AUDITORS AND DEPRECIATION

Nelson Evening Mail, Volume LXXII, 7 December 1938, Page 8

AUDITORS AND DEPRECIATION

A SUGGESTION NOT PRACTICABLE A well-known London business man, at the annual meeting of his company, made of Chartered Accountants and the Society o? Incorporated Accountants and Auditors should form a committee in order to strengthen their position in reporting on how depreciation has been dealt with in a company’s accounts, and so avoid what has happened in so many cases in the past, namely, writing down of capital because the assets have not been properly depreciated.” In an editorial article based on that statement “The Accountant” (London) declares that Mr Hall's suggestion is not practicable. After reviewing the various points involved, the writer sums up thus. ihc situation usually resolves itself into a decision whether the auditor feels so sure of his ground that he can set his own uninstructed opinion against an apparently honest examination of the facts by the directors. In a border-line case the auditor will probably give the benefit of the doubt to honest directors, but in any other case he will be at liberty to inform the members in his report. We point out that, in ordinary cases, no auditor can go so far as to assess a concrete figure which he would regard as correct.

“When the problem is viewed in this perspective by our readers they will understand our opinion that a committee such as that proposed by Mr Hall could hardly perform any useful function. One has only to imagine the difficulty of drawing up an agenda for the committee’s first meeting to understand the futility of the proposal. Auditors already have both power and inclination to warn shareholders where they think that depreciation allowances are insufficient. To force on them a duty to recommend specific figures would be to overload their functions to the point of impossibility.

“To be fair to Mr Hall, we think that his mind is impressed with the advantages to be derived from the conservatism in the matter of dividend, and he appears to us to wish that every company would err in the matter or depreciation well on the safe side. We understand his view and we believe that any Chartered Accountant, when consulted by a board, would advise in the same direction. But there is a big difference between offering advice and using compulsory power. I r any remedy is needed in the present situation it is to be found, in our opinion, in the direction of inducing directors, on the one hand, to lake a more serious view of their responsibilities and shareholders, on the other hand, to adopt a more critical attitude towards those whom they place in a position of control.”