PAUL FRANKLIN GRADY PAPERS
The papers of Paul Franklin Grady, certified public accountant and consultant
to the federal government were donated to theHerbert Hoover Presidential Library by
Mr. Grady in a deed of gift signed on October 26, 1968. The first increment of papers
arrived at the Library on August 16, 1968 and a second increment arrived soon after.
Linear feet of shelf space occupied: 1
Approximate number of items: 80
Literary rights in the unpublished writings of Paul Franklin Grady are retained
for his use during his lifetime.
Biographical Note
1900, May 19
Born in Creal Springs, Illinois. Son of James A. and Myrtle Ann
(Powless) Peterson, Step-father was John J. Grady,
1918
Served with the U.S. Navy.
1921, Nov 23
Married Louise Trevor.
1923
Graduated from the University of Illinois.
1923-42
Arthur Andersen and Company,, Chicago., Illinois. Started as
an accountant and became a partner in the firm in 1932.
1942-43
Executive Assistant in the Office of the Secretary of the Navy.
1944-60
Partner in Price, Waterhouse and Company., Certified Public Accountants.
1944-49
Advisor to the Secretary of the Navy and the Secretary of Defense.
1948 and 1953-55
Chairman of the Task Forces on Government Lending, First and Second
Hoover Commissions,
1963-64
Director of the Accounting Research Committee, American. Institute
of Certified Public Accountants
1964-65
Member of the Secretary of Labor's Advisory Council on Pension and
Welfare Funds.
1965
Visiting Professor of Accounting., University of Florida.
Member of:
American Institute of Accountants
American Institute of Certified Public Accountants
American Accounting Association
New York and Illinois CPA Societies
Beta Alpha Psi
Beta Gamma Sigma
Phi Kappa Phi
Awards:
American Institute of CPA's, Gold Medal Award, 1959
Beta Gamma Sigmas Award of Honor, 1946
Clubs:
Blind Brook, Chicago, Round Hill, Wall Street
Publications:
Memoirs and Accounting Thought of George O.May, 1962
Inventory of Generally Accepted Accounting Principles, 1964
Children:
George William Grady
Carol Maree Grady
Description of the Collection
The collection consists of a single Subject series which is arranged by subjects
in alphabetical order. Most of the collection consists of published materials such as
reports, pamphlets, books, and magazine articles. Published and unpublished articles
and statements by Mr. Grady will befound at the beginning of box 4 with a an index to
the articles and statements in the first folder. An explanation as to the origin and
significance of the various items was prepared by Mr. Grady and has been made a part
of this register.
Inclusive dates: 1938-67
Number of containers: 4
Subject Series
Box Contents
1
Accounting Principles (2 folders)
Accounting Principles, Report on, 1963-65
Accounting System Survey - U. S. Navy, 1943
Annual Report by Secretary of the Navy, 1944
Auditing Procedure Publications, 1944-48
2
Audit Procedures, Staff Training in 1946
Cost Inspection Manual - U. S. Navy, 1942
Executive Branch Departmental Management Study
Parts I & II, 1949
Part 111, 1949
3
Fiscal Management for the National Military Establishment, 1948
Government Accounting and Reporting, 1950-51
Greenwich Connecticut Town Government Survey, 1951
Hoover Commissions, 1948-55
George O. May Memoirs and Accounting Thought, 1952
Measurement of Property, Plant, and Equipment in
Financial Statements, 1964
Nuclear Materials Precautions, Recommendations on, 1967
Petroleum Industry Accounting Practices, 1965
Practice Review Committee Publications
Regulation of Public Utilities, 1959 and undated
4
Statements and Articles (Index) , 1938-67 (2 folders)
Research Program of American Institute of CPA's, 1958
Voluntary Health and Welfare Agencies
Assembled Statements and Articles by Paul F. Grady
Box Contents
4
PART I: GOVERNMENT DOCUMENTS AND REPORTS
A. U. S. Navy cost inspection service World War II
B. U. S. Navy accounting system survey
C. Contract settlement legislation and implementation
D. Department of Defense budgetary and financial survey
E. Joint program for improvement in government accounting and
reporting
F. Study of office of the President
G. Hoover Commissions studies of Executive Branch of Government:
[None of the Task Force reports to the two "Hoover
Commissions" or of the Commissions own reports are
included because the Hoover Presidential Library
already has complete documents.]
