Knowledge that Transforms

This article presents several news from various universities of the U.S. George N. Francis is serving as head of the Accounting Department, Los Angeles State College, Los Angeles, California replacing Mary E. Murphy who resigned that position because of heavy research commitments. She spent the summer in Europe attending international meetings and visiting advanced management courses. A new program provides students in accounting with an Associate Membership in the Colorado Society of Certified Public Accountants (CPA) on payment of a two dollar lee. This entitles the student to notices of all meetings of the Society and to participate in its programs. Students are invited to two dinner meetings of the Association during the year as guests of the Society. Before such meetings they are invited to visit the offices of members for an introduction to public accounting. Martin E. Drebin is serving on the Educational Standards Committee of the Illinois Society of CPAs. Robert A. Meier is a member of the Auditing Procedure and Accounting Principles Committee of that organization and is also a director of the Chicago Control of the Controllers Institute. Robert J. Lill of the accounting faculty received the Sells award for the highest grade on the May, 1960 CPA examination.

Those who would divine the future dimension of the accountancy profession must inevitably measure the significance of many economic, social, and political influences which condition the posture of the U.S. business. Educators and businessmen alike are concerned about the educational framework for future careers in business. In consequence, they have been compelled to reexamine their respective contributions to this period of professional preparation, to the end that their efforts may be more mutually reinforcing. One of the most important phenomena relating to business education since World War II has been the growing interest demonstrated in post-graduate training. The vehicles most often employed for executive review or development are specially conceived and prepared management training programs. The success of these programs has been attributed, at least in part, to their emphasis on the integration of various business disciplines which influence managements deliberations. A survey including all major subject-areas showed that accounting and other quantitative methods are represented to the extent of approximately 20 percent, ranging from a low point of inclusion of 15 percent to a peak of 50 per cent.

This discussion refers to the objectives of accounting education in the four-year, undergraduate, liberal-arts college in which the accounting department is often the ugly duckling. A recent survey conducted by "Fortune" related to the educational backgrounds of the three highest-paid men in each of 300 of the biggest companies showed that 67 percent of the executives had majored in business economics, or engineering while 12 per cent had majored in liberal arts. Every effort should be made to bring some balance to this unseemly unbalanced situations and it would appear that accounting educators are just the ones to try, for they are supposed to have an equilibrium complex. In addition, an inferiority complex account has been opened for higher education in accounting by two well-known studies, and a huge debit has been placed in that account. Education in the liberal arts needs to be more conscious of its business and orient itself to the practical necessities of life while the useful art of accounting needs to be more intellectual than it is.

The article presents a critical appreciation by the author in response to a Abraham J. Briloff's criticism of his article "A technique to Adjust Financial Statement Data for Changing Price Levels," published in the October 1961 issue of the Journal "The Accounting Review." The author retorts that Briloff has, for the second time, attacked the idea of indicating the effect of inflation on business income, the earlier account was in July 1958 issue of the journal. The author states that as far as net income is concerned, Briloff embraces the unusual concept that all increase, realized or unrealized, in the monetary value of a firm's net assets over a period of time is income, and as such is taxable. To him, it matters not whether the increase in dollar value is the result of realization or conversion, or partly the result of a monetary unit that has declined in value. At the present time, U. S. businesses are taxed on realized gains which partly reflect inflated dollars. The author comments that to this current inequity, Briloff would add a tax on unrealized gains as well. The author informs that in this article, he will consider only the weaknesses of Briloff's recommendations and his adamant position against price level adjustments to financial statements.

Reviews the book "Training Managers Abroad," by Jane Dustan and Barbara Makanowitzky.

Reviews the book "The Tax Practice Deskbook," by Harrop A. Freeman and Norman D. Freeman.

Although social implications may exist, businesses are formed primarily in response to ownership conviction that profits can be obtained from operation. In order to measure operating results, to gauge the effectiveness of management and to estimate the vitality of the owners' investment, detailed knowledge of past performance is essential. Subsequent investors and creditors need to know past performance to estimate profit making potential. Accountants in public practice may well be facilitating the administration of economic activity by making themselves available for management services. Someone however, ought to be able to compute profitability for the owners and to tell them what net return for a given period of time has been enjoyed on their investment. Economists follow the principle that costs should be related to revenues on the same price level basis and that the income in one period should be compared with the income in another period on the same price-level basis. Determination of net income is certainly one of the important functions of the accountants.

This article focuses on professional practice in England and the U.S. In the present era of expanding international commerce, professional public accountants of each nation are continually increasing their contacts with accountants of other countries. In the interests of world wide financial communication, it is desirable that the conventions and behavioral standards of each segment of this world-wide accountancy profession he as clearly understood as possible. One of the distinguishing marks of a profession is the concept of ethical practice subscribed to by its members. The American accountant finds in the English fabric of ethical conduct much that is identical to his own concept. Both accounting groups restrict the practice in the member's name to members of the Institute of Certified Public Accountants. Both restrict the use of the institute's name to firms composed oil of their members. Both require that the member, even when not practicing as a public accountant, follow the guidance rules laid down by his accounting institute.

There is a need in cost and budgetary control for information on the significance of cost variances. The conventional tests of absolute or relative dollar magnitudes are inadequate. The probability of a variance resulting from random, non-controllable causes is also important. By using the properties of a normal probability distribution it is possible to devise a method for computing the probability significance of cost variances. By combining the costs and rewards of investigation with the associated probabilities, a model can he constructed to aid in the decision of when a variance should be investigated. In the illustrative model, presented in this article, the formal distribution has been used. In some cases, the cost characteristic may make the assumption of normality unrealistic. There is no reason why the analysis could not be modified to accommodate some other probability distribution and also some other budget philosophy. However, the normal distribution is easy to work with and in most cases it is probably a reasonable approximation, particularly if the budget philosophy is not one of selecting the lowest possible budgeted amount (highest possible efficiency). Given any definite budget philosophy, a reasonable probability distribution could be chosen and the remaining analysis would he much the same as that suggested above. Such analysis should facilitate management by exception as applied to cost control.

Reviews the book "Top Management Handbook," edited by H.B. Maynard.