Knowledge that Transforms

The article presents a discussion on the future of financial reporting. The increased importance of accounting in public and private affairs has been accompanied by a critical examination of accounting itself. Considerable introspection has taken place within the accounting fraternity in recent years and some progress has been made in improving misunderstandings of the accounting mechanism and terminology. The chief limitation of accounting under present conditions is the assumption of a stable measuring unit, when, in fact, recorded dollars are of different vintages and represent different indexes of purchasing power. As a technique, accounting is primarily concerned with measurement. The dollar which is the only available measuring unit for business accounts is not a fixed unit. While in ordinary times its variations are small, serious difficulties present themselves under conditions of strong inflationary or deflationary pressures. The art of reporting a reasonably simple and realistic picture of business conditions and operations is, therefore, at stake.

This article discusses the information on the paragraph no. 5. The Paragraph No. 5 under "Expense" in the 1948 Revision of Accounting Concepts and Standards Underlying Corporate Financial Statements of the U.S. reads that An assignment of all or a portion of the cost of an asset to expense, made in good faith after considered judgment and after competent review, in accordance with the accounting concepts and standards of the time, is not subject to reversal in a later period. Errors of a mechanical and non-judgment nature should be corrected in the period of their discovery. The Committee on Concepts and Standards is in agreement with the apparent basic purpose of this statement to reduce the possibility of manipulation of the net income calculation through reversals, revisions and reaccounting of past depredation charges and other amortizations. At the same time it recognizes that a position unalterably opposed to the correction of errors of judgment is both arbitrary and difficult to defend.

In recent months certain savings and loan associations, with a view of increasing their reserves, have been buying Valuation of Assets and other mortgage loans at big discounts, booking them not at cost but at par, and crediting the discount straightway to earnings, from which, at the end of the fiscal period, it is transferred to reserves. Since these associations are strictly cooperatives, they have no capital stock of the kind corporations do. The commercial banks and trust companies are incorporated and are owned by stockholders; the capital stock is evidenced by shares which entitle the stockholders to their proportionate part of the corporation's current net earnings, and of the net worth in case of liquidation. Except in a few states, the state-chartered savings and loan associations are not allowed to accept deposits; the savings and loan associations having federal charters are similarly inhibited. In short, the associations have no debts of consequence, except perhaps their borrowings from commercial banks or the Federal Home Loan Banks; and so almost all of their assets are owned in equity.

Reviews the book "Materials on Accounting," 2nd ed., by Robert Amory and Covington Hardee.

The article presents a study on implications of the use of computers in industry. Well-informed, forward thinking individuals have identified the possibility that routine sensing and judgment work now performed by people will be taken to an important degree by machines. These observations are based upon two developments. First is the development of methods for reducing complex problems to terms that the human mind can grasp and understand in their entirety. Second is the availability of the aforementioned computers for use as research tools for processing the masses of data that may have to be examined in the course of reducing the complex problem to its simpler form. The method is based upon the premise that many of businesses have sufficient maturity for stable operational patterns to have evolved. The ultimate expectation is that these principles can be quantitized and expressed mathematically. When this end is attained, it should then be possible for a computational machine to take over and, operating in accordance with the desired mathematical expression, sense deviations and indicate or even take action.

The major arguments in favor of direct costing are (1) it imposes a more realistic approach to the analysis of joint costs, (2) it permits the allocation of costs on a temporal basis if temporal significance outweighs product significance, (3) it enables the allocation of costs according to lines of responsibility for them, and (4) it possesses a number of advantages which stem from its simplification of computation. Finally, direct costing shifts the reflection of costs in the formal records from the expression of a relatively useless inventory valuation to the analysis of costs according to their applicability to periods or lines of activity.

Reviews the book "Analysis of Financial Statements," 4th ed., by Harry G. Guthmarm.

Reviews the book "Tax Court Digest," edited by Lois G. Moore.

The article presents a chronological list of dates which appear to be significant in the development of accounting. In 2000 B.C., the first record of internal control was used when an Egyptian treasurer's activities in collecting grain were checked by a scribe. In 200 B.C. , accounting for the Roman Republic was an enlargement of the system used by the family head. Daily receipts and disbursements were entered in a day book, and posted monthly to a register, which was, in effect, a ledger. In the same year, the Greeks kept cash receipts and disbursements" records showing rent and interest as income; sacrifices, wages, and entertainment were recorded as expenditures. Use of drafts, letters of credit and day books was prevalent. In 500 A.D. the papal treasury at Rome was supervised by a treasurer under whom a paymaster functioned. A decentralized system of accounting for revenues existed. Upon receipt of collections from various church members, representatives sent it to the papal treasury at Rome.

The article presents a picture of how internal auditing began and is progressing in the U.S. Air Force. Before the Air Force organized its own auditing department, audit functions were dispersed among several organizations and audit operations were performed mainly at subordinate levels of management. On 1 July 1948 the Air Force officially took on responsibility for its own audit functions. The personnel, funds, and workload of the U.S. Army Audit Agency were divided by mutual agreement between the Army and the Air Forces, and a new auditing agency was set up under the Air Force Comptroller who is one of the top managers of the U.S. Air Force. The first Air Force Comptroller recognized the value to management of a centralized and independent audit department. He gave the U.S. Auditor General a broad charter and supported his efforts to organize a professional and trained staff of accountants and auditors. In the Spring of 1949 the Auditor General embarked on a positive program to indoctrinate the auditors in internal auditing principles and methods and promote the application thereof throughout the Air Force.