Reviewed by Roger H. Hermanson Georgia State University

The purpose of the book is (1) to review the 1917 project to pro-mulgate a program for audit procedure which was prepared by an eight-person committee at the request of the Federal Trade Commission; (2) to present the classic exchange by Paul-Joseph Esquerré and H. A. Finney regarding the funds statement; and (3) to present the content of Special Bulletins that contained questions and answers that passed through the Library and Bureau of Information of the American Institute of Accountants. The book presents some valuable insights on how present day accounting principles evolved. These three sections of the book will be discussed separately.
Uniform Accounts

Edwin N. Hurley, then Vice-Chairman, and later Chairman of the Federal Trade Commission, requested the President of the American Association of Public Accountants, J. Porter Joplin, to appoint a special committee (headed by Robert H. Montgomery) to confer with the commission on all accounting questions. The most important output of the committee was a document on uniform accounts which was first published in 1917 and again in 1918 for general distribution. In 1929, a revision was prepared by the Institute and published by the Federal Commission with the title, “Verification of Financial Statements (Revised)—A Method of Procedure Submitted by the Federal Reserve Board.” The 1936 revision, “Examination of Finan-cial Statements by Independent Accountants” was published by the Institute.

The book contains a reprint of the 1917 version of the proposal. Major headings within the proposal include “Uniform Accounts” (possibly the intended title for the entire document), “General In-structions for a Balance Sheet Audit of a Manufacturing or a Mer-chandising Company,” “Specific Instructions and Suggestions Relating to the Separate Headings,” “General,” and “Form of Certificate.” Under the middle heading, specific accounts such as cash, notes receivable, accounts receivable, etc., are discussed. Although the document deals primarily with auditing procedures, certain accounting principles are discussed throughout.

The document was distributed by commercial bankers and was followed by businessmen and their accountants because their financial statements had to be in proper form to increase the chance of securing loans from those bankers. One can see the formulation of many modern day accounting principles in this important document.

Resources and Their Application

An issue of The Journal of Accountancy had published an unofficial answer to a funds flow problem which appeared on the May 1921 CPA examination. Paul-Joseph Esquerré took issue with that solution and wrote a seven-page letter to the journal stating so. The letter was published in the May 1925 issue. H. A. Finney, then editor of the Students Department, responded to the letter with a 14-page letter in the June 1925 issue. Esquerré argued for the “all-resources” concept of funds, while Finney argued for the working capital concept. These two letters are reprinted in the book.

The emotional involvement of the individuals is evident in their letters. Esquerré [p. 425] stated:

My personal belief is that the solution at issue is not a good one; that it is not true to accounting principles, and that, in order to balance, it violates accounting. . . . i have no desire to advertise myself or my course; I am actuated only by my firm belief in the truth and sacredness of accounting principles.
In Finney’s reply [p. 497] he stated:

It is, of course, a matter of personal concern to the editor of this department that Mr. Esquerré saw fit to make use of such expressions as “forcing the funds” and “forced figure.” The first reading of the letter left the editor with the impression that he had been accused of a mathematical forcing of a balance, and it is not unlikely that many readers obtained the same impression. Such an accusation would of course have been unwarranted and untrue, as can be determined by an inspection of the problem and the solution, which are reprinted hereinafter for purposes presently to be mentioned.

Upon second reading, it appeared more likely that Mr. Esquerré meant to convey the thought that figures were grouped in a manner which was not in accordance with his interpretation of the requirements of accounting prin-ciples. If this is the correct interpretation of his remarks, it is to be regretted that, in stating what merely amounts to a difference of opinion as to correct principle and procedure, use was made of words charged with so aspersive a connotation.

The letters are interesting as logical arguments. But they are even more interesting as exchanges in a “testy” situation.

Special Bulletins of the American Institute of Accountants

A total of 33 Special Bulletins were published from 1920 to 1929 by the Library and Bureau of Information of the American Institute of Accountants. The bulletins consisted primarily of questions and answers on specific accounting issues of the time. The answers were advisory only and represented the opinion of one or more accountants in good standing who had been asked to respond to the question. Other items occasionally were included in the bulletins. For instance, Special Bulletin No. 2 included suggestions for Professional Conduct reprinted from the bulletin of Haskins & Sells, January 15, 1919.

The bulletins provide insight on the accounting issues of interest in the 1920s. An example of a typical question and answer is:

TAXI CABS

Q. What is the depreciation on taxicabs? A. The opinion we have received regarding the rate of depreciation on taxicabs is 331/3 per cent.
Most of the questions and answers are much longer and more sub-stantive, some running for several pages. Topics included in the bulletins are varied. For instance, those included in Special Bulletin No. 6 are fire loss, breweries, turpentine leases, seed beans, bolts and nuts, negligence, drafts, depreciation, steel vessels, and time keeping and payroll distribution.

The entire book is useful in providing readers with a historical perspective on the development of accounting principles. The funds flow debate would be a fascinating reading assignment for students. The special bulletins could be read a few at a time on a random basis to give one an idea of what the accounting issues were in the 1920s. An important part of accounting history has been preserved by publication of this book. After reading it one can understand why Moonitz began with the following quote, “Confound these thieving ancients for stealing all our modern ideas.”