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Bulletin HASKINS & SELLS 7 Comments as a Part of Accountants' Reports By J . M. PALEN, of the New York Broad Street Office THE interpretation of figures is the special province of the accountant. The client may have a complete record of every financial transaction, but it means nothing until the figures are analyzed and assembled into a balance sheet and a statement of income and profit and loss. By preparing these statements in comparative form we make them highly illuminative in respect of the changes in financial and operating conditions. By the judicious use of percentages we give them even more significance and practical value. The function of comments is to bring out anything which should be considered in interpreting the figures, which cannot well be included or which is not sufficiently emphasized in the statements. For instance, the amount shown as accounts receivable means nothing Unless we know something about the collectibility of the accounts. The balance sheet may show property valued at a million dollars, but if the accountant did not examine the entries in the property accounts prior to the current audit period, or if proper depreciation reserves have not been provided against this asset, the reader should know this so that he may make allowance therefor in interpreting the balance sheet. The most valuable service which the ordinary audit report renders is in connection with the administration of the business. The accountant, being a specialist in interpreting figures and in methods of compiling them, should endeavor to tell the client something about the business which he either does not know or does not properly apply. Ratios, unless they have already been given in the statements, may be used to advantage; examples are the ratio of departmental costs, expenses, and profits to departmental sales, and comparison with corresponding ratios in previous periods; the ratio of the stock on hand to the cost of goods sold during the year; of current assets to current liabilities; and of reserves to the assets against which they are provided. A summary of matter which is given in detail in the statements may be used to bring out an important point in a forceful manner. Recommendations relating to the system, if constructive and not merely fault-finding, are valuable. Whatever is said in a report, of course, must be said because we think it will be of practical value in the particular instance in which it is used. There is no other excuse for its inclusion. Most of the original things which may be put into a report are things peculiar to that particular engagement, and must, therefore, be furnished by the accountant. The reviewer may pick up some things, but in the main must depend upon the information supplied by the accountant. Of course, there are instances where it is known that the client wishes only a stereotyped report and that he objects to any recommendations, any changes in the form of statements, and sometimes, even, any changes in the phraseology, but these cases are rare. Comments should first of all be adapted to the purpose for which the report is to be used. This purpose may be evident from the nature of the work, or may be clearly indicated in the engagement memorandum, but in the majority of cases it is for the accountant, by questioning the client and from his knowledge of conditions obtained at the work location, to determine by whom and for what purpose the report is to be used. In a report to be submitted to a bank as a basis for credit, it is highly desirable,
Object Description
Title |
Comments as a part of accountants' reports |
Author |
Palen, Jennie May |
Subject |
Auditor's reports Financial statements Management -- Accounting |
Citation |
Haskins & Sells Bulletin, Vol. 05, no. 01 (1922 January 15), p. 07-08 Haskins & Sells Bulletin, Vol. 05, no. 02 (1922 February 15), p. 13-15 Haskins & Sells Bulletin, Vol. 05, no. 04 (1922 April 15), p. 27-31 Haskins & Sells Bulletin, Vol. 05, no. 05 (1922 May 15), p. 36-39 |
Date-Issued | 1922 |
Source | Originally published by: Haskins & Sells |
Type | Text |
Collection | Deloitte Digital Collection |
Digital Publisher | University of Mississippi Libraries. Accounting Collection |
Date-Digitally Created | 2009 |
Identifier | HS Bulletin 5-p7 |