Knowledge that Transforms

Abstract Periodical examinations of the accounts of commercial and financial institutions, special examinations for prospective investors, investigations on behalf of creditors and trustees in bankruptcy, examinations to ascertain the cause of decreasing profits, exhaustive audits preparatory to installing improved systems of financial and cost accounts, and investigations of the accounts of public officials at the be best of dissatisfied citizens are but a few of the many purposes which clients have in mind when desiring to have the accounts of an undertaking audited. The object of the auditor should be, in the main, three folded. They are detection of fraud, discovery of errors of principle, verification of the mechanical accuracy of accounts. As has been pointed out by other writers, the attempted concealment of fraud must be accomplished by commission of either an error of principle or one in the mechanical work of the accounts; owing, however, to its importance and often its predominating importance, the detection of fraud is conceded a separate place among the objects of an audit.

Abstract The article focuses on the differential cost that occurs when the manufacturer changes the quantity of its production. A manufacturer may wholly or partly avoid spoiling the market by selling his increments in output abroad, or by appealing to a different domestic market from the one in which he has been disposing of his goods. According to some theories if additional production results in lower prices for all units, true differential cost must include the loss resulting from such price reduction. Since differential costs are anticipated costs, they do not enter into the accounts. The author in this article considers the theory which underlies differential costs. A brief outline of practical procedure suitable for the accumulation of available factual data is presented, including suggestions as to how statistical forecasts of costs at various anticipated levels of production can be made. Various assumptions are sometimes made relative to cost trends at stated levels of future production. One such assumption is that differential costs will be less with each increased level of production until full capacity production is reached.

Abstract Buying for the government is subject to a vast aggregate of statutes, Executive and administrative orders, legal interpretations by the General Accounting Office, and court decisions. Some rules, such as those relating to standardized specifications, have their parallel in private business enterprises. Others have, but only if one forgets that a rule-making power vested in Congress and a separate administrative responsibility vested in a department head are likely to afford much less flexibility of rules than exists where not only administrative responsibility but also a generous measure of rule-making power are vested in a single manager. The contrast is all the greater if the business concern which the manager runs is not itself a body of such great size as to have the sort of complexity which characterizes governmental organization. Funds for procurement or for non-procurement purposes are usually made available in and for a single fiscal year. In the enforcement of the laws with which Federal procurement is hedged about, the General Accounting Office figures much more largely than the courts. Infractions of those laws usually are less classifiable as criminality than as inept or culpable administration, or as an admirably motivated if indiscreet effort to get a job done even at the cost of scissoring some red tape.

Abstract The need for some form of profit limitation in wartime is generally recognized. Spending on an economy geared to peacetime production is such that excessive profits must inevitably arise at many points. The conversion of a peacetime economy into a wartime economy not only creates new scarcities, but it also requires businessmen to produce goods, which they have never produced before. Under these Circumstances costs cannot be accurately estimated and profits may prove to be excessive. Furthermore, higher prices may be needed to encourage production by marginal producers, thereby giving windfalls with aspect to output previously produced. On the other hand, it is the duty of the government to see that a few do not profit from the sacrifices of the many. Profits have a positive contribution to make even in a wartime economy. Profits have a positive contribution to make even in a wartime economy. In most sectors of the economy, the normal peacetime role played by profits in determining what and how much will be produced has been taken over by the government. But the profit motive still has an important part to play within this framework by providing incentives to control waste and inefficiency and to keep production costs from rising. The profit motive is not, of course, the only factor contributing to these ends, but its importance should not be underestimated.

Abstract Reviews the book "Federal Tax Accounting," 4th ed., by J.F. Sherwood and C.R. Niswonger.

