Professor Littleton's paper seems especially timely in view of the present day ideas accounting as a record of original prices and widely fluctuating prices as a normal pattern-there seems to have come the conviction that accounting for outlay cost can no longer be considered a dependable guide to those who look to accounts for essential information. And the conclusion then follows that account keeping or financial statement practice must be modified to suit the new background. The assumption that problems of income distribution dividends, income tax, speculative security profits are of more importance than problems of the measurement of the income generated by the creation of new wealth or the rendering of acceptable services. The assumption that accounting has a more important obligation to supply data useful in managerial pricing policy than it has in facilitating the comparison of past input of services costs with past output of services revenues. The assumption that accounts and statements are merely tabulations of statistical data related to social income and as such are open to any desired manipulations by statistical methodology, such as weighting by index numbers, reduction to averages, elimination of seasonal variations, etc.

Periodical examinations of the accounts of commercial and financial institutions, special examinations for prospective investors, investigations on behalf of creditors and trustees in bankruptcy, examinations to ascertain the cause of decreasing profits, exhaustive audits preparatory to installing improved systems of financial and cost accounts, and investigations of the accounts of public officials at the be best of dissatisfied citizens are but a few of the many purposes which clients have in mind when desiring to have the accounts of an undertaking audited. The object of the auditor should be, in the main, three folded. They are detection of fraud, discovery of errors of principle, verification of the mechanical accuracy of accounts. As has been pointed out by other writers, the attempted concealment of fraud must be accomplished by commission of either an error of principle or one in the mechanical work of the accounts; owing, however, to its importance and often its predominating importance, the detection of fraud is conceded a separate place among the objects of an audit.

In considering the cost section of the statement of accounting principles underlying corporate financial statements, which was issued by the American Accounting Association in June 1941, the author assumes it is the wish of those who arranged the program for this session that he speaks from the standpoint of the practicing accountant rather than deal with the subject from the viewpoint of pure theory. It may seem trite, but nevertheless necessary for the record, to point out that cost is one of those words which sounds as though it were a very simple concept, but which proves to be anything but simple in many of situations in which cost must be determined or applied. When cost is to be determined for goods which have been sold, the practical questions which arise in a business with modern production methods and with a variety of products and a highly departmentalized manufacturing organization obviously makes the determination of the cost of sales, a process which inherently rests on many different assumptions and sometimes only intelligent guesses.