Client's needs;

              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.