Audited personal financial statements: Did somebody goof?

              by JAMES F. PITT and E. PALMER TANG
Presidential Campaign 1968 is over and the votes
tallied. Fading into history are the primaries, plat­forms,
promises and platitudes. We wonder, how­ever,
how many noticed the conspicuous absence
of the CPA's opinion on personal financial state­ments
published in connection with this campaign.
Having been personally involved with the state­ments
of one candidate in 1964 who ran for top
honors in 1968, we waited anxiously to see how the
profession would resolve the controversies gen­erated
in 1964 among professional and academic
people. But in contrast to 1964, when it was the
vogue to issue audited personal financial state­ments,
the CPA's opinion did not accompany the
candidates' financial statements published in 1968.
What happened? Was the audited personal
statement a fleeting fancy, or has the accounting
profession been so unrealistic in its pronounce­ments
in this area that the disclaimer of opinion,
now required in virtually every case, offers little
appeal to the potential buyer of our services?
Accounting Research Bulletins issued by the
American Institute of CPAs have been specifically
directed to "accounting practices reflected in fi­nancial
statements and representations of com­mercial
and industrial companies" and not to
"accounting problems or procedures of religious,
charitable, scientific, educational, and similar non­profit
institutions, municipalities, professional
firms, and the like."1 Until 1968 virtually no print­ers'
ink had been consumed in defining the stand­ards
for personal financial statements.
Banks have long required personal balance
1 Accounting Research Bulletin No. 43, American Insti­tute
of Certified Public Accountants, 1953, page 8.
sheets from their personal borrowers and from
guarantors, but, since audited statements were
hardly ever required, the certified public account­ant
has exerted little or no influence over their form
and content or the method of reporting.
In most instances, the forms provided by banks
to personal borrowers for reporting upon their fi­nancial
position have provided specifically for
reporting assets at fair market value, without re­gard
to historical cost. While this method of report­ing
assets has long been considered unacceptable
for commercial and industrial enterprises, it has
been used almost exclusively by investment com­panies
and stock brokers.
Much like an individual, these companies em­phasize
financial condition in their reports rather
than the matching of revenues and expenses. Mar­ket
values, therefore, provide the most timely cri­teria
of that condition. Market values also provide
comparability for measurement of total investment
performance by including the effect of realized
gains (dividends on income stocks) and unrealized
gains (appreciation on growth stocks).
The financial statements published by the 1964
candidates were not models of consistency—
which is quite natural considering the previous lack
of attention to this subject. Perhaps the greatest
divergency existed between the statements of
President Johnson, which were basically at cost,
and those of Vice President Humphrey, which were
basically at market.
At any rate these divergencies, particularly the
basis of reporting, caused the greatest furor within
professional and academic circles. Important dif­ferences
in the form and content of these two re­ports
and financial statements are shown here.
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