SOCIETY OF ACCOUNTANTS

Otago Witness, Issue 3145, 24 June 1914, Page 5

SOCIETY OF ACCOUNTANTS

AN INTERESTING MEETING

An unusually large and representative meeting of the local members of the Now Zealand Society of Accountants was held in tho board room at the New Zealand Express Company’s Buildings on May 27. Mr Jas. Brown, vice-president of the society, was in the chair,- and among those present were many prominent accountants and well-known business men

In rhe course of some opening remarks, in which he expressed his pleasure at the large attendance, tho Chairman called upon Mr Arthur Clothier, of the local branch oi the Land and Income Tax Department, to deliver hs lecture on “Ihe Preparation of Land and Income Tax Returns.” Mr Clothier" said that from the number of inquiries' he had had on this subject from various sources he judged that a paper on tho question should bo of value as well as of interest. Ho did not propose entering into the incidence of taxation, but would point out errors of omission and commission that often came under his notice. Every person owning land or mortgages was compelled to put in each' year a land tax return. This return should he made as-at noon each 31st of March, property bought after noon not being included in that year. Every property owner was entitled to apply to the Land Valuation Office for information as to number of sections, etc. Verbally, this could bo obtained gratuitously. The most interesting returns would be the returns of income for persons or firms. This could be made up to nearest date of balancing prior or subsequent to March 31. It was not sufficient for a man to be losing money or earning less than £3OO a year to warrant him omitting to make' a return. Dividends from public companies and debenture interest from public companies were not taxable, but interest from debentures issued by public bodies, which themselves were not taxable, should be shown in the return, as well as dividends from building societies. Income from any source whatever beyond the common was also taxable.Rents received from properties should not bo included as income, property being already taxed under land tax. but rentals from licensed premises wore deemed to bo income. Referring to deductions from gross income, tire speaker mentioned, inter aba, that depreciation could only be settled in each individual case, and suggested tnat t.ie book entry should be shown in the return, and the matter adjusted on the next visit of tho department’s inspector. Beyond the £3OO a year exemption, a further exemption of £25 for each child under 16. years of age was now allowed up to five children. Income derived from pastoral land included wool. skim, hides, live stock, meat, etc., de.ductions being wages, rates, insurance, interest, freight, cartage, etc. There was added to the gross income of every tradesman and farmer an amount representing the goods us°d by himself and family for household purposes. The speaker also referred to taxes payable by theatrical companies, non-resident traders, and commercial travellers, and in conclusion expressed. Ins willingness to accord any desired information to those present, should they call at h:a office. In replv to quest ons. Mr Giotmer sa d that the valuation adopted by his department was that made under tho Valuation of Land Act, deduction for superannuation not being allowabThe next speaker was Mr T. H. Thompson, who styled his address A Simple Method of Commercialising the Accounts ot Public or Local Bodies.” In introducing his subject he stated that his object was to show how this could be done without involving a large amount of extra book-keep-incr His experience in connection with local body accounts was necessarily limited, tho auditing of such being clone by the Government Audit Department, and therefore not allowing much opportunity for a public accountant to acquire, a wide acquaintance with them. It was, however in the course of the examination of a local public body s accounts that the idea originated which he would endeavour to explain, and which could doubtless be turned to advantage on many occasions, tho oac on which it was turned to practical account. The system of book-keeping followed in all but the trading departments of tho public service was a cash system. The ledger theiefore was merely an analysis of the cash book and not like a commercial ledger, which was an analysis of cash book and journals. A cash system took no cognisance of outstanding or accrued unpaid items cither on the debit or credit side except as memqranda. Unless therefore everything was paid up to date by the end of each year the cash book was not a true account of the year’s revenue and expenditure, and the difference between a cash system and a complete double entry system was the difference between a statement of receipts and payments and a true profit and loss or income and expenditure account. Consequently a balance sheet based upon a cash_ statement where there were still items unpaid on cither side was not a true balance sheet for this reason alone, and it might be untrue also for another reason —namely, that the cash book, being merely a cash account, provided no way of writing off depreciation, or making provisions, unless sums of money were set aside as reserves for such purposes. To illustrate another weakness with regard to some aspects of local body and departmental book-keeping, tho speaker referred to the fact that loans raised, say, for purposes of construction were charged in accordance with controlling acts with all the expenditure of such loan money. _ This, though correct in a sense, might include expenditure on plant, buildings, etc., which depreciated, and under such a system tho waste was not accounted for. It might also include assets that had been abandoned but never written off. Such a system was analogous to the double account system, which was said to have emanated from lawyers rather than accountants, and was intended mainly to show distinctly Low capital raised had been expended and what balance, if any, was still available. It made the position as regards finance clear to laymen, but it did not state the accounts of the separate assets at their real valuations. Even where money was received for other purposes than- that of constructing works this system obtained in Government departments and was acclaimed by the Audit Office, as was evidenced by the dispute between the Auditor-general and the Superintendent of the Advances to Settlers’ Department with reference to the balance sheet produced by the latter in 1905. The law laid down in that case that all

