Taxation, Book-Tax conformity

Financial reporting, Managerial discretion

Reviews the book "Accounting Principles for the Autonomous Corporate Entity," by Henry P. Hill.

1963 marks the 40th anniversary of the publication of economist John Maurice Clark's Studies in the Economics of Overhead Costs. This paper is a belated review of that important and significant volume. As far as, according to the author, this is the first review of this book by Clark to be given before an accounting audience and none has appeared in an accounting journal. Two of the sister arts, economics and statistics, recognized the accounting significance of this work. Distinguished accountants who were later to become presidents of the American Accounting Association prepared the reviews of it in the journals of their professional organizations. Clark makes the point repeatedly that acquisition of knowledge and technical skills by workmen and researchers is an overhead cost to the firm. He hints that these costs should be capitalized for they give rise to benefits of an enduring sort. Much of this paper has been taken up with criticism of a relatively minor sort of Clark's views and of the difficulty of implementing some of his notions. Such comments should not be allowed to mar the major sentiment the author hopes to express.

Many firms use an accelerated depreciation method for calculating the depreciation deduction to be made on the income tax return, but employ the straight-line depreciation method for calculating the depreciation expense figure for financial statements. In considering the effect of this action on income tax expense and income tax liability, attention must be centered on the taxpaying entity, the firm as a whole. For a static or growing firm, current tax savings from this source will not adversely affect income tax charges of future years. In fact, the growing firm can look forward to an ever-increasing annual tax saving continuing year after year. Only a moribund firm with declining investment in capital assets is likely to be faced by a substantial deferred tax liability, and then only if its dying years are profitable ones. Although the analysis indicates that a liability for future taxes from this source should be recognized only in rare cases, disclosure of any difference between the amount of depreciation claimed on the tax return and that shown in the income statement is a desirable reporting practice and should be employed regularly.

The major problem confronting accounting education in the next decade and a half is almost certain to be that of developing adequate teaching staffs. That this need for accounting teachers will develop is incontrovertible. Securing this number of new accounting staff members in the next fifteen years is certain to be a most formidable task. The staff problem is one of the major concerns of this American Accounting Association, and a new committee of the Association is studying the problem. An indication of the importance attached to the problem is the fact that all members of the committee are either past presidents or current or past vice presidents of this Association. Another suggestion, non-financial in nature, that has sometimes been put forth for dealing with this impending crisis involves a relaxation of the emphasis on research and publication by staff members. Only in the research program of the university scholar is there likely to be sufficient emphasis on basic and long term factors as opposed to short-run and applied considerations.

The full value of the internal auditor's work can be realized by management only if the findings and recommendations of the auditor are clearly communicated to management. In the early days of internal auditing, reports frequently followed the pattern set by long-form reports of public accountants. In the last fifteen years there has been a remarkable change in the concept of the proper functions of an internal auditor. When a company has sustained a loss in a previous year, this loss may be used to offset taxable income for the succeeding five years. In September, 1950 the Committee on Accounting Procedure of the American Institute of Accountants issued a bulletin dealing with Business Combinations or, as they are more commonly known, pooling of interests. The bulletin dealt with those situations involving issuance of capital stock for assets or capital stock of another company where the transaction might more appropriately be dealt with as a pooling of interest, rather than in accordance with the general rule that such issuances constituted acquisitions of assets, as they would if the consideration given was cash rather than stock.

Reviews the book "A Study of Saving in the United States," vol. 1, "Introduction, Tables of Annual Estimates of Saving, 1897 to 1949," and vol. 2, "Native and Derivation of Annual Estimates of Saving 1897 to 1949," by Raymond W. Goldsmith.

Reviews the book "Auditing," 3rd ed., by William H. Bell and Ralph S. Johns.

The preparation of statements of realization and liquidation is a topic, which frequently troubles classes in advanced accounting or advanced accounting problems. This condition is certainly not caused by the analytical complexity of the topic. The legally oriented form in which the statement is presented explains part of the difficulty encountered, but the chief stumbling block usually arises in securing a proper classification of the data. If all the transactions of the period are recorded in the appropriate columns of the work sheet, preparation of the statement of realization and liquidation merely involves transferring of the figures from each work sheet column to a column similarly headed in the statement. Use of a ten column work sheet with a pair of columns for each of the five classes of data to be reported will overcome much of the difficulty it is believed. Such a work sheet permits all of the transactions to be classified immediately in the proper categories. Categories according to which data should be presented are also listed with full explanation.