ACCOUNTING PRINCIPLES DEVELOPMENT PRIOR TO 1972
by Christopher E. Burns Principal, San Francisco Office
Presented before the National Association of Accountants, Reno Chapter-April 1972
Once upon a time the financial vice president of a certain large corporation was seeking to hire a new accounting firm. He called in three leading practitioners, and asked each the same question, "What is two plus two?" The first two accountants, cautious and conservative as befitting their craft, answered without hesitation "four." The third accountant, though, was apparently well versed in what some call the techniques of creative modern accounting. He came back with a query of his own: "What did you have in mind?" We don't know which of the three firms was hired, but the story serves to illustrate the distrust of financial statements being increasingly expressed in many quarters. As Abraham Briloff recently put it—"I think we have now moved into a time of hot-pants accounting." For those of you who don't know how to put hot pants on a financial statement, Mr. Briloff says that some current accounting, like hot pants, tries to disclose as much as possible to make things really exciting, but stays just within the law, restricting indecent exposure.
This mounting criticism has not gone unnoticed by the accountants. Within the past year the profession has accelerated its efforts to set up machinery to produce more acceptable and timely solutions to the problems we face. The culmination of these efforts resulted in last month's publication of a "Report of the Study on Establishment of Accounting Principles", more commonly known as the "Wheat Report" in honor of the Committee's chairman, Francis Wheat, a former SEC commissioner.
Our purpose here today is to review briefly the development of accounting principles up to this point, and to acquaint you with the recommendations of the Wheat Committee. The widespread support it has received indicates that this is the immediate direction that development of accounting principles will take. Our firm is proud of our participation in the Committee's work, that the final conclusions incorporated many of our suggestions, and that we were first to pledge financial support to the foundation recommended by the report. My comments will focus primarily on the efforts that the profession