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Author: 
 
 Eaton, John N. 
 
 Title: 
 
 What the banker expects 
 from the accountant 
 
 Place: 
 
 Lansdowne 
 
 Date: 
 
 1922 
 
MASTER NEGATIVE * 
 
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 ORIGINAL MATERIAL AS FILMED - EXISTING BIBLIOGRAPHIC RECORD 
 
 |ausfNfts& 
 450 
 Ea8 . 
 
 Eaton, John N 
 
 lYliat the banker expects from the accountant 5 
 an address delivered before the Massachusetts 
 socj.ety of certified public accountants, by John 
 II, Eaton ••• Lansdovme, Pa., Robert Llorris asso- 
 ciates, 1922. 
 
 cover-title, clSa p. 21 nm. 
 
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 Cclambta ©nttiersiftp 
 
 LIBRARY 
 
 School of Business 
 
^4 
 
 ii 
 
 What the 
 
 Banker Expects from 
 the Accountant 
 
 An Address delivered before the 
 Massachusetts Society of Certified Public 
 
 Accountants 
 
 L.IBRARV 
 
 THWl 
 OHAae NAXIONAt- B><VNiK 
 
 ^•►o^iv^ fiSJ\ 2 1926 
 
 JOHN N, EATON 
 Merchants National Bank* Boston, Massachusetts 
 DectmheVM/f92f'' 
 
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 Lansdowne, Pa. 
 THE ROBERT MORRIS ASSOCIATES 
 
 1922 
 
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 Copyright 1922 
 
 by 
 
 The Robert Morris Associates 
 
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 What the Banker Expects from th( 
 
 Accountant 
 
 By John N. Eaton 
 
 "Wliat does a banker expect an audited statement to show'^ 
 He expects that it will set forth a correct picture of all the 
 assets and all tlie liabilities of the company. And he expects 
 that these various assets and liabilities will be classified and 
 described with sufficient detail and exactness to enable him to 
 form a satisfactory estimate of their value as a basis for irrantin- 
 credit. ^ ^ 
 
 While we feel that this is what an audit should be, our ex- 
 I)enence has been that many concerns have an entirelv' different 
 conception of an audit. While many have the thought that an 
 audit will correct irregularities in their accounting, and will show 
 the executives ways of improving their accounting system, it 
 appears that in the majority of cases the paramount thought in 
 their minds is that an audited statement is an aid in obtaining 
 credit. Apparently many concerns have an auditor go over their 
 books with the latter thought only in mind, simply to enable them 
 to show an audited statement. They do not care what the auditor 
 does so long as he makes up a statement and signs it, and does 
 not give the banks too much information about the business. 
 
 I think everyone here will agree that a plain condensed 
 balance sheet gives one little idea of a company's operations. 
 Without knowing how the figures have been determined, an in- 
 telligent analysis of them is impossible. It gives the present position 
 only, and no idea of how this position was reached. Alto-^-ether 
 too many of our audited statements are of this character. Vhey 
 are of little more value than the company's own statement of its 
 condition. Of course, we all like to see an accountant's name 
 at the bottom of a statement, indicating that an outside expert 
 has been over the books, but if the concern lias in mind having 
 the audit made as an assistance in obtaining credit, the object is 
 
 I 
 
INTENTIONAL SECOND EXPOSURE 
 
 ^**^'^?4!«f«8SlS'#S«I^IS&'*--11l!S«»*^ 
 
 
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 Copyright 1922 
 
 by 
 
 The Robert Morris Associates 
 
 1 < I . I 
 
 ,4 
 
 
 
 
 
 What the Banker Expects from th( 
 
 Accountant 
 
 » 
 
 p 
 
 By John N. Eaton 
 
 o ?rj "^^^^^ ^^^^^^ ^ ^^"^^^ ^"^P^"^^ ^" audited statement to show ? 
 ^ that it will set forth a correct picture of all the 
 
 11 .1 4*«*«** . 
 
