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That this is also in accord with economic principles is shown by the following extract from John Stuart Mill's “ Political Economy”: “The capitalist, then, may be assumed to make all the advances and receive all the produce. His profit consists of the excess of the produce over the advances; his rate of profit is the rate which that excess bears to the amount advanced.

A State Board of Accountancy ought to present problems which should be scientific, and which could be solved according to rules, especially in a mathematical problem of this kind.

The solution of this problem is not clear either, especially so as Mr. Jacobsson in his comments simply refers to the make-up of the problem, or to the framers of it, but fails to enlighten us on some of the results shown in the solution. In many instances one has to hunt all over the problem to verify a result, and in some cases it is impossible to verify the final showing at all, which is due to the lack of sufficient explanations in the comments.

In the New York problem we are given a trial balance and asked to prepare a revenue account, etc. The nomenclature in this instance is not used well, as, according to Dicksee, a revenue account is prepared in nontrading concerns, while in trading concerns a profit and loss account takes the place of the revenue account. In this problem it is quite apparent that this is a pure and simplc trading concern. Why then a revenue account?

Another undesirable expression we find in this trial balance is Merchandise Account. If there is anybody at all of the professional brethren who ought to emphasize the importance of keeping the merchandise account subdivided and not agglomerating purchases, sales, returns, etc., it ought to be members of the State Board. By arranging the problems in the shape this one is prepared, bookkeeping and not accounting methods are encouraged.

While this problem can be solved in different forms, the method used was adopted for the following reasons:

Due to the agglomeration of the purchases and sales, etc., into one account, a statement of profits and losses will give clearer results than a profit and loss account.

As the inventory is the chief item missing in the problem this was supplied, in order to complete the statement and make up the balancesheet. The inventory had to be taken at random, as no method could be applied to find out what was the amount of merchandise on hand, for the reason mentioned above.

The arrangement of the accounts in the balance-sheet follows the manner in which they would be realized and liquidated.

The Journal of Accountancy

Published Monthly under the auspices of the
American Association of Public Accountants

Vol. 5

DECEMBER, 1907

No. 2

Professional Ethics. Discussion by John Alexander Cooper, C. P. A. (Illinois).

When the Committee on Arrangements for this Convention notified me that they expected me to open the discussion upon the topic so ably treated by our essayist, I confess to a feeling of diffidence, owing largely (as Mr. Sterrett very aptly puts it), to the fact that an accountant should-first of all—be the best judge of his own limitations.

Prior to my arrival in this city, this week, I was unaware of the line of treatment that the topic was to be given; so that fully appreciating its great importance, not only from a theoretical but from a practical standpoint, I took Time by the forelock and proceeded to study the subject for myself, hence the form of my remarks can hardly be styled a criticism or commentary upon the paper before us.

Mr. Sterrett, in the advance portion of his paper, makes a qualifying basis for the ethics, precepts, or rules, that we should be called upon to establish at this time. I must be allowed to differ with him there. We should establish rules which indicate the highest standard which we are able to attain now, or to which we can aspire under existing conditions.

He very truly says that we are debtors to the older professions and heirs to the accruing benefits therefrom. As will be

EDITORIAL Note.-The three following papers by Messrs. John A. Cooper, Franklin Allen and Robert H. Montgomery were delivered at the St. Paul Convention of the American Association of Public Accountants, October 16, 1907. They were called forth by Mr. J. E. Sterrett's article on PROFESSIONAL Ethics, presented at the same con vention and printed in the October number of THE JOURNAL OF ACCOUNTANCY.

seen later on in this paper, we are also debtors to our own profession.

The question of self interest is a vital and persistent subject, and in this Mr. Sterrett would convey the impression that there are conditions that would justify contingent fees; this I cannot endorse, as it is fraught with the danger that this self interest would overbear the professional and judicial attitude which an accountant should always maintain. On the other hand, Mr. Sterrett takes a decided stand, and justly so, against a practitioner speculating for his personal gain upon information obtained in the course of his services to a client.

Under the heading of Relations to his Professional Brethren" he most admirably treats of the question of character. demonstrates the concern of the accountant to appear well at all times before his clientele, relegating to the background the more important phases of his business and fraternal relations with his confreres as well as his indifference to a high standard for himself. It must be admitted that if a professional man is, at all times, true to himself and actuated by a high ethical standard towards his professional brethren, he cannot help but be true and loyal to the laity whom he professes to serve.

