An analysis of law's relation to accountancy shows a fourfold contribution, and a certain check or prohibition. Law furnishes accountancy with a fertile field of labor; it guides that labor by laying down rules for its performance; it assists in performing the labor; and, finally, it regulates accountancy's practitioners. Formerly, before the present day accountancy was conceived, law furnished a field of labor directly by making the auditor an officer of the court, as in the ancient action of account, thus including a certain part of the accounting field within its own limits. To-day, the field is furnished indirectly by law's demand for theories and facts which can be established only by accountancy, a demand that is far reaching and is found in all kinds of proceedings, as for instance in the control of guardians of incompetents, in the adjustment of partnership and corporation affairs, in the dissolution of relations voluntarily, in bankruptcy, or by death, in the fixing of liabilities on obligations such as mortgages and judgments in supplementary proceedings, and in the working of systems prescribed by law, as in railroads, banks, insurance companies, and municipalities. Altogether, accountancy is greatly indebted to law for this contribution.

In the guidance of accountancy concerning matters which might be supposed to lie wholly within its province, law affects accountancy in a forceful way found in its relation to few of the other professions. This is due to the fact that accountancy deals with concerns which are governed, of course, by the higher authority of law, and hence we find that the circle of accountancy, while not concentric with the circle of law, marks off a certain portion of it. Because the most direct regulation of business by law is found in its prescriptions for the corporation, the law's creature, we find that this portion contains chiefly matters of corporation practice, and as the tendency to conduct business by means of the corporation increases, this portion grows in size and law exerts a wider range in its guidance of accountancy. In many instances to-day, accountancy is told what may be debits and credits, and thus ceases to exercise its own function, even to the point of going counter to its own principles of sound accountancy in obeying the dictates of law. In dealing with special kinds of industries, such as railroads, banks, and insurance companies, accountancy finds specific directions, not only as to the form of the statements it must prepare but

also as to the charges and credits to be made and allowed in the daily accounting by the client, covering such matters as locomotive, car and train mileage, the crediting of accrued income to profit and loss, and the distribution of unearned premiums. With a municipality for a client, the accountant finds even more exacting regulations, and when the accounts under examination are those of an executor or administrator, the charges and discharges are almost wholly subject to judicial review. But general corporation practice reveals dictation by law that is surprisingly extensive. There are rules governing capital, capital stock and share capital, decisions whether or not unissued shares of stock constitute an asset of the corporation, and, if they be subsequently issued at a premium, whether or not that premium may be distributed at once in dividends; cases covering the question how to account for appreciation and depreciation of capital assets, and the consumption of them, as in mining properties; in a word, laws and decisions controlling practically the whole accounting in the distribution of capital and income.

Since law has prescribed these rules, and since rules of law can best be read by law's practitioners, it follows naturally that accountancy must call upon law for the determination of some of the questions arising under these rules. The assistance rendered to accountancy in answer to these questions is the third contribution by law, and is found in certificates of counsel issued to the accountant. In this connection some interesting questions may be asked, for which there is no opportunity here to suggest answers. If an accountant is paid for rendering an opinion on a matter which, although it arises during the performance of accountancy work, is squarely a question of law, is he responsible to the client for its correctness, or is his act so clearly ultra vires that the client has no right to rely upon it? On the other hand, is the accountant in rendering that opinion amenable to the State for practicing law when not an admitted lawyer? It has been suggested that it is the accountant's duty to inform the client, if a corporation, whether any of its practices are ultra vires: if a trust company is lending money on unsecured, unendorsed, or one name paper, is it the duty of the accountant to determine whether or not this practice is ultra vires; and if so, shall he procure a certificate of counsel on this point? In rendering an opinion in accountancy based on a

premise in law, when is the accountant justified in relying on his own judgment in the determination of that premise, and when must he secure certificate of counsel?

The final contribution of law to accountancy is the regulation of its practice, which involves the certification and registration of accountants, the recognition of accountancy as a profession, and the definition of the accountant's relation to his client. So much has already been written about the Certified Public Accountant laws in the United States, that further discussion of them is unnecessary here. So also with the recognition of accountancy as a profession, but this recognition by the law carries with it a certain warning, which should be heeded by accountancy. The accountant is a professional agent because he holds himself out as ready to serve the public generally. When one employs such an agent, the law infers that he intends the employment to be regulated by the usages and customs pertaining to it; hence the profession should be most cautious in the formation of such usages and customs, for it will be bound by them later in its life. To illustrate, an English case held that on strong evidence of usage an accountant might charge the same rates for his clerks as for himself, even during such portions of the time as he himself was not personally engaged in the work.* Hence, when it is once established, the modern custom of charging per diem rates of $25 for the accountant and $15 for each assistant will govern an engagement in the absence of express agreement to the contrary. And under this custom, the usage of observing the office hours of the client would have a similar effect. Given a mill-owner client, whose office hours are from seven to six, an accountant who works with ten assistants from nine to five, and no agreement between the two except a general engagement at per diem rates, the accountant must forfeit just $52.50 a day, or about one-third of his fee, in consequence of not observing the client's ten hour day.