 ^«<He expects 
 :i ii assets and 
 
 all the liabilities of the company. And he expects 
 that these various assets and liabilities will be classified and 
 described with sufficient detail and exactness to enable him to 
 form a satisfactory estimate of their value as a basis for ^rantine 
 credit. ^ 
 
 While we feel that this is what an audit should be, our ex- 
 perience has been that many concerns have an entirely different 
 conception of an audit. While many have the thought that an 
 audit will correct irregularities in their accounting, and will show 
 the executives ways of improving their accounting system, it 
 appears that in the majority of cases the paramount thought in 
 their minds is that an audited statement is an aid in obtaining 
 credit. Apparently many concerns have an auditor go over their 
 books with the latter thought only in mind, simply to enable them 
 TO show an audited statement. They do not care what the auditor 
 does so long as he makes up a statement and signs it, and does 
 not give the banks too much information about the business. 
 
 I think everyone here will agree that a plain condensed 
 balance sheet gives one little idea of a company's operations. 
 Without knowing how the figures have been determined, an in- 
 telligent analysis of them is impossible. It gives the present position 
 only, and no idea of how this position was reached. Altogether 
 too many of our audited statements are of this character. They 
 are of little more value than the company's own statement of its 
 condition. Of course, we all like to see an accountant's name 
 at the bottom of a statement, indicating that an outside expert 
 has been over the books, but if the concern has in mind having 
 the audit made as an assistance in obtaining credit, the object is 
 
 
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 almost entirely defeated if the bank is not furnished with details 
 enabling it to make a proper analysis of the figures. To make 
 this proper analysis one must know the quality as well as the 
 quantity of assets; the liquidity of the receivables, the market- 
 ability and method of valuation of the merchandise. One wants 
 to feel assured that all the liabilities are included. In this latt(?r 
 connection, I feel that the auditor should not only verify the 
 bills payable appearing on the books, but should ascertain, throug;h 
 correspondence with all of the company's banks, whether there 
 is any existing liability, direct or contingent, through them which 
 may not appear on the books at statement date. If the statement 
 indicates only the amount of liabilities as shown on the compan> 's 
 books, without such a verification, it is of no more value to the 
 banker than the company's own statement without an audit. Here 
 are a few cases to illustrate this point : 
 
 "A statement came in prepared by , who certified 
 
 that the statement was true and correct. In checking the matter 
 up, however, we found about $90,000 more outstanding on 
 statement date with various banks and subsequently found tbat 
 the cash books had been held open until late in January and 
 collections in the meantime had been applied to a reduction of 
 the indebtedness. This, of course, was a case of window dressing. 
 This incident does not compare unfavorably with the accountants 
 
 who recently audited and followed the same procedure. 
 
 This resulted in the withdrawal of our line to the company, sci I 
 fail to see where the client had been benefited in any way." 
 
 "A statement of the , as of , showed bills 
 
 payable of $50,000. In checking the figures with the company's 
 other bank we ascertained that besides owing us $50,000, the 
 company was also indebted there for another $50,000. This 
 
 statement was certified to by , a local firm of accountants. 
 
 An investigation brought forth the information that the Presid(int 
 of the company had borrowed the $50,000 from the other bank 
 for his personal use and the entries never reached the books of 
 
 the company." 
 
 "A clothing house, whose December 31, 1920, statement v/as 
 
 made up by , an accountant of this city, showed total 
 
 Notes Payable of $35,000. On that date the firm owed its own 
 bank $57,500. The additional amount of loan was a personal 
 matter of the partner, but the note given the bank was the firm's 
 note. It did not appear on the books of the concern, and as 
 
 the accountant had not verified bank loans he knew nothing 
 about it." 
 
