ESTIMATES OF PROFITS

Evening Post, Volume CXVI, Issue 147, 19 December 1933, Page 4

ESTIMATES OF PROFITS

ACCOUNTANTS' RESPONSIBILITIES

The investigation committee of tho New Zealand Society of Accountants is at present concerned with the action of a member of the society, who gave a signed estimate of future profits in a business for incorporation in a prospectus which was to be distributed among the investing public. In this matter of ethics the society is in agreement with the following resolution adopted by the council of the j Australasian Corporation of Public Accountants: — '■''■■ "No member shall be allowed to give or sign in his own or firm's name a certificate of estimated future profits of any business or contemplated business for publication on the flotation or contemplated flotation of any company or corporation, public or private." Tho New Zealand Sciety is also in agreement with the comments of Mr. E. V. Nixon, author of "The Ethics of the Accountancy Profession," on that resolution. ■ ' "This resolution," wrote Mr. Nixon, "might be improved by substituting 'an estimate of future profits' for tho words 'a certificate of estimated future profits/ because, as a matter of fact; the application of tho term ' certificate' to an estimate of future profits is an abuso of language. No one can certify to a -contingency, and anyone attempting to do so only misleads those not couversant with the nature and significance of a certificate. That, no ■loubt, is why unscrupulous promoters aro willing to offer to pay large foes to reputable accountants for such 'certificates.'' ■ "The reason why members cannot bo permitted to give such certificates U obvious. The accountant is not a pro phot; he cannot soo into tho future. , . . He must confine himself to facts as disclosed by the accounts, subject, of course, to such adjustments as may bo necessary because of alterations, in tho legal or financial structure of .the business. . .-■ ' 1 "It is recognised, of course, that estimates of future earnings, exponses, and profits are necessary in budgeting for tho requirements, of a business. The rule does not apply thereto, but only to such estimates when published for the purpose of influencing'the judgment of prospective investors."