The professional duty of the accountant to his client has often been passed on by the courts. It has been said that the auditor is not an insurer, that he does not guarantee either that the books of the client correctly show the latter's condition, or even that his own balance sheet is correct according to the books; for in case he were deceived by the fraudulent concealment of certain

* Price v. Hong Kong Tea Co., 2 Foster & Finlason 466, (1861).

books, either guarantee would make him responsible for error, even though he exercised reasonable care in the audit. One case states that his duty is to be honest in not certifying to what he does not believe, to be reasonably skillful, and to exercise care which shall be reasonable under the circumstances of the particular case, recognizing that tests are in some situations all that he can give the client. Another court holds that the auditor should not be liable legally for failure to detect ingenious and carefully laid schemes of fraud when there is nothing to arouse his suspicion. "So to hold would make the position of an Auditor untenable." On the other hand, it has been ruled that he must not confine his audit merely to the verification of the arithmetical accuracy of the books, but that he must take reasonable care to ascertain that they fairly reflect the position of the client. "Unless he does this, his audit would be worse than an idle farce."* Such are the principles governing the accountant's relation to his client, in accordance with which law would construe his certificate, except where that document might be worded so expressly that little room for construction would be left.

In the prohibitive relation of law to accountancy, law continually holds a check on accountancy, which may materially affect the development of the latter profession. This check is found in litigation which can be made a crucible for the refining of accountancy. The check seemingly has not as yet been applied to any great extent, probably because accountancy as a young profession has not cared to risk the application of it, and accordingly, has capitulated in many instances; but there is no reason to doubt that it will be applied in the future, and it may be looked for in actions by the client against the accountant for malpractice, by the accountant against the client for fees, by a third person who has relied on the certificate against the accountant, or by a third person against the client, or vice versa, with the accountant as an expert witness. In any one of these actions, a bar educated in accountancy could expose certain weaknesses known to all accountants. These weaknesses, in so far as they consist of unskillful, though certified accountants, are unavoidable and can be overcome, only in part, by the sur

For this summary, indebtedness is acknowledged to Mr. Francis W. Pixley. It is based without verification of his authorities on his address at the World's Fair Congress of Accountants, held in St. Louis, in 1904.

vival of the fittest; but to the extent that they comprise questionable practices, some of which are essentially "bluff," they can be wholly stamped out, and accountancy can be made a purer and more useful art, and more helpful in the development of business. Some of these weaknesses have been very forcefully stated in an English book cited above in another connection.*

Of the four contributions of law to accountancy, only the guidance of accountancy's work and the regulation of its practitioners are provided by law proper, or the science of law; practically the whole of the field of labor and the assistance in performing that labor are supplied by the art of the practice of law. So of accountancy's contributions to law, two are to the science of law and one is to the art of law's practice. Those to the science of law are the furnishing of theories of business control and administration and the rendering of assistance in framing certain legal terminology; that to the art of law's practice is the opening of an avenue of fact or the use of accountancy in procuring evidence.

It is inevitable that first contribution to law should come from the only profession dealing directly with business control and administration. Of course business theories were enunciated long before accountancy came into being because law has had to deal with business since business began, but this contribution of accountancy is found in the modification of these theories to meet the modern needs of business. The most marked instances naturally occur in the matter of the corporation and concern chiefly questions of capital, and principal and income. To trace accountancy's influence on specific rules of law would be interesting but quite beyond the possibilities of this article. Note may be made, however, of the matter of amortization of premium and discount on bonds purchased by a trustee for a life tenant and a remainder man, a case in which the New York law was in a state of confusion until sound accountancy principles were applied in the recent decision of the Court of Appeals of that state in The Matter of Stevens, 187 N. Y., 471. The fact that the court in that case was divided four to three shows that accountancy's influence is by no means at its zenith. The assistance that accountancy renders in framing part of law's terminology stands substantially on the same ground. There are the * "History of Accounting and Accountants," Richard Brown, p. 339.