 In addition to the quality of the assets, other important facts 
 which a bank likes to know are: Sales, indicating the rapidity 
 of merchandise turnover and productivity of capital invested in 
 fixed assets; Earnings, showing percentage of profit on Sales 
 and on Capital invested ; and Distribution of Earnings, which is 
 necessary in order that one can reconcile the Surplus account. 
 While a condensed statement without the above details is of 
 little value, it is to be presumed that such a statement, over 
 the signature of a reputable auditor, does contain the essential 
 facts, even if it is impossible to analyze them. We assume that 
 the Accounts Receivable item, for instance, if not commented 
 on, is due for merchandise sold, and that in making a comparison 
 of the various ratios one may compare this item with sales, thereby 
 getting a picture of the management's ability as collectors over a 
 period of years. I regret to say, however, that the practice of 
 some accountants in making up a company's statement for its 
 banks, without properly separating the receivables, makes such 
 a comparison very uncertain without a full knowledge of the 
 facts. If the receivables contain items of any material size which 
 are not for merchandise, the customary analysis of receivables to 
 merchandise, receivables to sales, etc., is absolutely impossible. 
 Many examples are presented illustrating this point : 
 
 "A statement included in current assets an item of loans 
 receivable $344,000. Of this amount $200,000 was due from 
 two of the officers and had been advanced to them for the pur- 
 pose of paying income taxes on the previous year's business when 
 the concern was a firm rather than a corporation. The balance 
 of the item, $140,000, represented a loan made to one of the 
 officers for the purpose of investing in real estate for the benefit 
 of the corporation, and was handled this way because they did 
 not want to show a real estate item in the figures." 
 
 "Another statement included in the current assets an item 
 of over $3,000,000 of accounts and notes receivable, etc., less 
 reserve. This item included $1,000,000 due from subsidiaries 
 of which $600,000 had gone into permanent investments in these 
 subsidiaries, and the item also included some stock in subsidiary 
 companies, one of which it was said had a substantial surplus, 
 while another was unsuccessful." The accountant admitted that 
 
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 these items should be set up separately, and said that the figures 
 were drawn up for the annual report to the stockholders and 
 the management had asked that they be condensed as much as 
 possible. 
 
 "Another accountant prepared a statement for as 
 
 of , and failed to indicate that $100,000 of the notes 
 
 receivable were pledged to the Bank to secure a loan 
 
 there." 
 
 "A large percentage of the Receivables item of another 
 statement, upon investigation, was found to consist of claims for 
 rebate of Federal taxes." 
 
 "One concern had a claim from the Government and also 
 owed a considerable amount for past due taxes. Instead of listing 
 as a liability the taxes which must be paid, the accountant deducted 
 this from the amount which it was hoped might be rebated, and 
 the net amount was carried as an account receivable." 
 
 Of course, the customary analysis of Sales to Receivables, 
 and of Receivables to Merchandise, etc., would be of no value in 
 such cases because a large percentage of the so-called Receivables 
 have no relation to Merchandise or Sales. All too frequently 
 an investigation finds that the receivables include accounts from 
 individuals and many other kinds of items giving an entirely false 
 impression of the company's condition. It would not be difficult 
 to recall dozens of such cases. They work greatly against tlie 
 concern and also against the accountant, when they come to 
 light. In an audited statement where there is nothing to indicate 
 to the contrary, I should like to feel, and I think I should have 
 the right to feel, that the Receivables item is what it is expected 
 to be— that it is for merchandise sold. If any of the receivables 
 are from foreign countries, these should be separated from the 
 others and the conditions regarding them commented upon. 
 
 Many times we see an item "Reserve." This is too general 
 a word ; it may mean many things, and I think proper accounti ng 
 calls for a clear statement of the nature of such an item. Often- 
 times it includes taxes, a quick liability. 
 