[The documents in this section consist of certain letters,
newspaper, and magazine articles related to both of the
Hoover Commissions.]
H. Correspondence with Assistant Secretary McNeil about
accounting as an instrument of management control
I. Cabinet Committee report on private pension plans
J. Ad Hoc Committee report and recommendations on safe
guards of nuclear materials
K. Survey of Town Government -- Greenwich, Connecticut
L. Survey of voluntary health and welfare agencies in U.S.A.
PART II - PROFESSIONAL ACCOUNTING AND AUDITING
BOOKS AND PAPERS
M. Outline for staff training
N. Generally accepted auditing standards
O. Special report on internal control
P. Case studies in auditing
Q. Memoirs and accounting thought of George 0. May
R. Committee on practice review
S. Inventory of generally accepted accounting principles
T. Report of special committee on research program, which
resulted in formation of accounting principles board
U. Report of special committee (5 years later) on the accounting
principles board and action by Council of AICPA in
clarifying the board's authority
V. Accounting and regulation of utilities:
1. Original cost
2. Regulation of natural gas
W. Report on certain petroleum industry accounting practices
X. The measurement of property, plant and equipment in financial
statements
Y. Published and unpublished papers in chronological order
Comments of Paul F. Grady Regarding the Documnets and Papers
Contributed to the Herbert Hoover Presidential Library
The General Services Administration is in charge of the National Archives of
which the five existing Presidential Libraries are an important segment. In the summer
of 1967, Mr. Franz G. Lassner, Director of the Herbert Hoover Presidential Library at
West Branch, Iowa requested that I contribute to that Library the principal documents
relating to governmental projects -in which I have participated. In addition to the
governmental papers, Mr. Lassner suggested that my professional papers including
books and articles on accounting and auditing should also be placed in their archives.
I am, of course, very pleased to comply with the request of the Director of the Library.
I consider the friendship and association over many years with President Hoover
as one of the greatest, most enjoyable and inspiring privileges of my life. History has
already rescued him from the image created by the smear campaigns of the nineteen
thirties and, I feel certain, he will ultimately be recognized as one of the few truly
great men of the twentieth century. This judgment should be based on his far reaching
accomplishment in many fields but, above all, on his strength of character and his
compassion for humanity as evidenced in worldwide programs for relief of hunger and
suffering and in the establishment of institutions to seek out the root causes of war and
revolution.
My papers, and the part played by me in programs which they evidence, are less
than the proverbial "drop-in-the-bucket." However, the opportunity to make a
contribution of only a few documents to the Herbert Hoover Presidential Library is a
type of extension of the association with our beloved "Chief," for which I am most
grateful.
In the accompanying table of contents the government documents are labeled
with the letters "A to "L," inclusive, and the professional. accounting and auditing books
and papers are labeled with the letters "M" to "Z" inclusive. The identifying letters
have been pasted on the various documents as listed in the table of contents. In order
to assist the archivist at the Library and any others who may subsequently be interested
in examining these papers I am submitting brief comments to serve the purpose of
a syllabus or explanation related to the various documents.
A -- COST INSPECTION SERVICE
The volume labeled with the letter "A" is the Cost Inspection Manual of the
U.S. Navy Department, used during World War II and subsequently. Under-Secretary
James Forrestal had requested me to come to Washington to help organize and
determine the policies of an auditing agency in the Navy to examine procurement
contracts, including the vouchers submitted by contractors, under such contracts which
were largely of a cost-plus variety. Secretary Forrestal's instructions were to organize
an auditing force of sufficient capability and scope to assure no major scandals in
procurement activities of the Navy during the war.
I had had a previous discussion with the Secretary about this matter in the latter
part of November 1941 and was packing my bag to go and meet with him again when
we learned over the radio of the events which had occurred at Pearl Harbor on
December 7, 1941. Since our country was then at war any arguments which I might
have presented to try to avoid the appointment were completely out of order.
Accordingly, I accepted the post of Executive Assistant in the office of the Secretary
as requested by Mr. Forrestal.
