Reviewed by Robert J. Kirsch Bowling Green State University
William D. Hall, retired Arthur Andersen partner, has written a short (81 pages), timely, thought provoking book sure to be of interest to accounting practitioners, educators, and students. Hall’s forty-plus years of professional experience are tapped to draw comparisons between the profession’s immediate post-World War II past and its present and to present pithy insights into current areas of concern to accountants.
The book consists of thirteen brief essays. Topics covered include: the past and present of public accounting, the charac-teristics of an effective auditor, the education of an accountant, the form and substance of professional ethics, specialization, the relation of practice to theory, rules versus judgement, the need for a usable conceptual framework, ownership of the financial statements, professional self-regulation, the scope of practice, and the impact of litigation on auditing practice.
While it is not possible within the confines of this critique to discuss Hall’s thinking on this diverse list of topics, it may be possible to capture some of the flavor of this delightfully well-written series of essays.
In his essay, “The Education of an Accountant,” Hall points out the need for accountants to obtain a broader education, not merely in their narrow area of specialization, but also in the humanities, writing, mathematics and economics. Many an accountant has a highly focused education resulting in a “pinched outlook” which often “handicaps” his/her performance. “It restricts his vision, it hampers his reasoning. More subtly, it may limit his relationship with clients and others in the business community, where an increasing number of leaders are concerning themselves with societal issues.” (p. 16)
Accountants and business people, in general, must become better writers as business is now “paying the price for focusing too long on technical proficiency alone.” Accountants and au-ditors should remember the time and effort consumer product manufacturers spend on packaging and recognize that they “package their (own) products in (accounting) reports.”
Insufficient economic knowledge of exchange rates, inter-est rates, financing techniques and financial instruments could cause the accountant to “fail to understand the significance of a transaction and . . . have difficulty in discussing it intelligently with client executives.” (p. 18)
Concerning adequate knowledge of mathematics and statistics, Hall notes that accountants must understand the concepts underlying actuarial determination. “Present-value calculations cannot remain a mystery.” The auditor must be conversant with statistical concepts and techniques, such as the laws of probability, validity of samples, and sampling techniques.
In his, perhaps, most controversial essay, “Accounting’s Urgent Need: A Usable Conceptual Framework,” Hall observes that fear of the direction Financial Accounting Standards Board objectives may lead has “slowed the progress” of the conceptual framework development. Far from regarding such objectives as “impossible, unnecessary or threatening”, Hall sees them as a vehicle to “give a sense of order — the direction and priorities — required for gradually bringing practice closer to the objectives.” (p. 45) Central to the notion of objectives is Hall’s answer to the question about what they should be. They should be “based on value.” Value to investors is the present value of future case flows from their investments.
It follows … that the objective of financial statements should be concerned with communicating information regarding the values of economic resources of an enterprise, the claims against those resources and changes in those resources and claims, (p. 46)
Hall argues that such an overall objective would work and is needed. “To adopt and begin implementing the value objective would not be traumatic.” But it would require a change in the mindset of most business executives and accountants away from “an excessive preoccupation with objectivity …. They would be parted from their security blanket — historical cost.” Hall sees the development of a sound conceptual framework, based on users’ needs, within which orderly change could take place as preferable to continuing to repair the historical cost model which “will eventually fall of its own weight.” (p. 49) Such observations are sure to cause many an accountant’s eyebrows to be raised. It is also worth noting that Hall does not discuss the problems inherent in value account-ing, such as determining fair market value of plant assets at the balance sheet date, or adjusting the present values of liabilities for interest rate fluctuations.
Nevertheless, in a concentrated printed space, in a thought provoking and constructively critical way, Hall manages to address diverse current accounting issues. He recognizes that much change has occurred in the size, scope, and complexity of the profession (read: public accounting, as Hall does not touch upon other accounting areas, except education). Hall welcomes most of the changes, but he also notes the challenges and opportunities which they represent.
The format of the book, a collection of essays, results in a minimal amount of repetition. However, that does not detract from the merit of the work. Well written, lucid, easy reading, the book can be perused in an evening or two and serve as a thought provoker for years.