I particularly wish to draw your attention to the distinction made by our learned friend, between upholding and supporting our professional brethren as a general proposition before the public, and the necessity, when occasion arises, for such a beneficent body as this to be in a position to punish and expose anyone -within the fold—who transgresses, or is disregardful of the precepts necessarily established; not only for ourselves, but also as a protection to the business public.

Upon the question of competition again our esteemed friend makes qualifications with which I am unable to agree. It may be that it is in the use of the term, but I take the view that every professional man must be the best judge of the value of his talents, and that, at no time, should he countenance what is generally recognized as competition in this line of service. It may be true that the lay public have the right to employ such means in seeking our help, but the principle should be impressed as fundamental, that the client gets exactly what he pays for.

With these few remarks as a preface, I wish to touch upon (1st) the elemental reasons that justify the claim that this is a profession in all that the word implies; (2d) the aims and ultimate goal in this service that warrant our so designating ourselves; and, (3d) lay down a few classified and tersely expressed rules that may form a proper basis for the incorporation of some such precepts into our Year Book.

APPLIED ETHICS FOR THE ACCOUNTANT. In the sense in which we, as public accountants, use the term, a profession is, according to the dictionary:

The calling or occupation which one professes to understand or follow; a vocation in which a professed "knowledge of some department of science or learning is used by its practical application to the affairs of others, either in advising, guiding or teaching them, or in serving their interests or welfare in the practice of an art founded on

it.And it is given more concisely as,

Professed attainments in special knowledge, as distin"guished from mere skill."

Admitting, then, that we, as a whole, are a recognized profession, it follows that we should, both collectively as a representative society, and individually, promulgate and maintain at all times, and that inflexibly, those rules of conduct which are known to all professional men of lofty instincts as the keystone that upholds the arch of public confidence.

In the abstract the subject may be tersely given in two words, do right; or we may dismiss the topic by referring to the decalogue and the “Sermon on the Mount.”

The effluxion of time changes conditions and circumstances which it is impossible to meet with a rigid theory. A blind attachment to principles and rules because they are theoretically long-established, would be absurd, when around us we see the advancement of the applied sciences and the influences of modern means of inter-communication. On the other hand, with a proper and well-balanced conservatism rash innovation and reckless experiment should be discountenanced. Only the dogmatic theorist aims to establish an ethical code of great simplicity; the practitioner sees in such brevity both uncertainty and injustice. Practice is liberalized by theory, and theory restrained and corrected by practice.

There is no profession, not excepting that of the ministry or of the law, in which it is more imperative that the practitioner be governed by the highest code of morality, than that of public accounting. Great as may be the influence which our profession can and does exercise upon business affairs, it is only by strict observance of ethical rules and right conduct that we can hope to pay the debt we all owe to such profession by uplifting and maintaining the highest standard, thereby bequeathing to our successors a calling placed upon a higher plane than when we first embraced it. It rests largely with this generation of the guild, who can, many of them, recall the inception of public auditing and accounting as it is now recognized, to lay the foundation of a noble profession that may justly be called the right hand of the law, or on the other hand, so bear themselves that this proud opportunity will be lost and our term of stewardship wasted.

In the rush and turmoil of our calling, in which every waking hour is our clients', and even our dreams are a ferment of figures and finance, we are too apt to begrudge the brief minute now and then to go back to first principles, or to give ourselves the benefit of a little occasional introspection.

Lord Bacon has said, “Every man is a debtor to his profession from which as men, of course, do receive countenance and profit, so ought they of duty to endeavor themselves by way of amends to be a help and an ornament thereunto.” This golden sentence from the great jurist would appear to urge us to do all within our power both in our individual lives and in our collective capacity to demonstrate that we realize the obligations of our stewardship, are at all times intent upon upholding the highest principles of professional ethics, and in giving to the young practitioner some established rules for right conduct in the career before him.

Some may ask, why this striving, why this constant aiming at the ideal? when, if any pronounced characteristics are expected of the public accountant, they are that he shall be matter-of-fact, logical, and practical, with his faculties at all times keenly on edge in all matters pertaining to economics, finance, and commercial law.

It is because, as the definition gives it, we have "professed attainments in special knowledge as distinguished from mere

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