LETTERS
Clarification and Amplification

The Profile of F. R. M. de Paula (October, 1974, p. 6) contains two errors and should read “A collection of his most important writings and addresses were published in Developments in Accounting (Pitman, 1948) which has long been out of print. In 1914, he pub¬lished a textbook, Principles of Auditing (Pitman), which has become a standard work on the subject, now in its thirteenth edition.”

Further the profile should have contained: “De Paula was twice honored by the Crown for his service to Government, ultimately receiving the C.B.E. He died on December 12, 1954.” Our apologies to Professor Zeff. Ed.

To the Editor:

I much appreciate Gary Previts’ comments (The Accounting His¬torian, July, 1974) on my Harvard Business Review article, “Account¬ing for the Cost of Equity.” It is unfortunate, however, that he got the impression from the article that I was unaware of the history of this topic. Actually, the monograph from which the article was taken has a fairly extensive section on this fascinating history. The article as submitted had a five-page historical summary, but the editors first reduced this to a “sidebar” and then deleted this side-bar at the last minute, for space reasons, and without my knowledge. Gary’s conclusion was therefore entirely understandable on the basis of the article as it appeared.

The deleted sidebar was as follows:

An Historical Note

Interest has been counted as an element of cost in public utility rate regulation since the 19th century. In the second and third decades of the 20th century, a number of articles and books ad¬vocated the inclusion of interest on total capital as a cost. The entire April 1913 issue of The Journal of Accountancy was devoted to articles on the inclusion of interest. Some of the points made then are as valid today. For example, Professor Cole concludes his article with this

Summary:

We have seen that for analytical purposes, in studying operations, practical necessity requires us at least to con¬sider interest in virtually all calculations when investment is involved; and we have seen that in financial statements practical convenience is served by the treatment of interest as a charge, or cost, rather than as a residue, or profit. It seems reasonable, therefore, for accountants to adopt a terminology that will serve their own ends, and will mislead no one. Businessmen are likely to be misled in the future, as they have been in the past, by statements of profits which assume that no cost is involved in the use of capital.

After the death in 1927 of Hiram Scovell, who was the leading advocate of the accounting recognition of interest, the movement

Other Features 109

quickly lost momentum. The idea has been essentially dormant from
then until now.
Robert N. Anthony Harvard University
Bravo!, Ed.

(Vol. 2, No. 1, pp. 2, 8, 1975)

March 16, 1975 To the Editor:

May I clarify, if someone or many had have not beat me to it, re: Anthony’s reference to Hiram Scovell on page 8 of the Winter, 1975 issue of The Accounting Historian.

I believe Bob is guilty of a slip of the tongue. Clinton H. Scovell, author of Cost Accounting and Burden Application published in 1920, was a graduate of Harvard (A.M.) and senior partner of Scovell, Wellington & Company which merged into LRB & M in 1962. Chapter VII of this book deals with Interest Charged to Cost . . .This Scovell may have died in 1927.

But Hiram T. Scovill who headed accounting at Illinois for 40 years or so and under whom I had several courses including a graduate course on the history of cost accounting which included a search for the use of interest as a cost, retired in 1953 . . . . His students started a scholarship in his name in 1953.
Andrew Barr Washington, D.C.

March 17, 1975 To the Editor:

. . . I would appreciate it if your organization could direct me to any comprehensive research regarding the “legislative” history of public accounting, i.e. books or comprehensive articles discussing the major court cases, landmark decisions, etc., which have led to the current 50 state “confusion” in accounting Iegislation. Perhaps, you might send me a listing of related books, articles, manuscripts, etc., which have been published by or through The Academy of Accounting Historians.

Myron S. Lubell
Florida International University
(Vol. 2, No. 2, p. 2, 1975)

July 19, 1975 To the Editor:

I enjoyed the article by Eric L. Kohler in the spring issue and hope you may be successful in coaxing further historical vignettes from him, because his views are always interesting. I am certain that Eric would agree that it is in order to warn students of history to learn to distinguish between facts and opinions. In this letter I shall attempt to correct one of his facts and to present a different opinion on the comparisons drawn between the A.S.C.P.A. and the Ameri¬can Institute of Accountants.

The error in fact is that Arthur Andersen did not present a paper at the 1904 International Congress. He did not attend the meeting, which is not surprising since he was then nineteen years old.

I became a C.P.A. in Illinois in the spring of 1923 and was, there¬fore, in practice for practically the entire period of the existence of the A.S.C.P.A. I have no recollections that confirm Eric’s pictures of A.S.C.P.A. as the progressive organization, pressing for raising auditing and accounting standards, and the American Institute as the reactionary Gentleman’s club, interested only in preserving the status quo.

My recollection is that A.S.C.P.A. accepted any C.P.A. as a mem¬ber, whereas A.I.A. insisted on a candidate having passed its Board of Examiners grading and meeting certain experience requirements. Since several State Boards of Accountancy observed doubtful standards of grading there were sound reasons for the A.I.A. posi¬tion. As a matter of fact the Institute, only in recent years, has been able to get full reports on the changes made in its grading by all State Boards of Accountancy. (Remember the scandal in N.J. a few years ago?)

In regard to raising standards of accounting and auditing, I do not recall that either national organization had an active program in the 1920’s. I believe the Institute took the lead role in the 1930’s. I believe their reluctance to assume authority in these areas was the diffusion of responsibility for accounting in the private sector. This factor, of course, caused the progression represented in the history of the Committee on Accounting Procedure, the A.P.B. and now the FASB. Probably there is some basis for criticism of the slow pace of the accounting profession in asserting primary authority for the determination of “Generally Accepted Accounting Principles.” How¬ever, it is unrealistic to suppose or infer that the authority now exercised by FASB could have been exercised by the profession several decades earlier. The evolutionary process of education and changes in attitude in all segments of the business and financial community were conditions precedent to the assertion and exercise of this very important authority within and on behalf of the private sector.

Paul Grady, CPA 700 South Ocean Blvd. Boca Raton, Florida 33432

(Vol. 2, No. 3, p. 2, 1975)
October 17, 1975 To the Editor:

Naturally, as a member of The Academy, I read with great interest The Accounting Historian.
. . . Imagine my surprise to see in the “Profile (on) Perry Mason” in our summer issue of The [Accounting] Historian, that you, as editor, had allowed Mr. Roscoe Eugene Bryson to state in the third paragraph that Perry had retired from the American Institute of Certified Public Accountants, and again in paragraph four that in 1954 he chaired the AICPA’s Committee on Terminology.

There was no American Institute of Certified Public Accountants in 1954. The name referred to was not adopted until June 3, 1957, the organization having been known previously as the American Institute of Accountants from the adoption of said name on January 22, 1917.. . .
Jimmy Jones

11 13 Regester Avenue
Baltimore, MD 21239
(Vol. 2, No. 4, p. 2, 1975)