Accounting principles and the investment credit: An Interview with John W. Queenan;

              ACCOUNTING
PRINCIPLES
AND THE
INVESTMENT
CREDIT
In 196a Congress enacted the invest-ment
tax credit to stimulate industry's
investment in capital assets. The Ac-counting
Principles Board, in its Opin-ion
No. 2, first decided that the credit,
for accounting purposes, should be
spread over the life of the related prop-erty
rather than being all taken into
income the year the property was pur-chased.
A year and a half later Opinion
No. 4 was issued, stating that this
spreading or "deferral" method was still
the preferred method, but that the cur-rent
income or so-called "flow-through"
method was also acceptable. Then, in
September 1967, the Board published
the exposure draft of an Opinion on ac-counting
for income taxes, the invest-ment
credit portion of which called for
reversion to the deferral-only position.
However, in December the Board set
aside that portion for further study,
leaving the alternatives still open.
Your editors have felt that it might
be useful to query Mr. Queen an about
this somewhat perplexing sequence of
events, and at the same time to gain
further insight about how accounting
thought develops.
Interviewer: Mr. Queenan, throughout
the more than five years since the in-vestment
credit was enacted, when Mr.
Powell was on the APB and then you,
Haskins & Sells has been an energetic
leader of the minority group 011 the
Board that said "flow-through" is the
proper accounting method. Would you
say this action by the Board in setting
aside the deferral-only proposal is a
victory for our H&S position?
Mr. Queenan: No, I don't think I
would. The majority of the Board still
favors deferral. On the other hand most
of the thousand corporation executives
and practitioners, and many of the edu-cators,
who wrote to the Board about
the matter favor flow-through. So the
question is still entirely undecided.
But I don't like the connotation of
the word "victory." I don't think you
should picture this as two opposing
groups battling to a decision. That is
not how accounting thought moves for-ward,
at least not in my judgment.
How did the Finn come to adopt its
position?
We spent a great deal of time analyzing
all of its aspects. In the beginning, the
law required that the credit be de-ducted
from the cost of the property
for figuring depreciation, so with the
corporation tax rate at 52 per cent, a
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