The Journal of Accountancy Published under the auspices of the American Asso- JOSEPH FRENCH JOHNSON EDITORS DR. EDWARD SHERWOOD MEADE EDITORIAL. A New Field for the Journal of Accountancy. THE JOURNAL OF ACCOUNTANCY will inaugurate, beginning with its October issue, a series of articles reviewing the reports of the more important railroad and industrial corporations. Our readers will, we think, agree with us that the reviews of reports which appear in the daily and weekly press are, to say the least, unsatisfactory. With few exceptions they are prepared by men who have no more than a superficial acquaintance with accounts, but who are able to cover up the deficiencies in their equipment by a clever use of the patois of the Street, by way of a decoration for their close paraphrases of the president's report to the stockholders. For this reason, these reviews are almost uniformly optimistic. To the financial writer the financial sky is seldom overcast. Even when his journal is conservative his reviews are 'conservatively bullish." The investor will look in vain for outspoken criticism of corporation policies, and what is more and worse, the most glaring abuses of administration, offenses against corporate honesty and public morals which are utterly indefensible, have never lacked their pliant and docile defenders. We remember, in one instance, where a certain large railway corporation published reports which while misleading and afterward shown to be mendacious, still revealed a condition of weakness and stagnation, which pointed unmistakably to serious trouble. And yet a leading representative of the school of "court circular" journalism, only a short time before the application for a receiver was made, by the officers, referred to the condition of the company as "encouraging." We are safe in saying that as guides for either investment or speculation, the great majority of financial reviews are worthless. It is true that there are some noteworthy exceptions. The Wall Street Journal's "Studies in Values," which the former editor of that newspaper, Mr. Thomas F. Woodlock, and his associates, developed to such a high degree of excellence, are still continued, and there are a few other sources from which the inquirer can obtain an honest, if sometimes uninstructed opinion, concerning the condition of corporations, but what are they among so many? The public accountant understands corporation accounts and the financial conditions which the accounts reveal. Theirs is the profession of honest publicity. They are peculiarly fitted to present to the public the real condition of the corporations which invite their support. These reviews will be, for the most part, unsigned. They will be the opinion of the JOURNAL OF ACCOUNTANCY expressed by the public accountants. The editors anticipate that they will do something to place the facts of corporate administration, whether these be good or bad, in intelligible form before the investing public. Publicity in corporation matters is the order of the day. It is peculiarly fitting that the official journal of the profession, the work of whose members has so greatly contributed to a correct understanding of the financial condition of corporations, should take the lead in presenting impartial analyses of the reports of the institutions which solicit the patronage of the investing public. The Value of an Accountant's Certificate. About five years ago negotiations were begun for the transfer of a magazine. The owner was an experienced printer, and an exceedingly shrewd and enterprising man. The magazine had a small circulation, little advertising and was steadily losing money. The owner began operations by sending out vast numbers of circulars advertising a work of great interest to prospective subscribers of the magazine, and offering the book as a premium with the journal. Orders poured in thick upon the office. Waiting until the results of one month were on the books, the owner sent for the prospective purchaser, and showed him the rapid growth in circulation. Greatly impressed by the representation, not fathoming the depths of his friend's finesse, and neglect ing to secure an independent verification of the statement, the referee took the paper, and soon after awakened to the fact that he had been cleverly duped. After two years of hard work, the new owner built up the magazine to the point of paying expenses when he in his turn was approached with an offer of purchase. The buyers were young and inexperienced, and they accepted without question the statements prepared by the owner; paying a high price for the publication. Needless to say they failed, unpaid claims piled up against them, and they were forced after a few months of struggle to part with their control in a reorganization. Naturally enough, incensed over the failure they so far forgot themselves as to make charges of bad faith and misrepresentation against the parties with whom they had dealt. They charged specifically that the statement of receipts submitted to them was false, and they threatened legal proceedings. The charges came to the ears of the new control, who immediately demanded an explanation from