Accounting Methods and Standards
BY J. HARRY WILLIAMS Partner, Executive Office
Presented at a conference under the auspices of the International Cooperation Administration at New York University—November 1957
This subject is so broad, encompassing as it apparently does the entire field of bookkeeping and accounting, that of necessity it must be materially
narrowed down even to touch upon a few highlights during the time allotted this morning. One of the most important things dealt with by accountants is the form and content of financial statements, which no doubt will be included in the subject you will hear discussed this afternoon;
this matter, therefore, will not be touched upon now. Neither will the method of keeping accounts. Our discussion then will be narrowed down to accounting standards, or in the language more commonly used in the ranks of accountants in America today — accounting principles. We will also touch upon some related problems.
ACCOUNTING PRINCIPLES AND UNIFORMITY
What is meant by an accounting principle? An accounting principle is nothing more than a recognized concept of the most appropriate way of presenting a financial transaction in the accounts and in financial statements.
Accounting principles have been established in the United States out of the needs of business, both management and owners, and according to the time and circumstances under which business operates. Accounting principles are not inflexible and they are not unchangeable.
The following simple illustration may be cited as a presently accepted accounting principle in the United States. The purchase of a machine by a manufacturer is recorded in the accounts at cost, and the cost of the machine is amortized by charges to operations over its useful life, such amortization being commonly referred to as "depreciation." The annual amortization charge must also take into consideration the possibility of obsolescence of the machine. No change is made in the accounts or in the financial statement if the replacement cost of this machine increases or decreases in future years. You will note that I said "presently accepted accounting principle." There have been many and forceful arguments put forward in the past few years of our creeping inflation that replacement costs should be reflected in the accounts and that the annual charge for