 While lack of information regarding details makes it im- 
 possible to make an intelligent analysis, that which upsets our 
 calculations perhaps more than anything else, is the omission of 
 information regarding existing contingent liabilities. Of course, 
 Contingent Liabilities are of many kinds; it is not necessary to 
 
 ^ 
 
 enumerate them here. But from whatever cause they may arise 
 and no matter how remote may be the possibility of the company 
 having to pay them, a contingent liability is sl contingent liability 
 and if it exists, the accountant, in my opinion, is neglectful of his 
 duty if he places his signature on a statement without indicating 
 in some way that there is such a thing. He may not wish to 
 give the details, but there should be something to put the banker 
 on notice and enable him to look into the details if he considers 
 it advisable Probably two of the most common kinds of Con- 
 tingent Liabilities which are overlooked are those found in pur- 
 chase commitments for the following season and in Letters of 
 Credit Liability. In the latter there should be indicated not only 
 the amount of the Letter of Credit which has been used, but also 
 the amount unused, giving an intimation of what real liabilities 
 are contemplated. 
 
 I have on file a large number of examples of audited state- 
 ments which make no mention of contingent liabilities which 
 existed, but will call your attention to just a few of them as 
 follows : 
 
 "We received two separate statements of December 31, 1920, 
 from a corporation, each certified to by a diflFerent firm of audi- 
 tors. They agreed in every particular; no mention was made 
 of a contingent debt, whereas we ascertained that under date of 
 the statement they had $65,000 of notes and acceptances redis- 
 
 counted. We have not discussed this with , but 
 
 admitted it was a slip-up on their part, as they relied too much 
 on the detailed audit of the other firm when they were making 
 up their own figures." 
 
 "A statement of submitted by a note broker, 
 
 showed no contingent debt, whereas the detailed audit showed 
 $30,000 bills receivable discounted. The explanation given by 
 the auditing firm was that the certificate had been made by their 
 representative in another city who apparently did not appreciate 
 the necessity for incorporating the contingent debt in the state- 
 ment which was distributed at large. This brings up an interest- 
 ing point of whether branch offices always work on the same 
 platform as the home office." 
 
 "The statement of , prepared by , made 
 
 no mention whatever of a contingent liability of a substantial 
 amount of outstanding bills of exchange. The only excuse of 
 the accountant was that as the bills of exchange were drawn on 
 
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 an affiliated concern the company did not consider them a 
 
 hability." 
 
 "An accountant addressed a cHent's depositary banks for 
 information regarding balances and outstandings with the banks 
 on the statement date, December 31, 1920. One bank reported a 
 direct liability for bills payable and a contingent liability for bills 
 receivable discounted, but when the statement appeared signed by 
 the accountant, there was no reference whatever to contingent 
 
 liabilities." 
 
 I have known of cases, when concerns have made no refer- 
 ence to existing contingent liabilities, where there has been some 
 excuse for it because of the lack of appreciation of the import- 
 ance of mentioning them in a statement to their bankers. I fe(;l, 
 however, when there is a liability of such a nature, that there is 
 absolutely no excuse for an accountant making up a concern's 
 statement for its banks, or for any other purpose, without making 
 a notation of it before placing his signature on the statement. 
 Some accountants are very particular on these points, but I am 
 forced to believe that many give little thought to the matter. Tlie 
 following is a copy of a certificate accompanying a statement pre- 
 pared by an accountant who appreciates the importance of show- 
 ing a concern's true condition. 
 
 ''Cash 
 
 Amounts on deposit in foreign banks included in this item 
 are computed at current rates of exchange on December 
 31, 1920. 
 
 Accounts Receivable — Customers 
 
 This item includes a balance on one account of $137,362.49 
 on which the goods have been billed, but on which \vt 
 understand that shipment has not yet been consented to 
 by the customer ; $72,532.81 of this account is included 
 in the $132,379.62 of overdue accounts shown in note 
 on Page 1. 
 
 Merchandise Inventory 
 
 Goods seen and quantities checked on Raw Materials, Sup- 
 plies and Manufactured Goods amounting to $289,562.57. 
 
