Reviews the book "Problems in Accounting," by W.A. Hosmer.

A review of the accumulated criticisms of the American Accounting Association's "Tentative Statement of Accounting Principles" shows that points made are of two kinds, those concerned with various details and those expressing fundamental differences in point of view. Criticisms raise certain fundamental issues. For example, are accounting principles related to the function of accounting, and if so, what is that function? Are accounting principles to restrict or liberate managerial freedom to deal with changing conditions? In discussions of function there is a tendency to confuse central purpose with possible uses. Uses to which accounting data may be put are many and diverse, obviously, principles and procedure cannot be oriented equally well to all uses, nor can each use have its own set of principles and procedure. It may be said that accounting serves several purposes. If some of these purposes are in conflict, as they are very likely to be, accounting is then pulled this way by one interest and that way by another, and as a result one cannot say that a corporation's financial statements are continuously in accord with a single coordinated body of accounting theory.

The article focuses on test for principles. The word principles has been extensively used by both accounting practitioners and academic writers with little discrimination in the context between the truths of accountancy and the practices of accountants. In a treatise for educational use, inclusiveness may be necessary so that accounting will be presented as a whole. But the student cannot be well trained in clear thinking unless the elements out of which the subject matter is constructed are clearly distinguished one from another. There is a growing movement, in the interest of clear thinking and orderly practice, toward the formulation of concise propositions regarding accounting. Each of these aspects is complementary to the other, and both need to be held in mind for true comprehension. But it is a task of some moment to classify numerous propositions as either rules or principles, for none of them can be both. To do so one needs more than dictionary definitions. A test by which to recognize a proposition as a statement of accounting principle is needed. Those propositions which do not meet the test may be useful statements of accounting rules.