Abstract This article talks about some reports, which has been published in the April 1943 issue of the accounting journal "The Accounting Review." As to committees, it seemed advisable to appoint territorial membership solicitors to use a printed statement of Association objectives in a persistent campaign. Opinion at the meeting of May 8, 1943 was favorable to attempting some research looking toward a statement of cost accounting principles to be formulated by a special committee. Other research projects, if any such appear, can be given to other special committees to study. After some experimentation along these lines for a while, it would be necessary to decide whether research should be continued by special committees, by designated standing committees, or by research directors. Other matters of Association policy will probably need to be studied later also, when orderly legislation is once more possible. The established election procedure could not be followed in 1942, and emergency action was taken as reported in "The Accounting Review," for January and April, 1943.

Abstract Mastery of bookkeeping is fundamentally a development of the ability to decide which accounts should be debited and credited in the recording of transactions. Analysis of this type must precede recording. Since this concept is fundamental to all bookkeeping and accounting, it is important that it be introduced early in every bookkeeping course in such a manner that it will be thoroughly mastered. The difference between a $20-a-week book keeper and the much higher salaried auditor is largely in the ability to analyze accounting data. The most common weakness of students from high-school book- keeping classes that enroll in beginning accounting course is their lack of ability to analyze. Their handicap seems to be that though they know something of the "how" of bookkeeping, they do not seem to understand the "why" and thus lack ability to do accounting, for they are not able to deal with new or unusual situations. They need more definite, purposeful training in transaction analysis.

Abstract In 1887 the Interstate Commerce Commission, was established by act of U.S. Congress. The railroad problem was not new in 1887, nor were attempts to solve it unknown. The Congress and the courts had long been troubled by the contentions of railroad companies and the complaints of shippers. It was hoped that by setting up a permanent administrative body with suitable powers the regulatory intent of the Congress might be accomplished more reasonably and effectively. In this way began the experiment with the commission as a device for dealing with economic situations and procedures which are thought to call for government control. The establishment of the Federal Trade Commission in 1913 seemed to indicate that the type of agent to exercise governmental control in the various fields of business would take the form of a Federal commission. Federal commission as the principal agency for the regulation of business, and that any extension of government control of business is likely to result in the granting of new powers to old commissions or in the creation of new commissions. The problems involved in the relation of the commissions to the courts have given the commissions a legalistic procedure which, if undesirable, is still inescapable. The strength of the commission system lies in an adequate and competent staff. It is likely that in the future relationships between commissions will be more important than in the past. That is, the commissions are likely to become a regulatory network rather than simple, unrelated adventures.

Abstract Foreign commodity prices are determined by the so-called "Vergleichzszeit-system" in Germany. This involves a base commodity price on October 17, 1936 and fixes the conditions under which these prices may be raised or lowered. In accordance with the order of July 15, 1937 foreign commodities can be resold only at a price which consists of the purchase price and an economically justified profit. Export commodities from Germany are ordered to be sold at any price, if necessary, even far below production costs, the loss being recovered through the so-called export tax from the "Zusatzausfuhrverfahren." All firms which show a gain from domestic commerce have to pay the export tax to support exporters. After a year of full production under regular audits, permanent control through cost accountants, readjustments of book values to their "real" status, and other control measures or pressures, the producers might show a cost regression and large profits. These were acquired through taxation or bonds, thus securing the means for repurchasing the special drafts. The circle is closed and the credit expansion canceled after having fulfilled the desired task.

Abstract This article focuses on the inventories and the statement of funds. The statement of funds is one important tool of analysis employed to trace the how of funds as a preliminary to assessing its significance. The need for a statement of funds arises from the fact that present-day accounting procedures are geared primarily to the determination of income and to the correlative movements in costs and values of assets and liabilities, not to the measurement of the now of funds. To produce an analysis of funds, consequently, a device such as the statement-of-funds work sheet is required to transform income-measuring data so as to constitute a reflection of financial circulation. If a statement of cash receipts and disbursements is available, as in budgetary procedure, with receipts classified by source and disbursements by destination, no necessity exists for preparing a statement of funds from modified balance-sheet and income-statement data, because a cash statement of this nature is itself a statement of the flow of funds.