 This inventory is stated not to contain certain Merchandise 
 bought for next year's business which was on hand when 
 Inventory was taken amounting to $45,269.00 net. 
 
 Accounts Payable 
 
 These Accounts Payable are stated not to include any liabil ity 
 for certain Merchandise bought for next year's busintiss 
 
 which was on hand when Inventory was taken amount- 
 mg to $45,269.00. 
 
 Contingent Liability 
 
 Contingent Liability on account of accommodation endorse- 
 ment of contractor's note in connection with purchase of 
 lumber $25,000. 
 
 Contingent Liability under joint and several letter of guar- 
 anty for advances on purchases for X Company $257,000. 
 
 The Y Company states that its commitments for Merchan- 
 dise on December 31, 1920, did not exceed $1,500,000 
 and were all for immediate use, and that all estimated 
 losses on same have been provided for in the financial 
 statement; they also state that construction contracts 
 uncompleted on December 31, 1920 did not exceed the 
 sum of $500,000. 
 
 Materials and Supplies Commitments on December 31, 1920 
 amounted to $400,000 of which $250,000 were for im- 
 mediate delivery and $150,000 were for deferred de- 
 livery; of this latter class $50,000 were deliverable at 
 option of the Company, and on many of the Commit- 
 ments deliveries are now being made at reduced prices. 
 
 Cumulative Preferred Dividends 
 
 Cumulative Dividends on Preferred Stock amounting to 
 $85,000 not included in this statement as a liability." 
 
 The following notes from a number of other certificates also 
 indicate an intention to show the banker how far the accountant 
 has gone and to call his attention to anything unusual which may 
 be hidden in the balance sheet : 
 
 "Accounts Receivable, Accounts Payable, Personal Balances, 
 were not confirmed by correspondence." 
 
 "Analysis of Customers' Accounts shows : 
 
 $113,572.94 for shipments over four months old on 
 Domestic Accounts. 
 
 $27,098.29 for shipments over four months old on 
 Cuban Accounts. 
 
 $189,645.27 for shipments over four months old on other 
 Foreign and Canadian Accounts." 
 
 "These accounts include $42,539.26 for goods which, since 
 December 31, 1920, have been transferred from Customers to the 
 Company's foreign selling agents for resale." 
 
 "Merchandise Inventory is stated by the Company to be 
 valued at cost or market, whichever was lower. Quantities are 
 
 
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 as stated and sworn to by Employees of the Company. Exten- 
 sions and footings verified by us." 
 
 "Merchandise Inventory and Accounts Payable are stated to 
 include all Merchandise and Liability on account of same De- 
 cember 31, 1920." 
 
 "The Company states that the outstanding commitments De- 
 cember 31, 1920 were less than $197,000 and in the aggregate 
 would show no loss as compared with market prices as of that 
 
 date." 
 
 'The Notes Payable were confirmed by correspondence." 
 
 'Dividends on the Preferred and Common Stock amounting 
 to $79,034 declared on January 5, 1921, have not been deducted 
 from the surplus as shown above." 
 
 Many cases are constantly coming to light of so-called audited 
 statements where an accountant has made a superficial examina- 
 tion or has made up a condensed statement from his full audit 
 without showing points of vital importance. I feel very strongjly 
 that every audited statement should be accompanied by the Ac- 
 countant's certificate stating what he has done. I think this has 
 been one of the most common omissions in the work of account- 
 ants. Many simply state that the subject's books have shown such 
 and such figures. In cases where a banker is not to be shown 
 the full audit report, he should at least have a report stating as 
 clearly as possible how far the accountant has gone and how the 
 figures have been determined. This report or certificate should, 
 among other things, report on the age and quality of Receivables, 
 Merchandise valuations and marketability, verification of liabili- 
 ties, and notation of amount of commitments or other contingent 
 liabilities. We see many so-called certificates which mean abi^o- 
 lutely nothing — ^they cannot be taken seriously. Here are a few 
 samples of many of which have come to my notice : 
 
 "I hereby certifiy that the above is a true and correct trans- 
 cript of the Assets and Liabilities appearing on the books of the 
 , on December 31, 1920." 
 
