Inter-company trade acceptances;

              76 HASKINS & SELLS October
Inter-Company Trade Acceptances
THE certified public accountant, by
virtue of the nature of his calling,
serves more than one master. He has a
responsibility to his client, to conserve his
interests and to meet his wishes in so far
as possible. He has an obligation to lenders
and investors, to state the results of his
investigations in such a way that the re­sults
may be relied upon. He has a duty
to the general public, to assist in obtaining
the maximum efficiency in industry.
To serve all equally well, and to prepare
a report that is fair to all, at times is a
difficult task. Occasionally a client desires
that certain facts be suppressed, or be
stated in a certain way, in order to make
things look "rosy." More often than not,
this desire is not the result of an intent to
be deceptive, but of an inclination to be
over-optimistic. On the other hand,
lenders and investors are eager for a plain
statement of all the facts, unfavorable as
well as favorable. The aim of the ac­countant
should be to prepare a statement
which sets forth clearly all the important
facts, and in so doing to conform as nearly
to the wishes of his client as it will allow.
The application of this principle is illus­trated
by reports which accountants re­cently
were called upon to prepare for a
corporation and its subsidiary. The parent
company was engaged in the manufacture
of a staple commodity. The subsidiary
had been incorporated to take over and
develop one line of the parent company's
product. Its common stock was entirely
owned by the parent company, and it was
financed almost wholly by the latter.
A large part of the financing was done
through the use of trade acceptances,
which the parent company drew on the
subsidiary for advances of cash and ma­terials.
The parent company in turn dis­counted
these trade acceptances at the
bank, and thus reimbursed itself.
Accountants were engaged to make an
audit of the two companies, and to prepare
a report to be submitted to banks for
credit purposes. The president of the com­panies,
who believed firmly in the sound­ness
of his enterprises, desired to make as
favorable a showing as possible. Since the
subsidiary's financial condition was ex­tremely
weak, he desired that separate re­ports
be rendered on the two companies,
in order to avoid combining the unfavor­able
position of the subsidiary with the
more favorable situation of the parent
company in a consolidated report. The
parent company was to do the borrowing,
and its report only was to be submitted to
banks.
The accountants acceded to this desire.
A balance sheet of the subsidiary was