The Journal of Accountancy Published monthly under the auspices of The EDITOR JOSEPH FRENCH JOHNSON ASSOCIATE EDITOR W. H. LOUGH, Jr. SUBSCRIPTION PRICE-$3.00 a year; single numbers, 25 cents; post paid to any address in the United States. Foreign subscriptions, including those in the Dominion of Canada, $3.50 a year; single copies, 30 cents. ADVERTISING RATES-$30 a page; all other spaces in proportion; special positions when open, 25 per cent. additional. Rates for classified advertisements appear under that heading. THE JOURNAL is Published by the Accountancy Publishing Company, at Thirty-two Waverly Place, New York City. Secretary and Treasurer, THOMAS CULLEN ROBERTS. EDITORIAL. The Twentieth Annual Meeting. In many respects the Annual Meeting of the American. Association of Public Accountants held at St. Paul, October 15-17, was the most interesting and enjoyable meeting ever held by the Association. The local committee on arrangements deserve great credit for the success of the meeting. The program furnished a most judicious combination of pleasure and business. The December issue of THE JOURNAL will contain a full report of the proceedings of the meeting, of the papers and discussions, and of the responses to toasts at the banquet. The papers and discussions were all of such high order that accountants everywhere will be glad of the opportunity to read them. The most notable paper was that by Mr. Joseph E. Sterrett on " Professional Ethics," which was published in the October JOURNAL. The discussion of this subject was participated in by Col. Franklin Allen of New York, Mr. Seymour Walton of Chicago, Mr. R. H. Montgomery of Philadelphia, and Mr. John A. Cooper of Chicago. Mr. Vollum of Philadelphia held the close attention of the delegates with a paper in which he argued for the restriction of the privilege of membership of the Association to certified public accountants. The Association was fortunate in having secured the attendance of representatives of several leading universities. Their presence suggested the importance of an educational discussion. This was led by Dean Johnson, of the New York University School of Commerce, and was participated in by Professors Gray of the University of Minnesota, Gilman of the University of Wisconsin, and Robinson of the University of Illinois. Each speaker had something fresh and interesting to say on the education of the public accountant. The routine business of the meeting was transacted with dispatch, and no unnecessary friction. Mr. Sells was re-elected to the office of President, and Mr. Roberts to the office of Secretary, Mr. Kennedy having declined to serve again as treasurer, the office was filled by the election of Mr. Westermann of St. Louis. Denver made a strong bid for the Twenty-first Annual Meeting, but the feeling was general among the delegates that next year's meeting should be held in the East, and Atlantic City was agreed upon. New York's Panic. New York City has had one of the craziest, most spectacular panics ever recorded in the annals of finance. Within three days the banks of the city lost over $12,000,000 in cash, much of which found its way into the boxes of safety deposit vaults. During the greater part of the week ending October 26 long lines of frightened depositors besieged the doors of two trust companies, paying no heed to assurances, official and unofficial, that their money was safe. One large trust company suspended payment, and several small banks in Brooklyn and Harlem closed their doors. The situation became so critical toward the end of the week that the clearing house banks of the city provided for the issuance of clearing house loan certificates. Accountants are vitally interested in both the causes and effects of this panic. It was characterized by the sudden collapse of the credit system in New York City, and at one time the mercantile and banking credit of the entire country seemed in danger. As Mr. George E. Roberts pointed out in his address before the delegates at St. Paul, the solidity of credit depends very much upon the kind of work done by accountants. If their work is inadequate or faulty, miscalculations on the part of business men result, and sooner or later panic is inevitable. There is certainly no evidence that the practicing accountants of this country are in any way responsible for the October panic, yet we are confident that the panic might have been averted, or that the conditions making for panic would never have existed, if the various business interests of the United States had made during the last five years proper and adequate use of the accounting profession This panic was due largely to ignorance and to the unreasoning fear which is always born of ignorance. For several years the great corporate interests of this country have been the victims of indiscriminate assault and criticism. Demagogues of high and low degree have publicly charged that the people were being robbed by managers of banks, insurance companies, railroads and industrial combinations. Investigations of certain companies brought to light facts which seemed to justify the wholesale denunciation of business methods. Prominent men predicted disaster if the investigation mania were not checked. Others declared that the great prosperity of the country could not possibly last, and pointed to the high rates of interest as evidence that capital had taken alarm and was withdrawing from the support of enterprise. All these events and sinister prognostications had their effect on the popular mind, so that when a clique of speculators failed in a rash attempt to corner the market for a copper security, hysteria seized upon bank depositors and panic was the result. It must be clear to any unprejudiced person that the blind and unreasoning forces of such a panic could not have been brought into existence if the people could have had positive knowledge about business conditions. The majority of corporations in this country are honestly managed. The great bulk of the $10,000,000,000 deposited in our banks is more than offset by investments of permanent value, and these investments are closely watched by experienced