Disclosure of the effect of wartime uncertainties on financial statements;

              Statements on Auditing
Procedure
•
Issued by the Committee on Auditing Procedure, American Institute of Accountants, 13 East 41st Street, New York 17, N. Y.
Copyright 1943 by American Institute of Accountants
Ho. 15
December 1942
Disclosure of the Effect of Wartime Uncertainties on Financial Statements
IN ACCOUNTING Research Bulletin No. 13 the committee on ac-counting procedure referred to the limited significance of finan-cial statements prepared currently to cover comparatively short periods of time. The committee pointed out that "The tentative character of such statements is accentuated under war conditions because of the change in methods of doing business and because ac-counting measurements are largely dependent on the course and duration of the war. Current financial statements are, therefore, nec-essarily less indicative of such things as earning capacity, ability to pay taxes, and capital value than statements prepared under normal conditions."1
RENEGOTIATION OF WAR CONTRACTS
In Accounting Research Bulletin No. 15, issued in September, 1942, the committee on accounting procedure considered the finan-cial statements of contractors or subcontractors who are affected by the provisions of the War Profits Control Act. The committee indi-cated therein that the basic objective of accounting is to present the fairest possible financial statements and at the same time to direct attention to uncertainties which limit the significance of such state-ments.2 It was concluded that the possibility of renegotiation of war contracts should be disclosed; that ordinarily a footnote to the finan-cial statements would accomplish the required disclosure; that in some cases a reserve, shown as a deduction in the income account, might be necessary. In arriving at these conclusions, it was recognized that the law required clarification and the committee indicated its intention to reconsider the subject later in the year.
Since that time the statute has been amended3 and provision has
1Accounting Research Bulletin No. 13, p. 113.
2Accounting Research Bulletin No. 15, p. 127.
3Sec. 801, Revenue Act of 1942.
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