Comments in accountants' reports;

              26 HASKINS & SELLS April
Comments in Accountants' Reports
BY H. L. WILSON
REPORTS of accountants on audit
engagements usually contain, in ad­dition
to the financial statements, com­ments
relating to the statements and to
other pertinent matters. Although com­ments
may conceivably not be included in
some reports, such cases should be rare,
for the execution of every engagement
should develop some facts worthy of being
communicated to the client in addition to
the facts set forth in the financial state­ments.
When the circumstances are such
that it is inappropriate to render comments
with the statements, comments may well
be submitted as a separate report.
It is probably safe to say that the ma­jority
of accountants do not fully realize
what an important feature of the report
the comments can be made. Certainly
many of them fail to make the comments
of maximum interest and value to the
client. To test this statement, select at
random a dozen accountants' reports.
Note how many are devoted very largely
to a mere recital of the methods followed
by the accountant in verifying the ac­counts.
The reader of the report is not
concerned with the technique of the
accountant. He may not be interested in
what the accountant did or did not do
in the course of his work. But it may be
a matter of very vital interest to the ac­countant
to state what he did not do, as
a precaution against having questions arise
later as to his responsibility. The reader
is interested in the accountant's findings.
He wants to know that the accounts are
correct, or, if not, wherein they are in­correct.
He wants analytical and inter­pretative
information about the financial
condition and the results of operations of
the business.
Nature of the Comments
The nature of the comments depends
largely upon the purpose of the engage­ment.
If the work is being done for a
prospective purchaser of the business, or
for anyone not familiar with the company,
it is well to give a short history setting
forth the date of inception of the business,
the capitalization and changes therein,
and any other pertinent facts, such as a
general description of the facilities owned
by the company, its products, and market­ing
methods. If the report is being pre­pared
for the use of bankers in connection
with the flotation of securities or granting
of credit, the comments should not deal
with such matters as minor errors in book­keeping
routine or deficiencies in the sys­tem
of accounting. However, if the "situa­tion"
is such as to permit the perpetration
and concealment of fraud involving a sub­stantial
amount, the facts should be con­veyed
to the reader of the report. The
language used should be such as will not
be offensive or slanderous.
The size of the business is another factor
that has a bearing on the character of the
comments. In the case of a large business,
it is usually undesirable to comment in
much detail on the verifications made by
the accountant in executing the audit, or
to furnish voluminous statistics relating to
financial condition or operations. Details
as to verifications made are uncalled for
because those directing large concerns are
generally familiar with the work of ac­countants
and understand what to expect
from them. Statistics and similar data
may be out of place because such informa­tion
is probably furnished them by their
own organizations. The man at the head
of a small business, on the other hand,
is not so likely to be familiar with the work
of accountants, and even if he has knowl­edge
of accountants' services, he is apt to
be interested in details. Usually, there­fore,
he would be glad to have an explicit
statement of what work was done in exe­cuting
the audit. Then too, such a client