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Bulletin HASKINS & SELLS 115 The Client's Needs AN article, entitled "Accounting Data as a Basis for Administrative Judgment," which appeared in the October, 1920, number of the Bulletin, pointed out the advantage to clients of reports containing to a reasonable extent statistical and interpretative data. In reviewing the current accounting and financial literature one sees an increasing tendency to seek out the meaning of figures and to make them useful as a basis for administration. The average accountant has been slow to take his place as an interpreter of results. He has been restrained perhaps by his modesty and his desire not to overstep the bounds of what he regards as his proper function, namely, to prepare and present the financial facts, leaving to the person who peruses the information the task of interpretation and use. But the fallacy of his position is becoming apparent. Frequently of late, those who have occasion to use his reports have pointed out to him their desire to have him broaden his function. They have almost put the matter up to him as a duty. Mr. Julien H . H i l l , President, National State and City Bank, Richmond, Va., has contributed a valuable bit of information on the subject in the following: I might add that many of the banks, in their analyses of statements, frequently determine for their own purposes, ratios of (a) worth or capital to fixed assets (to determine if too much capital is invested in plant); (b) receivables to merchandise (as merchandise converted into receivables takes a profit into the statement); (c) sales to receivables, to gauge the promptness of collections; (d) sales to merchandise, to ascertain the turnover; (e) sales to worth, to show the turnover of capital; (f) profits to sales, for obvious reasons. I mention these ratios because of the assistance they may render your client if made a part of your statement from year to year. While, of course, in using them for comparative purposes, the ratios with which they are compared are determined by us from statements of other customers in similar lines of business, which we have on our books, you can readily see that with the much broader field represented by the many examinations that you make in various lines you are able more nearly to get the barometric figures. Such figures for qualitative purposes in your reports should invariably work to great advantage to your clients. Apropos of the banker's desire with regard to reports, Mr. H i l l said further: Close attention should be paid by you to the methods of determining the inventory figures given you (and I hope the time will come when the cost of an appraisal by experts, associated with you, will not be prohibitive). When the inventory is not made directly under your supervision, you can greatly assist us in your comments, in telling us, first, how it has been reported to you that the inventory has been taken and whether in your opinion the methods used tend to accuracy. When a partial checking (as to larger items by means of invoices, for instance) is made by you, it should be so stated in your essay. Frankly, I think you owe it to yourselves, to your client and to his bank to be explicit on this item, especially if you have any reason to suspect in any degree overvaluation or undervaluation of merchandise of whatever nature. And in these days of transportation difficulties, with goods to be paid for long before arrival, please tell us about goods in transit. Again the tendency toward statistics as a means of measuring certain aspects of financial condition is brought out in the November, 1920, number of The Credit Monthly. The article is entitled, "New System for Analysis of Financial Statements" and is credited to Robert Morris Associates, Alexander Wall, Secretary. The statistics involved are as follows: (1) The ratio of receivables to merchandise, indicating the dollars receivable for every dollar of merchandise inventory. The addition to the assets of a profit item in receivables not offset by any operating cost or borrowing necessity, tends to raise the proportion as between current assets and liabilities.
Management -- Accounting
Haskins & Sells Bulletin, Vol. 03, no. 12 (1920 December 15), p. 115-116
|Source||Originally published by: Haskins & Sells|
|Collection||Deloitte Digital Collection|
|Digital Publisher||University of Mississippi Libraries. Accounting Collection|
|Identifier||HS Bulletin 3-p115|