1946. The rapid strides made by this young profession within a relatively short time are enough to account for its chronic educational and training problems. Indeed, it is true that many beginners who in the early 1920s were considered well qualified to enter the public accounting field would be judged inadequate by the criteria used today. In the early 1920s, public accounting firms were primarily interested in the bookkeeping ability, business experience, personal attributes, and potentialities of applicants. Although a college background was desirable it was not a requisite. Accounting technique was then considered as something to be learned over the years as an adjunct to experience gained while working on engagements under the direction of competent accountants. This method of entering professional work was not uncommon in the early days of several professions.

This article focuses on components of a model permanent file. The components number fourteen, which fall under three main classifications, governing or fundamental documents, audit guides and synopsis or accounts. The whole of the permanent file should be treated as esoteric, thus providing one more instance of the mystery which should properly attach to any professional man performing before his laity. The seven year plan of audit, however, might well be marked "Top Secret-Not to Fall under Clients' Eyes." In case of accidents, it should not be sidescored for more than one year in advance, and this might well he done during the review of the current audit or during the now-busy season. Compared with the hard work represented by the current file of audit working papers, the compilation and bringing up to date of the permanent file will be found to be almost a pastime. The time spent on its initiation, however, will be found to pay dividends, in time saved in the routine work of the current audit, in reviewing the work, particularly, in obtaining a telescopic view of it, in building up goodwill with the client who is apt to regard with favor an assistant, new to the audit, who will not have to ask so many questions, because by referring to his permanent file he can find the answers.

Accounting is essentially a technical subject. It accumulates, verifies, presents and interprets financial information about operations and properties for business enterprise or about financial activities and resources for government and nonprofit organizations. It deals also with the means and methods of controlling the receipt, possession and disposition of properties to establish personal responsibility, to reduce the possibility of errors and to minimize the opportunity for fraud. Certain phases of accounting study give the student some knowledge of business operations, of the importance of the profit system in an economic society, and of the need for financial information by management, owners, creditors, government, employees and the general public. Accounting courses too frequently do not meet the needs for social, personal and supplementary training in accounting. These needs cannot adequately be met by the content of the usual elementary accounting courses. Not all students can be, nor should they be, fitted into an all-purpose curriculum. Provision should be made for one or more accounting courses especially designed for these purposes.

One who speaks with authority has said that no one should be allowed to write about writer William Shakespeare without a license. The author says he would be tempted to go further than that and omit the last three words. But perhaps a professional accountant has the right to inquire whether Shakespeare wrote about accounting. The word audit is used several times in the plays and sonnets. There is an interesting use of the word also by Anthony Browne, a contemporary writer of Shakespeare. He succeeded to his estates at an early age and when he was twenty-one wrote a book titled "Booke of Orders and Rules" for the guidance of his many servants and retainers which he ordered read aloud to them once each year about the audit time. The state of accounting records in the sixteenth century can safely be said to have been crude, for lack of a stronger term. That Shakespeare came into contact with them can hardly be doubted. His long career in London found him able to retire to Stratford at a comparatively early age with a fortune that at the time was considered large. He had been a member of a company of actors and was the leading and probably the most prosperous group of the period.

Articles in "Journal of Accountancy," have discussed the handling of discount or premium on bonds which are refunded in various issues published as of January 1946. The Committee on Accounting Procedure of American Institute of Accountants in its September 1939 issue of "Accounting Research Bulletin," was hesitant in expressing definite conclusions but, more important, neglected an enlightened approach by refusing to consider it opportune to discuss the theoretical soundness and practicability of adopting an alternative treatment of bonds which would recognize in some respects the nominal character of the terms "principal" and "interest." The mere existence of premium or discount, however, is complete evidence that face value is not the exact principal, and that face value or principal is nominal only. By considering reality much confusion can be avoided, and this is the author's approach. Where others avoid a positive position, the author proposes by mathematical analysis of the facts to indicate the only proper methods.