 There is no information as to the basis at which the mer- 
 chandise was taken, no reserves for taxes, depreciation or tiad 
 debts, nothing to show whether a real audit was made or not. 
 
 "I certify that the Balance Sheet herewith presented is a 
 
 true copy of the Assets and Liabilities of , as on their 
 
 books as of December 31, 1920." 
 
 "We have examined and audited the books and accounts of 
 
 for the period January 1, 1921 to August 31, 1921, and 
 
 herewith present the above statement of Assets and Liabilities, 
 subject to such allowances for accrued and deferred items, as may 
 not have been considered. The inventory herein shown is furn- 
 ished, prices being taken at market value." 
 
 "We hereby certify that the above is a true statement of 
 Assets and Liabilities as disclosed by the company's books as of 
 April 30, 1921." 
 
 "We hereby certify that to the best of our professional 
 knowledge the foregoing is a true statement." 
 
 "I hereby certify that the above Balance Sheet is a fair 
 statement of the condition of the company at December 31, 1920." 
 
 "I have examined the above account and find it correct." 
 
 "The above figures are in accordance with the books of the 
 
 , as of August 1, 1921, and represent the true financial 
 
 condition of the company as of that date." 
 
 In the last case the accountant admitted that he had made no 
 audit whatever, but simply made up a statement from the com- 
 pany's books of that date for the client to show his bank, and did 
 not know whether the books showed the true financial condition 
 of the company or not. 
 
 While a concern may not have had any contingent liability 
 on statement date, it is of great importance if one is considering 
 the extension of a line of credit direct, or wishes to handle intelli- 
 gently an inquiry from some other source where credit is being 
 sought, that information should be available as to whether the 
 concern may customarily have contingent liabilities at other times 
 of the year. An audit seldom reveals this information. But it 
 is not infrequent for a concern to have a window dressing before 
 statement date. Sometimes a contingent liability is shifted to 
 affiliated interests. If it is customary for a concern to have con- 
 tingent liabilities of important amounts during the year which 
 may be eliminated preparatory to making up a statement, it would 
 be of great assistance to the banker if the accountant should note 
 this fact. In one illustrative case of this kind which recently came 
 to light, the accountant, upon being questioned regarding it, ad- 
 mitted his wrong and oflFered no defense except that the company 
 felt there was no likelihood of its being called upon to meet the 
 
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 obligation. The banker is entitled to know the facts, and prefers 
 to form his own opinion as to the probabiHty or improbability of 
 a contingent liability becoming a direct one. 
 
 If an audit is intended to assist a concern in obtaining credit, 
 why should any of the information it contains be withheld from 
 the banks? Why should figures made up for the banks frequently 
 give so much less information than those made for the company 
 itself ? If the information is favorable, the credit will be granted 
 more freely. Information withheld or covered up creates suspi- 
 cion — telling the worst, if the case is bad, may create sympatliy 
 arid induce help when dealing with the right kind of a banker. 
 Many concerns have an entirely wrong impression of the bank 
 man. They look at him as one who is trying to take their hist 
 penny ! In reality, the concern is asking the bank man to trust it 
 with the bank's funds — with very little actual information on 
 which to base judgment as to the value of the credit risk. In- 
 stead of trying to get something to which he is not properly en- 
 titled, the banker of the highest type is interested in every detail 
 of his customer's business, is ready and anxious to help him, and 
 is usually qualified to do so because of the training and experience 
 he has gained through dealings with others. 
 
