Role of accounting, Productive resources

This article responds to a review of the book, An Introduction to Corporate Accounting Standards, by W. A. Paton and A. C. Littleton. Paton was pleased to have the opportunity to examine a draft of Professor Yuri Ojiri's review of the book. Before the book was published, there was some delay, some criticism, but no substantial changes were made. After those situations, the executive committee of the American Accounting Association decided to publish the book in 1940. Under the conditions prevailed, Paton feels that he and Littleton did a creditable job.

Reviews the book "Investments," 7th ed., by David F.Jordan and Herbert E.Dougall.

Everyone is more or less reconciled to the prospect of a relatively large Federal budget in years ahead. No one expects that taxes will be greatly reduced immediately even if and when the happy day comes which sees free spenders kicked out of seats of authority. But the burden of taxes is not to be described merely in terms of the amount of money collected. The total burden includes the cost of compliance on the part of taxpayers and administrative costs incurred by the government. In constructing a system of taxation a serious effort should be made to minimize this additional burden, the taxpayer should be separated from his money with the least possible bedeviling, harassment, and expense. The system, however, could hardly be worse if deliberately designed to maximize the direct and indirect cost of compliance, and to produce gross inequities to boot. No one is in a position to estimate in dollars the amount of the annual burden which represents a total loss to the national economy in the form of excessive compliance cost, but that this unnecessary load is a serious matter can not be questioned.

Included in the "Tentative Statement of Accounting Principles" offered by the American Accounting Association in the Accounting Review of June, 1936, was the recommendation that unaccumulated bond discount be reported in the corporate balance sheet as a contra to the face or maturity amount of the outstanding obligation rather than as an asset. The purpose of advancing this specific suggestion in a statement of general principles was to call attention to a practice which is neither in accord with the clear reasoning which is supposed to characterize accounting nor supported by the "considerations of expediency" so cherished by those who feel it necessary to offer some excuse for deviations from logical procedure. The members of the Executive Committee of the Association felt, in other words, that here was a particular point at which accepted presentation is definitely out of line with sound principle and where correction would be entirely feasible-aside from the problem of inducing the typical accountant to change his ways. The recommendation, it should be understood, does not involve any new doctrine or approach. It represents merely the application to financial statements of the interpretation of bond discount long a commonplace in financial circles.

The author of the article assumes that revaluation of a cost-of-replacement basis is in general quite as defensible as revaluation on a value-of-money basis and has, at bottom much the same line of justification. From a balance-sheet standpoint, there is not much to be said for revaluation on a cost-of-replacement basis of plant assets particularly specialized depreciable assets, even in a period of rapidly changing prices. The author states that balance sheet figures cannot be expected to show realizable values in the case of plant assets and as expressions of cost incurred. It is hard to see any advantage in current estimated costs over actual dollar costs for balance-sheet purposes. In fact a footnote or a careful reference to the changing situation is as valuable as the adjusted figures themselves. On the other hand, there is hardly any serious objection to the introduction of careful estimates of replacement costs in the balance sheet provided it is done, as is almost never the case, in a proper manner, and this should mean, among other things, that the extent of the adjustment is clearly displayed.

Reviews the book "Financial Management--Policies and Practices," edited by Francis J. Corrigan and Howard A. Ward.

The article presents information about a Committee appointed by the American Accounting Association. The work of the Committee on Monographs during the year, 1943, has been devoted primarily to two projects. The first consisted of preparing a compilation of the releases and pronouncements on accounting matters issued by the Securities and Exchange Commission, the Committee on Accounting Procedure and the Committee on Auditing Procedure of the American Institute of Accountants. The second project was the preparation of a monograph on the principles of consolidated statements. This monograph was written by Dr. Maurice Moonitz of Stanford University, and was reviewed and approved for publication by the Committee. The Committee has also given some attention to two or three other projects and manuscripts. The president of the Committee said that the educational institutions and programs are all being subjected to special stresses and difficult restrictions during the war. The programs of most colleges and universities in fields customarily followed by men have had to be materially curtailed or completely eliminated.

The article focuses on recommendations presented by the American Accounting Association's Committee on Concepts and Standards, regarding the use of term "reserve" in accounting. The committee recommended that the term reserve should not be employed in published financial statements of business corporations, appropriations of retained income should not be made or displayed in such a manner as to create misleading inferences, and the reserve section in corporate balance sheets should be eliminated and its elements exhibited as deduction-from-asset, or liability, or retained income amounts. In general usage, outside of accounting, a reserve is a fund of cash or other assets. In accounting the term has been used to caption a variety of balance sheet items including segregated retained income, segregated asset, asset valuation and asset amortization amounts, and liabilities. It has been recommended that the word reserve be restricted to captions describing appropriated retained income. The committee believes that the popular understanding of financial statements, and the thinking of the profession, would be promoted by abandoning the term.