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In proportion to the total number of certificates issued there are probably more accountants from other States practicing in New York than are to be found in any other State. These accountants include some of the ablest members of the profession. Their work in New York has been of the very highest order, they have won the confidence and respect of a large clientèle in that State. They have been especially distinguished by their devotion to the profession, and they have rendered valuable service in promoting its interests. The New York Certified Public Accountants should not in my judgment longer continue to even technically ignore this condition.
There are three subjects connected with the advancement of the profession to which I would especially invite your attention. These are, first, a continued elevation of the standard of professional ethics; second, an increasing insistence upon the highest possible excellence of professional work; and third, the encouragement and aid which many American educational institutions are now giving our profession in the development of accountancy education. In two of these fields of professional advancement we have much to learn from Great Britain. As loyal Americans and as accurate observers we are convinced that America is far ahead of Great Britain in the character of our professional accounting work. In the field of accountancy ethics and accountancy education we are still, however, behind our English brothers. It can not have escaped your notice that nearly all the changes and improvements in the regulations governing our profession in this country have been in the direction of a closer approximation to the standard prevailing in Great Britain.
I would particularly recommend to your earnest consideration the subject of accountancy education. The large universities and a number of private institutions have shown a most gratifying readiness to coöperate with the public accountants in training young men for the ranks of our profession. They are doing a useful and necessary work. It is our duty to assist them in every possible way, not only by our aid and influence, but by giving preference, wherever possible, in selecting our assistants, to young men who come from educational institutions. This educational interest could be greatly furthered if this organization would provide for a committee to consider the various questions
affecting accountancy education and particularly the question of formulating a plan of accountancy education which, after being considered by this association, can be recommended to the different State boards of accounting examiners for their consideration, and through these bodies to the different educational institutions which now offer work in accountancy.
I thank you, gentlemen of the American association, for the confidence with which you have honored me, and I pledge you my best efforts and the first claim upon my time for the performance of such services as the welfare of the American Association of Public Accountants may demand.
Reviews of Corporation Reports.
Conducted by THOMAS WARNER MITCHELL. Corporate control is of three kinds, viz.: (1) the control exercised by the stockholder, (2) the control exercised by the board, (3) the control exercised by the officer. The purpose of accounts and reports is to make control intelligent. Do the reports rendered to stockholders contain such information as will enable them to exercise in. telligent judgment with respect to the fidelity, efficiency and economy of corporate trustees and agents? This is the viewpoint of criticism and analysis appearing in this department of THE JOURNAL.
The Report of the American Locomotive Company.
The report of the American Locomotive Company comes to hand, and we examine it with interest for information which will disclose the real earning power behind the stock and throw light upon the efficiency and fidelity of the management. This report possesses the merit of having avoided the unnecessary repetition of data, which is a common fault of the reports of railway companies. But a great deal of information that is desirable from the standpoint of the intelligent stockholder is lacking, and what is given is presented in such a form as to leave the reader in grave doubt as to its import. A little historical matter by way of introduction may not be amiss.
The American Locomotive Company was organized under the laws of New York on June 10, 1901. At the time of its organization this company secured control of eight locomotive plants, five of which it owned outright either as a result of direct purchase or of a merger with the companies which originally owned them; the other three were controlled through the acquisition of all the capital stock of the Richmond Locomotive Works, Manchester (N. H.) Locomotive Works, and the American Locomotive Company of New Jersey. During the fiscal year ended June 30, 1904, the parent American Locomotive Company purchased a considerable portion of the "stock and bonds" of the Locomotive and Machine Co. of Montreal, Ltd. During the following year it acquired most of the capital stock of the Rogers Locomotive Works. Thus, in 1906, the American Locomotive Company controls ten plants located in various parts of the United States and Canada. Its business consists of the manufacture and sale of steam and electric locomotives, extra boilers, tanks, cylinders, and other locomotive parts, steam shovels, dredging machinery, trucks for electric service, rotary snow plows, etc., and the overhauling and general repair of old locomotives; the company also receives income from investments and other sources.
The company's report for the fiscal year ended June 30, 1906, exhibits the following condensed general balance sheet:
American Locomotive preferred stock
Contract work in process
1,102,929.71 9,298,477.14 1,082,723.31 652,338.40
20,980.00 3,771,362.49 4,671,950.69
LIABILITIES Capital Stock:
Richmond Locomotive Works
Locomotive & Machine Co. of Montreal
Dividend payable Aug. 25, 1906.
68,724-57 Add credit balance June 30, 1905... 5,420,019.49
5,642.50 437,500.00 312,500.00
$70,717,916.06 We are told that this condensed balance sheet was “ Prepared solely for the purposes of information, to show the combined assets and liabilities of the ten plants controlled by the American Locomotive Company as the balance sheet would appear if the assets of the Rogers and Montreal Companies had been taken over by the American Locomotive Company and their debts assumed.” For this reason, among the liabilities there are two bond issues, those of the Rogers and the Montreal companies, which are not carried as liabilities on the books of the American Locomotive Company, but are included in this statement " for purposes of information.”
There are two items in this condensed balance sheet whose meaning and significance are obscure, namely, among the assets the item, “ Locomotive and Machine Co. of Montreal, Ltd.," and among the liabilities, the item, “Rogers Locomotive Works.” Do these mean that the Montreal Co. owes the American Locomotive Company $71,422.28, and that the latter owes the Rogers Company $922,713.81 ? If so, these items must be thrown out, because they would be eliminated if the parent company took over the assets of these subsidiary companies and assumed their liabilities. Do the “Convertible Assets" and "Current Liabilities" in this statement include only the cash, accounts receivable, accounts payable, et cetera, of the American Locomotive Company and its eight constituents; or do they include the assets and liabilities of the Montreal and Rogers companies as well? In the former case, the item, "Locomotive and Machine Co. of Montreal, Ltd.,” might represent a real asset, namely, the excess of that company's assets over its liabilities; and the item, “Rogers Locomotive Company." might mean an excess of liabilities over assets of that company. The fact that the bonded debts of these two companies are stated as separate items in the balance sheet renders this view of these items improbable.
The last and most probable view of these two items is that the one represents an excess of the liabilities of the Montreal Co. over its assets, while the other represents an excess of the assets of the Rogers Company over its liabilities; the former represents some kind of " deficiency," the latter some kind of “surplus." Apparently the Montreal Company has a net insolvency of over $70,000 in addition to its capital stock, i. e., its liabilities, exclusive of its capital stock, for no mention of the latter appears in this balance sheet, exceed its assets by that amount. The Rogers Company's capital has been impaired also, for though its assets exceed its liabilities exclusive of its capital stock by nearly $923,000, the amount of its capital stock, although nowhere stated in this report, appears to exceed $1,968,664.69, since the parent company's own holdings are stated at that figure.
This raises another question. At what valuation is the stock of the Rogers Locomotive Works carried in this balance sheet, at par, cost, or some arbitrary valuation? Again, what is the real value of this asset, as revealed by the income earning power of that company? These are questions which the stockholders of the American Locomotive have a right to ask and have fully answered; but no information is forthcoming from this report. He would have learned a little more about it if the balance sheets