 If an audit is to be used to assist in obtaining credit, how 
 is it so used — what is its purpose? Is it simply made to give the 
 banker the assurance of the concern's honesty, to prove that the 
 figures give a true picture of the company's books ? A banker is 
 always glad to know that an outside expert has examined a bor- 
 rower's book, but very few of a bank's losses come from false 
 statements. I have before me a list of sixty-eight prominent con- 
 cerns from all over the United States, that have been in dii^- 
 culties the past year and a half. So far as I have been able to 
 learn, only one of them made a false statement, and the head of 
 that one concern had for years been in ill repute, and there w^as 
 little excuse for a bank being caught with his notes in its pocket 
 book. Of these sixty-eight concerns forty were issuing audited 
 statements when they got into trouble. Gentlemen, if you had 
 asked me five years ago if I felt like asking all our borrowers to 
 have their accounts audited, I would have said "Yes," but to be 
 perfectly frank, I have seen so many faulty and useless audits 
 during that time, I feel much less like giving any such blanket 
 recommendation. Altogether too many of them report what the 
 
 pi8WM a a at t . . iM.ie?^sn;.;.Miakaa-^^^^ 
 
 company wants reported, rather than what ought to be reported. 
 Too many accountants are afraid of losing business. It is to one's 
 credit to lose business sometimes. If the standards of audits are 
 not raised there is little future for your profession. 
 
 While some losses are the result of falsified figures, which 
 a proper audit would discover, most of a bank's losses come, not 
 from false statements or lack of financial audits, but from the 
 improper manufacturing and merchandising methods of those to 
 whom they are loaning money. Many concerns of course need a 
 financial audit, but in my opinion what they most need is an 
 industrial audit; if a concern's management is able and honest 
 and the business appears well handled and profitable, if its own 
 accounting methods give evidence of competency and clearness 
 as shown by the information available, it gives me little added 
 confidence to have its statement signed by an accountant. Under 
 such conditions, granting of credit is not a mechanical process. 
 A large percentage of the credit risk is to be found in the per- 
 sonnel of the management, its character, ability and application. 
 Of course, many concerns do not have a system of their own 
 which enables them to show the important details to their banks 
 in a clear and intelligible manner. An audit of any kind helps 
 these people and helps their banks. But the audit which is of 
 real value is not an audit to enable a company to borrow more 
 money, but one which will enable a company to make more money 
 —an audit which will promote better management, full knowledge 
 of costs, proper routing, proper industrial processes, efficiency, 
 and point out the economic factors affecting the expansion and 
 contraction of ihe ^vbde ihdufeta-Jr.f .*>The/whole idea of the audit, 
 as it is usually Vef erred' topis' wtJrig. ' If the manufacturing and 
 selling are property handled; tfec financing. Ajrill be a simple matter. 
 
 I feel that a great deal 'of time and money is wasted by con- 
 cerns having their arcounts,, examined .b^^ auditors who do very 
 little but check back dvfeV-aibot df'*i)GcJkk^ping accounts, following 
 up some minor details that*are not of* importance, and spend little 
 time in determining the value of the receivables and merchandise, 
 and give little or no help or suggestions which would lead to 
 greater efficiency and economy in managing the business. Of 
 course, a good financial audit is, without doubt, of some help. 
 A great deal of real auditing is done which is not the type first 
 referred to as being satisfactory to one who simply wishes a 
 
 t 
 
 Vi^-Vf 
 
1^4 
 
 
 « -■ 
 
 
 Statement, bearing an auditor's signature, to present to his bank 
 as a basis for credit. A good financial audit can be of much 
 benefit to a mercantile concern and to its bankers, but I feel that 
 when you gentlemen make simply a so-called financial audit, you 
 are losing your opportunity for helpful and constructive work. 
 If a concern spends $1000 for the kind of audit which is fre- 
 quently given, they would better spend $1500 or $2000 and get 
 something which, as I said before, would help them to make 
 more money rather than borrow more money. 
 