the person who was accused of a swindling transaction, His answer was to take the inquirer to his books, verify the totals month by month from his records, extending over a considerable time, and finally present the certificate of a well known certified public accountant attesting to the accuracy of his statement. There was nothing more to say; the proof was conclusive. The precautions which the purchaser of the magazine had neglected, the seller, warned by his former experience, had carefully taken, and he emerged scathless from a situation which would otherwise have contained the possibility of serious damage to a hitherto unblemished reputation. If the purchaser had not utilized the accountant's services in periodical audits his reputation for honesty and square dealing might have suffered. We hope that the time is not far distant when the business man in all transfers of concerns will regard the services of the accountant as of equal and many times of greater importance than the services of the lawyer. Interest for Odd Days. THE JOURNAL would suggest to the Legislative Committee of the New York Society of Certified Public Accountants the introduction of a bill to restore to the statutes of the State of New York the following clause: For the purpose of calculating interest a month shall be considered as the twelfth part of a year and interest for any number of days less than a month shall be estimated by the proportion which such number of days bears to thirty. Or if it is thought best to drop that very roundabout mode of expression, time hallowed as it is: For the purpose of calculating interest, any number of days less than a month shall be reckoned as thirtieths of a month. These words in the first quotation were in the law up to 1892, when they were quietly dropped by the Commissioners of Statutory Revision, and no one seems to know why. In fact, no one noticed that it was done. Nearly every one has gone on under the " 360 day rule" just as before, but it is very doubtful if this is legal, although it is very convenient and sensible. Back in the 1820's, when there was no statute on this particular point, a case was tried in which a note had been discounted at the full legal rate, but the days were counted as 30ths of a month or 360ths of a year. The Court of Appeals decided that this was usury. In consequence of this decision the sentence first quoted was embodied in the law, and its effect was to make it legal, as to the odd days, to treat them as 30ths. It would be absurd to divide in some months by 31 and in others by 28 or 29, yet we believe the United States Treasury has so ruled as to salaries. When interest is payable semi-annually, as it usually is, we must go by months. A half year cannot be reckoned at 182% days, but under the statutory Construction Law as six months, that is, from a given day of one month to the same-numbered day of the sixth following month, regardless of the actual number of days composing those months. January 1 to July 1 is a half year although it contains 181 days; July 1 to January 1 is a half year containing 184 days. And if the mortgage or other contract called for semi-annual interest, the creditor could not on January 1 demand 184/365ths of a year's interest, but only for 1⁄2, or six months. Were the contract annual each day would doubtless be one 365th, and where it is daily, as in daily balances, or in notes drawn for so many days, the days would also be 365ths. The monthly principle must be introduced by something calling for months or quarters or half-years; but when the monthly principle is admitted it must be adhered to until the even months are exhausted. Then we get into trouble with the odd days. Many good lawyers are of the opinion that these odd days must be on a 365 basis. The question often comes up in foreclosure cases, and though many times the 360-rule passes without comment, the lawyer for the defendant can easily get quite a rebate on a large amount. Suppose that 5 months and 29 days have elapsed, that the principal is $90,000, and the rate 6 per cent. By the 360 day rule, the interest due the plaintiff is $2,685. But the defendant insists that the 29 days are 29/365ths of a year and that the interest is only $428.14, which added to that for 5 months ($2,250) gives the total due $2,678.14. Thus the difference of one day saves $6.86, which is at about 9 per cent. This computation is manifestly inequitable, though probably legal. There are no interest tables giving the interest on this plan with the odd days at 365 to the year. Let us have the old clause restored and avoid ambiguity. The computation of accrued interest on securities has been much simplified of late years. Formerly the Wall Street rule was to use months and days for railroad bonds and 365 days on municipal securities, a distinction without reason or excuse. By agreement between the leading banking houses three or four years ago this was changed, and all interest computed by months and days. These bankers will no doubt gladly unite with the accountants in petitioning for an amendment which will settle this question once for all and give us an interest day of 30 to the month. |