Reviewed by Dee Ann Ellingson University of North Dakota
Who in the accounting community has not heard of the likes of Canning, Hatfield, Littleton, and Paton? But who has heard of Gabriel A. D. Preinreich? That is precisely the question posed by Richard Brief in the introduction to his book. As the title implies, the book is a collection of selected articles by Gabriel A. D. Preinreich during the period from 1931 to 1944.
Briefs intent in publishing the book is to “make students and academicians more aware of his work” [p. xx] in order to give greater recognition to Preinreich’s contributions to accounting and raise Preinreich’s status as an “important accounting theorist.”
Why has Preinreich not achieved the same level of recognition as other early writers? Brief offers three possible reasons. As a sole practitioner, Preinreich may have been viewed as an outsider by the academic community. He may have been ahead of his time in the application of mathematical models to accounting problems, which was not common in accounting literature until the 1960s and 1970s. And his blunt criticisms of the work of others may not have been well received.
The book is divided into three sections, “Accounting from the Investor’s Viewpoint,” “Goodwill and Valuation,” and “The Depreciation Problem.” The first section includes three of Preinreich’s articles. In the first article, “Accounting Problems of the Unincorporated Investment Trust,” Preinreich presents an interesting and rather unorthodox approach to accounting for the trust’s transactions. He states that “by surrendering the largely imaginary advantage of having the books reflect the total income of the trust, a convenient base is derived for the quick computation of each certificate holder’s individual income” at any point in time [p. 17]. The next two articles, “Stock Yields, Stock Dividends and Inflation” and “The Fair Value and Yield of Common Stock,” deal with the effect of the corporation’s expansion rate and earning rate in addition to the money rate and the time horizon of those rates in determining the yield of common stock.
The next section, entitled “Goodwill and Valuation,” includes four articles. Extensive summaries of various definitions and interpretations of goodwill were published by Preinreich in “The Law of Goodwill,” which summarizes goodwill in laws and court cases, and “Goodwill in Accountancy,” which surveys goodwill in the accounting literature. Preinreich discusses both goodwill and depreciation in the context of the definition of the balance sheet in “Valuation and Amortization.” In “Economic Theories of Goodwill,” Preinreich draws from economic theory to model the valuation of goodwill. In all of these articles, Preinreich argues that the valuation of goodwill should be based on excess earnings.
In the third section, “The Depreciation Problem,” Preinreich is highly critical of a “single machine” approach to discussing depreciation because “the subject is far too complex for these limitations,” and instead models depreciation using a “composite plant consisting of many similar items of equipment which are continuously replaced” [p. 135]. In one of the articles, “The Principles of PublicUtility Depreciation,” Preinreich demonstrates the effect of varying the number of machines in service and the replacement cost. In “The Practice of Depreciation,” Preinreich evaluates eleven depreciation methods using his “composite” approach. The “Note on the Theory of Depreciation” is a rather caustic response to a criticism by Hagstroem and a critique of Hagstroem’s paper. Brief also includes in this section two book reviews, one of which was unsolicited, to illustrate Preinreich’s passion for his “composite plant” approach and his criticism for the work of others. Brief describes the unsolicited book review, “Valuation and Depreciation,” as “probably one of the most scathing reviews ever to appear in an accounting journal” [p. xix].
The articles included by Brief in the book certainly give a flavor for the controversies and ongoing dialogues among academicians in the areas of valuation, goodwill, and depreciation at the Lime of Preinreich’s publications. Preinreich’s articles include numerous citations and references to the theories and models of other accounting theorists of his time as well as his own. As such, the book provides a rich insight into the foundations from which current accounting thought has evolved, and would be very beneficial to accounting historians and theorists interested in the evolution of accounting theory in the areas of valuation, goodwill, and depreciation, as well as to empirical researchers in the development of the theory supporting their research and analyses. Portions of the book would also be helpful to accounting students and practitioners in understanding the theory and evolution underlying some of the accounting methods in practice today.