nioncys received from the Government for the purposes of a debenture fund and all principal moneys repaid by mortgagors should be credited to on investment account, and that this account should be charged with all moneys invested on mortgage. Tho superintendent correctly said that if the assets and liabilities were kept in one account it led to confusion. Tho superintendent’s balance sheet took into account accrued interest and overdue interest receivable and accrued interest payable, and showed a profit and loss item of £6369. Ihe Auditor-general, in his objection to this balance sheet, said that the of profit and loss was made up of accrued interest that the Act controlling this department required any balance standing to credit of management account to be paid into an assurance fund at tho close of each financial year, and that that could only be understood as the balance of cash in tho account, because it would be impossible to pay over accrued interest arising from a more book entry. There was another objection to the closing off of expenditure out of loan money to tho 'particular loan account affected, and that was that there was no necessity to keep a continuous record of the balance to debit or credit of any particular account in the account itself. For instance, buildings might bo charged with, say, £IOOO th:s year, and this £IOOO might be transferred to the debit of loan account at the end of the year. A new ledger could be opened next year, and buildings debited with £SOO spent on them, which could again be transferred; to debit of loan account, but to ascertain the whole cost of such buddings it was necessary to refer to the two ledgers, the balance, not being brought forward from one to the other, because there was no necessity for it. In any case the Audit Office wouid ignore such a balance, as it would have nothing to do with tho Audit Department. Under the present commercial system such a thing would not bo tolerated. Even under the doable account system the expenditure to date would be shown in the balance sheet, but unless someone kept an outside record from year to year, or some local body politician asked for a return, such information would not be promptly available from the books of most bodies—though it should be. There were other classes Of funds in local body accounts analogous to commercial pi'olit and loss accounts, such as revenue accounts, to which expenses and income closed off, and to which there could be no objection excepting that they only included revenue received and expenditure paid during the year, and wore therefore not true revenue and expenditure accounts, but cash statements. At a first glance it was not very easy to see how one could meet tho Audit Office requirements, comply with controlling Acts, and yet furnish balance sheets which would satisfy commercial accountants; but to do so was really not a very difficult matter. All that was reqi ired was to open a separate journal and ledger to adjust the differ 1 once between annual cash receipts and payments and annual revenue and expenditure, bringing into account in these books all outstanding and accrued unpaid items at the end of the year, and reversing the entries for them at the beginning of the next year. To arrive at the necessary opening entries in this separate journal, that was to establish accounts in the separate ledger for assets acquired from trust or loan funds, it might be necessary first to analyse sucit trust or loan accounts. This would be the biggest and most difficult part of the job. It might also be neeesAry to re-value some assets and write them down, or write some of them off altogether. All writing down would be done in their separate books. How the details would be carried out would depend on the circumstances connected with the particular body’s affairs, and the question as to what accounts would bo charged with depreciation would be contingent on those circumstances. These separate books would have nothing to do with tho Audit Department, and would need to be audited by a public accountant if an audit of them was asked for. Their value would bn that they would, enable a commercial form of balance sheet to be compiled annually, which would show exactly how things stood, and would be a true balance sheet, not merely a cash statement, with certain memoranda appended. Speaking as an ex-borough councillor and an accountant, Mr E. C. Nicolson said that the Government auditor did not care whether money were spent wisely or not. so long as .i was spent on the work for which the money was allocated. In this respect the Government audit was therefore no safeguard, and he advocated the employment of public accountants to audit the accounts of public bodies. , , The meeting closed with votes of thanks to the speakers.