Reviews the book "Systems Based Independent Audits," by Howard F. Stettler.

Abstract The article suggests that matching revenue and expense should be defined as assigning revenue earned and expense incurred to the accounting period in which these events occur. The absence of revenue should not be used as justification for capitalizing expenses. Fixed relationships between revenue and expense should not be assumed. Where such a relationship is established by contract, such as on cost-plus contracts, it is acceptable to measure revenue in relation to cost incurred. Cost should be written off over the periods of expected contribution to revenue. It is futile and unnecessary to try to apportion these costs in relation to assumed amounts of periodic revenue. The decision to capitalize expenditures for amortization in future periods should be based on the probability that such costs will produce additional revenue in those periods. Thus, the use of the accrual basis does not and should not include an estimate of the amount of future revenue to be received. In the unusual case where both revenue and expense can be accurately predicted, then and only then should a fixed relationship be used.

Abstract The article informs that in the April, 1963 issue of the "Journal of Accountancy," Kenneth S. Axelson' expresses the opinion that management services do not compromise an independent certified public accountant's necessary independence. This article takes a contrary view, one which certainly will not be popular either with the American Institute (which strongly promoted management services from the CPA) or with the many firms which are now engaged in these services. Nevertheless, the issue is not settled, as Axelson's article would have been pointless had this been the case. The case for management services. By-passing the question of the competence of the CPA, the basic premise of those supporting combined audit and management services from the same accounting firm for the same client is that the auditor only recommends, that he does not and cannot make the final decision as to implementing the recommendation. Thus, management of the client's affairs is still in the client's control and therefore the auditor, in a subsequent audit is not in effect auditing his own work. From this reasoning it is then concluded that the auditor's independence is not impaired by rendering management services to an audit client.

Abstract This article focuses on the current trends in accounting theory. Two such movements seem to be apparent at the present time. One of these is the trend toward a closer relationship between accounting income and economic income; the other, a trend toward less reliance upon income tax regulation in the formulation of accounting theory. These two items are listed as trends, not as accomplished facts. With this in mind, this article may briefly examine some evidence of the existence of the trends. One current trend is the resurgence of the balance sheet. Partly as a result of the rush to LIFO, the income statement has been given primary emphasis in most areas of accounting during the past twenty years. The assertion that the measurement of income is the important task of accounting, and the balance sheet is nothing more than a receptacle for carrying forward amounts to be shown on future income statements, has been heard from many quarters. On the other hand, those who are concerned about the effects of inflation on depreciation have objected that the balance sheet does not show the proper amount to be carried forward to future years. Both groups then, deplored the balance sheet, although for different reasons.

Abstract Accounting in governmental units and particularly in municipalities, has improved during the last two or three decades. During this period, the accrual basis has become accepted procedure for handling most items of revenue and expenditure. In one important respect, progress seems to be lacking in the field of governmental accounting. The published reports of governmental units show little, if any, progress over those which were published earlier. If publishing a report of some sort can be assumed to be better than no report at all, then progress has been made. The typical report of a municipality is a lengthy, detailed, footnoted conglomeration of prose and figures. Page after page of tables, financial statements, charts and other data is the rule. Few accountants can thaw basic conclusions from these statements without intense study. For purposes of financial control, it is necessary to keep separate records for each fund and reports showing the status of each fund are required. But whether these individual reports are the ones which should be generally distributed is another and different question.

Abstract The purpose of this article is to examine some of the factors involved in the present concept of generally accepted accounting principles as well as their application. Even though no formal, codified set of accounting principles exists, there is general agreement among those who prepare and use financial statements as to the basic principles. The concepts of the going concern, matching of income with related expense, and cost as an original measure of value are probably unchallenged. Conservatism, or the postulate of anticipate no profits and provide for all probable losses is likewise widely accepted. The following criterions are suggested as a means of selecting those who might assume the responsibility for determining standards of application as well as principles: a demonstrated proficiency in accounting and an interest in accounting as a rational subject, per se. In seeking those who satisfy the first requirement, an acceptable though not infallible guide is the C.P.A. certificate. Finding those who also satisfy the second requirement is more difficult. However, practicing certified public accountants and college instructors in accounting should in general satisfy this second requirement.

Abstract This article deals with conventional approach in the preparation of financial statements. The adoption of last in first out (LIFO) inventory methods and is now widely urging that the cost of fixed assets be abandoned as the basis for the computation of the allowable depreciation charge. Both of these innovations have been defended with the assertion that the conventional methods show "dollar" income, but that such income is misleading, and that the adoption of some other method will tend to show "economic" or "true" income. It might be well to inquire into the trend as now evidenced and into the desirability of that trend. Thus until all business transactions are by some means converted from the basis of monetary units to purchasing-power or some other method of reporting "economic income," it seems that accounting statements will best serve their purpose by adhering to the usual and accepted standard of measure, the dollar. This would involve the repudiation of the LIFO inventory method in order that all accounts would then reflect monetary income on an objective basis.

Abstract Reviews the book "Auditing Concepts and Standards," by David N. Ricchiute.

Reviews the book "Auditing," 2nd ed., by James A. Cashin and Garland C. Owens.