Knowledge that Transforms

The purpose of the article is to present a form for the Statement of Realization and Liquidation, and to present a study and comparison of the form suggested with the other forms which have been used in the past. When a Receiver in Equity is appointed by the court to take charge of the affairs of an insolvent firm, an interesting accounting problem presents itself. This problem is the proper classification of the many kinds of transactions performed by the receiver. During the period of a "friendly receivership" it is desirable to classify the transactions pertaining to operations, and the transactions dealing with partial liquidation. Unless a clear-cut distinction is made between the results of operations and of partial liquidation, it may prove difficult for the court to determine wisely the future of the organization. To report upon these two kinds of transactions, as well as to show the change in the Assets and Liabilities of the business during receivership, a Statement of Realization and Liquidation may be prepared.

Reviews the book "Accountants' Legal Responsibility," by Saul Levy.

Over-all comparisons of the size of state expenditures need to be supplemented with a description of the relative share of financial responsibility borne by state and local governments in each state. Cost accounting should provide a variety of unit data, like, how much it costs to educate a child, to maintain a patient in a hospital, to build a mile of concrete road, to process a tax return, to patrol 100 miles of highway, etc. Those unit data have of course, only limited value for interstate comparisons until quality standards and uniform methods of cost accounting are set up. Most states depend for their major improvement programs on the investment market. It would be in the states' interest to make available to investors the kind of information which they are used to getting from other applicants for funds. The National Association of State Budget Officers recognizes the need for comparative figures on public revenues and expenditures. The pioneering work in this field by the Bureau of the Census represents a step in the right direction.

In determining how cash is to be divided among partners, the conventional accounting approach is to regard any distributable cash as though it were the last to be made available to partners. This involves the assumptions that all remaining assets are worthless and will emerge as a complete loss, and, that any presently deficient partners or partners who may become deficient as a result of the loss of all remaining assets will be unable to meet their indebtedness to the firm, such deficiencies requiring absorption by remaining solvent partners. A schedule should be prepared which involves a recognition of partners' present equities and the portions of the equities that must be restricted to absorb the charges occasioned by a loss on remaining assets and the charges emerging from any capital deficiencies. The maximum loss that each partner can absorb in terms of his present respective equity in the firm must first be calculated. As cash is to become available, it should be applied in a manner that will bring the partners' equities ever closer to the point where they can absorb the same loss.

The article discusses the application of statistical methods to accounting, auditing, and management control problems. It is part of a study in this area by a small group in Pittsburgh. The group, consisted of accountants and statisticians who reflect both academic and practicing points of view. The article reports on the progress of the work, and invites suggestions and appraisals from members of the accounting profession. The article focuses on the organization and general approach of the research, studies completed or under way, together with results achieved, and possible directions for future work. The significant points include the importance of the team approach, the need for obtaining guidance from fundamental requirements of accounting and auditing, and the necessity for proceeding in a fashion which protects the professional integrity of the statistician, as well as that of the accountant. The more rapid progress achieved in the areas of accounting procedures and management control devices, as contrasted with purely audit problems, has been specifically noted.

The article presents those principles which seem to be basic to the operation of an accounting internship program in a manner which enables it to contribute most to the total accounting education of participating students. The article lists the goals of the internship programs, the responsibilities of each of the participants, and the standards which should be observed to make internship programs more effective educational devices. At present, in the U.S., over forty schools are operating internship plans of one type or another. Fundamentally they are all attempting to meet the same need, but the details of the plans vary considerably. There are variations of the basic plans, which aid in increasing the usefulness and effectiveness of internship programs. There is considerable variation also as to granting credit. A number of schools grant credit for internship work and grade students on performance. Internship programs have as their general objective the development of better qualified accountants with a resulting benefit to accounting firms, to students, and to schools.

The article focuses on governmental accounting in the U.S., which offers the greatest opportunity for public service. Collectively, the federal government with its various agencies and the states with their many political sub-divisions comprise the greatest users of accounting today. Governmental accounting is one of the most popular accounting courses at the University of Miami in Florida. Two courses are offered one on the elementary level, and another on the advanced level. The State Board of Accountancy in New Jersey has given governmental accounting an added importance by requiring its chief public accountant candidates to take a special examination in governmental accounting before the certificate will be awarded to perform municipal audits. Similar rules are in effect in Kansas and Oregon. Governmental accounting is helpful to those preparing to become auditors, comptrollers, or chief accountants of a municipality, county, state, or in a U.S. Accounting Office. An acceptable score on the American Institute of Accountant's orientation tests would prove helpful.

In connection with its continuing study of the concrete meaning of "business entity," the Committee on Concepts and Standards of the American Accounting Association has selected the area of consolidated financial statements as one of importance. The basic principles of consolidated financial statements include that firstly, in the absence of special circumstances, consolidated statements are useful representations of financial position and results of operations when a dominant central financial interest in two or more companies exists and is accompanied by administrative control of their activities and resources. Secondly, in so far as practicable, the consolidated data should reflect the underlying assumption that they represent the operations, resources, and equities of a single entity. The first principle is a statement of policy, of objective, defining broadly the entity or area of consolidation, the second principle sets forth a general guide to the procedures of consolidation.

The late 1880's, in the U.S., represented a period of undoubted development and advancement in accountancy both in better knowledge of the profession and its requirements. Another trend that tended to further the development of the profession was the incorporation of industrial concerns under the laws of the various states. The securities of these corporations were issued and offered to the investing public. In many of these corporations, public accounting firms were employed to make examinations and reports on the financial condition and earnings of these corporations before their securities were offered for public subscription. The first industrial firm so incorporated whose securities were offered to the public with an accountant's certificate attached to the prospectus was the firm of John B. Stetson and Co. of Philadelphia, Pennsylvania. By 1909, the accountancy profession had gained such favor among businessmen that corporations of the better class were of their own volition adopting the practice which had become obligatory in England under the Companies Act of 1900, of retaining public accountants to make periodic audits.

Reviews the book "Internal Auditing," by W.W. Bigg and J.O. Davies.