Expert On Company Reports

Press, Volume CVIII, Issue 31754, 10 August 1968, Page 22

Expert On Company Reports

Recent developments on both sides of the Atlantic had brought demands for company reports on the results of operations by divisions, product lines, or geographical areas, Professor Moonitz, professor of accounUniversity of California, Berkeley, told a seminar on the future of external financial reporting which was held at the University of Canterbury. In Britain, for example, Sharebrokers in some companies were told of the extent to which their companies’ sales were made overseas after adverse political events had caused losses.

Management had never disdosed this type of information in the annual reports to shareholders. The 1967 Amendments to the British Companies Act now required disclosure of turnover and its geographical distribution. In the United States, many large companies had diversified by merger or take-over and the resulting conglomerates contained divisions dealing in totally dissimilar products.

Pressures were building up to require disclosure of results by product-lines, rather than by geographical areas or

other classification, but the technical accounting problems were similar in both cases.

Professor Moonitz, who for several years was director of research for the American Institute of Certified Public Accountants and is a world authority on financial reporting by public companies, said that for some time there had been pressure to present additional data in a formal report which tied in with the balance-sheet and income statement. This pressure had culminated in the United States in the addition of the statement of source and application of funds to the battery of reports covered by the auditor’s opinion. “Its significance in the development of financial reporting is that it is the first formal report not directly related to the measurement of income,” he said. "Perhaps in future we shall see the development of other formal reports devoted to aspects of the business other than profit measurement” Management Audit

One of the topics put forward by Professor Moonitz was on management audit which would cover quantitative data as well as the

financial data in the conventional statements. Such an audit would also enlarge the auditor’s social purpose beyond the present limits of commenting on a client’* adherence to sound accounting principles. He also put forward for discussion changes within the framework of, and departures from, historical cost. The forecast of future events was tied to a transaction that had already occurred nd referred to an asset in hand, he said. The future ws frequently brought into financial report by way of the president’s letter to the shareholders or the chairman’s remarks at the annual meeting. “Here we find the plans for the future discussed in varying amounts of detail, often including disclosure of the amounts to be expended on plant expansion, product development, advertising campaigns, employee benefit schemes and the like. “These details are not however, woven into an articulated set of financial statements giving the firm’s position and results of operations.” As a practical matter, future projections and past results could be combined, he said.