Reviewed by James D. Blum American Institute of Certified Public Accountants
This book presents a brief critical description of the accounting and reporting practices of corporations in the United States during 1931. Daniels examined the published annual reports of 294 corporations in 1931. He also looked, to a lesser extent, at how these corporations’ accounting and reporting practices changed over the twenty-five years preceding 1931.
To an individual interested in external reporting requirements, Daniels provides one with a quick and easy-to-read description of:
• Accounting terminology, principles, and practices in 1931 andthe twenties;
• Adequacy of disclosure in corporate annual reports in 1931;
• Uniformity of reporting practices among entities;
• Asset valuation problems existing in 1931.
The book begins with a summary of Daniels’ observations in reference to published financial statements. As examples, two of the author’s nineteen observations are:
• “Too great emphasis has been placed upon the importance of the balance sheet. . .
• Write-ups of plant assets and write-downs both result in inaccurate financial statements.”
The first three chapters describe the underlying structure of financial statements, the format and terminology used within financial statements, and, finally, the adequacy and uniformity of disclosure among entities in published annual reports. These chapters give the reader an overview of the state of the art of accounting in 1931. Numerous excerpts from various reports are presented and, to a limited extent, summary information about the 294 corporate reports examined is given. Examples of summary information are that twelve corporations published no income-sheet data; four published only the disposition of net income after deduction of interest, and so forth.
Following the discussion of the state of the art and illustrations of the adequacy of disclosure and uniformity of terminology, seven chapters deal with the accuracy of financial statements with respect to valuation of assets, liabilities, and proprietorship. Many of yesteryears’ problems appear still unsolved. Daniels discusses and gives illustrations of the practice, among other things, of writing-up in the twenties and writing-down in 1931 of plant assets to replacement value and the impact of this on financial statements, especially with respect to depreciation and income. Insight into valuation problems in times past should help the reader understand why the historical cost principle is so embedded into our current accounting practice and makes one appreciate the current controversy, e.g., some advocates of cash flow accounting oppose depreciation as an allocated expense. Many other valuation problems are discussed and illustrated.
The final five chapters deal with lack of disclosure and uniformity relating to the income sheet, treasury stock and reserves, and con-solidated statements. Finally, in an appendix, Daniels presents an outline form of a balance sheet and income sheet in order to illustrate adequate disclosure.
This book gives a reader an easy-to-read insight into the state of the accounting art as of 1931. It gives a brief discussion of various alternative reporting practices and the author’s opinion as to the best alternative, illustration of actual reporting practices and some summary narrative of the reporting practices of 294 financial statements examined. Any undergraduate with bask accounting knowledge, i.e., intermediate accounting, should be able to understand this descriptive research study. This book could be used as assigned reading in any undergraduate or graduate course where a quick knowledge of the accounting practices of fifty years ago is desired. Also, financial accounting professors might find the Daniels’ study interesting in relation to current practices and problems discussed in the accounting literature and classroom.