 You will say, of course, that you do what you are paid to 
 do. Right there is an opportunity for you to do constructive 
 work. If what you do is of little value to your clients, educate 
 them to allow you to do something that is of real value to them. 
 A good accountant, like a good banker or a good business man, 
 does not mind turning away business when it is not of the right 
 kind. To do the work I think you ought to do of course necessi- 
 tates your having trained and skilled workmen. I believe there 
 is a field for such work. I know some are doing :*t now. Work 
 of your kind poorly done is little better than work not done at 
 all. I feel that in your line above all others, there is an oppor- 
 tunity for service far greater than is usually realized. The banker 
 is in a position to turn a great deal of business your way. He 
 does recommend your service, but — ^you will pardon my frank- 
 ness — ^he would recommend it more strongly if he were sure his 
 customer would get his money's worth. 
 
 I think the banks can do a great deal for their customers by 
 recommending that they employ the service of. those who are 
 known to do thorough and confedentious work, and I think the 
 accountant can do a great deal more for his clients by educating 
 them to be open and i.rank. with their bank? and, to show them 
 everything there is to see, with the feeling tW if they withhold 
 unfavorable information th^y are deceptive, but if they tell tlie 
 whole story of their affairs, their banks" are going to help them 
 work out their problems. Nothing will help your profession 
 nfore in this respect than for you to insist to your clients, and for 
 us to insist to ours, upon the right of the banker to discuss his 
 customer's affairs with the accountant. The banker and the ac- 
 countant should work together in promoting this harmony and 
 co-operation, which will be of great benefit to your clients and 
 to ours, and a corresponding help to your work and to our work." 
 
 
 
 
I* 
 
 ■?ii 
 
 "M 
 
 •> i- 
 
 9ii 
 
 statement, bearing an auditor's signature, to present to his bank 
 as a basis for credit. A good financial audit can be of much 
 benefit to a mercantile concern and to its bankers, but I feel that 
 when you gentlemen make simply a so-called financial audit, you 
 are losing your opportunity for helpful and constructive work. 
 If a concern spends $1000 for the kind of audit which is fre- 
 quently given, they would better spend $1500 or $2000 and get 
 something which, as I said before, would help them to make 
 more money rather than borrow more money. 
 
 You will say, of course, that you do what you are paid to 
 do. Right there is an opportunity for you to do constructive 
 work. If what you do is of little value to your clients, educate 
 them to allow you to do something that is of real value to th(im. 
 A good accountant, like a good banker or a good business man, 
 does not mind turning away business when it is not of the right 
 kind. To do the work I think you ought to do of course necessi- 
 tates your having trained and skilled workmen. I believe there 
 is a field for such work. I know some are doing it now. Work 
 of your kind poorly done is little better than work not done at 
 all. I feel that in your line above all others, there is an oppor- 
 tunity for service far greater than is usually realized. The banker 
 is in a position to turn a great deal of business your way. He 
 does recommend your service, but — you will pardon my frank- 
 ness—he would recommend it more strongly if he were sure his 
 customer would get his money's worth. 
 
 I think the banks can do a great deal for their customers by 
 recommending that they emplo>; .the services, of. those who are 
 known to do thorough and conscientious ^ work, ^nd I think the 
 accountant can do a great deal more for his clients by educating 
 them to be open and'.fA-ank^wh their bank? aiidito show them 
 everything there is to see, wit^^i the'feeling tbat if they withhold 
 unfavorable information th^y are deceptive, but if they tell the 
 whole story of their affairs, their, batiks are going to help tliem 
 work out their problem's. ' Nothing 'will help your profession 
 nfore in this respect than for you to insist to your clients, and for 
 us to insist to ours, upon the right of the banker to discuss his 
 customer's affairs with the accountant. The banker and the ac- 
 countant should work together in promoting this harmony and 
 co-operation, which will be of great benefit to your clients and 
 to ours, and a corresponding help to your work and to our work." 
 
 i 
 
 
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