and conscientious bankers. Speculative transactions in this country, large as they seem when viewed in isolation, are insignificant in comparison with the total of genuine and legitimate business operation. Unfortunately, these are truths which cannot be demonstrated. We have, to be sure, the reports and balance sheets of banks, railroads, and insurance companies, but with the common people the evidence of these documents pos sesses little value, for they are prepared in secret, and they bear no certification in which the people place confidence. Hence we say that the members of the accounting profession are vitally interested in the causes of this panic, and they have no right to be modest in their assertion of the public's need for their services. Publicity is the safe and conservative remedy for most corporate abuses. The certified public accountant is the authorized agent of publicity. Let popular discussion of this subject proceed until the people shall demand that the affairs of every public service corporation, of every bank, and of every insurance company shall be regularly examined by certified public accountants who are independent of the directors, if not also of the stockholders. Then the time will come when investors will demand equal publicity and the same trustworthy certification on the part of railroads and other corporations seeking to market their securities. With regard to the future, no man can speak with confidence, yet there is good reason for believing that the depression incident to the money panic of 1907 will be short lived. Fortunately the present is an era of increasing gold supply and of rising prices. Since 1897 the average prices of commodities have risen over forty per cent. It is impossible that such an advance should go on unchecked. A temporary reaction was inevitable, for the high level of prices could not be maintained without a readjustment of wages, profits, and the costs of production. Apparently, the ensuing twelve months must be devoted to these processes of readjustment, but this prospect is not a matter for regret; indeed, for the accountant the coming year ought to be a busy and a profitable one, and when the task is finished, we have a right to expect that the trade and industries of the United States will again leap forward into a period of unexampled prosperity. The Art of Budget-Making. For years the City of New York has given the world an object-lesson of how not to make a budget. We are going through the process to-day much as usual. All the departments have in the past sent in their estimates in lump sums, asking much more than they had any idea of obtaining, in anticipation of the "horizontal cut" they have come to expect. The taxpayer or the city official who really wanted to find out from the estimates how many people were to be paid in any one department, and at what rate, or what was set aside for supplies, could obtain no answer to his question. The Board of Estimate and Apportionment gave a perfunctory hearing, and the heads of departments made their special pleas. Then it cut here and there, sometimes with reason, sometimes without, until it had reduced the total of the budget to the sum upon which it could agree as safe. That a budget of approximately one hundred and fifty million dollars can be adopted in such a loose and haphazard fashion must appear to any foreign observer wholly incredible. His astonishment would surely be the greater on hearing that the department estimates, covering thousands of printed pages, are held almost as secretly as if they were private documents of the Department of State, and that the public is not allowed to participate in the hearings given to the departmental heads. He would at once explain that this method of making a budget is not only wholly unscientific, but is a direct incentive to waste and extravagence. It shows, moreover, that the real purpose of the budget-" to give the direct representatives of the people control over the administrative officers "-has been lost sight of. Some of the principles of budget-making have just been set forth in THE JOURNAL OF ACCOUNTANCY by Dr. Frederick A. Cleveland, the technical director of the Bureau of Municipal Research, to which the eight adequately segregated estimates handed in this year are due. Extracts from this article we print elsewhere, for it deserves the widest circulation, particularly at this moment when the Charter Revision Commission is looking for suggestions as to ways and means of bettering our city government. Dr. Cleveland is strongly of the opinion that the development of the efficiency, economy, and fidelity demanded of officials is in the long run much more a matter of method than of men. If the acts of every official are recorded so plainly that even an inexpert citizen can understand them, responsibility is quickly fastened on the proper official. That so many acts of our officials never come to light is the reason why there are so many that will not bear inspection. Correct information is, therefore, as Dr. Cleveland shows, the true basis for the control of an executive official. So far as the present "negative control" of the budget by the Board of Estimate is concerned, Dr. Cleveland shows that it may protect the tax-rate, but it neither rewards competence nor discourages inefficiency, and cannot so long as the Board is without the information upon which it can properly base an opinion or formulate a judgment. At the same time, though the present budget methods are quite archaic, it is extremely encouraging to know that there are easily obtainable new ways of allotting the city's expenditures, which, together with the publicity of an adequate City Record, and the enormous powers of inquest that already belong to the Commissioners of Accounts, will, when adopted, automatically provide a better and more scientific government than this city has hitherto dreamed of. This every one will concede, even though one cannot agree with Dr. Cleveland that sound methods of conducting the city's business are of greater importance than efficient and honest departmental heads.-The New York Evening Post, October 18, 1907. |