During the early days in Washington, it seemed to me that there were serious
doubts that there were sufficient capable auditors in the United States to do both the
peace-time type of work performed by C.P.A.s, such as the annual audits of corporations
income tax services, etc. and to also meet the large burden of contract auditing which
was contemplated by the government. It seemed to me, for the same reasons that
production of private automobiles was largely curtailed and the manufacturing and
personnel and facilities devoted to wartime work, that the same philosophy might well
be applied to accounting and auditing. Accordingly, my first suggestion was that we
consider working out a program whereby the trained personnel already employed by
the well known firms of certified public accountants be allowed to remain with these
organizations, which had the adequate supervision of managers and partners, and that
the government allot to various firms the work to be performed at various contractors
offices curtailing, if necessary, the regular peacetime work. It did not require many days
of discussion with the people in the Navy Department as well as other departments for
me to see that while there might be merit to such a proposal there was no possibility
of obtaining its acceptance within any reasonable time so that it might be applied.
during World War II. My next suggestion in regard to organization concepts, was-that
a joint audit agency be established for all of the military services. At that time there
was only the Army and Navy and perhaps the Maritime Commission to be considered.
Several meetings were held with the corresponding personnel in the: Army, particularly
General Arthur Carter and Colonel Andrew Stewart. It soon became quite obvious
that there were basic differences in the approach of the two services and again that
it was impractical to try to work out a merger of the audit effort within the services
on an organizational basis. The more practical approach was to proceed separately
and try later to cut down duplication by cooperation in the contractors plants and
offices.
The various sections of the Cost Inspection Manual indicate the nature of the
contents. It was a sizeable undertaking to bring all of these instructions into proper
order. The major problem was obtaining competent auditing personnel and eventually
sidetracking some of the misfits already placed in command positions in the Division of
Cost Inspection in Washington and in the various Naval Districts throughout the
country. The plan of organization may be found in charts in the General Section of the
manual.
In order to obtain competent auditors I visited the major industrial cities in the
United States and recruited approximately 500 young C.P.A.s who were willing to take
lower grade commissions in the Navy Department in order to perform this type of
technical work. Most of them were either seniors or managers in public accounting
firms and they were usually 28 to 38 years of age. Our direct efforts at recruiting
personnel was resented somewhat by the Office of Naval Officer Procurement which
was a part of the Bureau of Personnel in the Navy Department. This office had the
responsibility of checking out the references regarding the personnel recruited by me
and they initially seemed disposed to disqualify all of the applicants. This attitude was
soon corrected through the offices of Rear Admiral Carter in the Bureau of Supplies
and Accounts and the Chief of the Bureau of Naval Personnel.
There were, of course, many problems of melding the military and civilian
personnel into an effective organization. Some of the evidence, particularly of
replacement of personnel, may be found in certain of the memoranda located in the
General section of the manual. The task would certainly have been much more
difficult without the splendid understanding and full cooperation of Captain Frank
Baldwin who was the officer in charge of the Cost Inspection Division. Captain
Baldwin was later promoted to the rank of Rear Admiral and served the Navy in an
outstanding fashion for many years following World War II after the normal
retirement age. Admiral Baldwin realized that the audit task was a technical one
which the regular Supply Corps officers of the Bureau of Supplies and Accounts
were not equipped to fulfill. He had a great understanding of personnel and his
cooperation and understanding was a keystone to the workable solutions in the Cost
Inspection Service.
A principal problem was selling the test check audit approach inside the Navy
Department and, more particularly, to the General Accounting Office. Memorandum
evidencing these problems and some of the ways in which they were solved will be
found in the General Section of the manual. The assistants to Lindsey Warren, Controller
General, were very much opposed to the approach and in favor of the detailed
examination of all documents by the General Accounting Office. At one time during
the period that I was the Executive Assistant in the Cost Inspection Service we stopped
sending the GAO all of the various copies of original documents which they required.
We relied on an opinion from the Attorney General that the Navy contracts were
controlling when they said the costs should be determined by the Bureau of Supplies
and Accounts. By the close of World War II, the Controller General had seen the
benefits of the test check approach and applied it himself in the organization of the
Corporate Audits Division of the GAO. I happened to see Mr. Warren at the time of
his retirement as Controller General and he admitted to me that his office had not
understood the approach adopted in the Navy and he was pleased to admit the merits
of the test check auditing of transactions and to say that he was then applying the
method in the General Accounting Office.
We became convinced in the Cost Inspection Service that the predominance of
the cost type contracts was a serious detriment to the war effort. Accordingly we set
up a special contract division to work out: "target" and "incentive type" contracts in
cooperation with the Procurement Legal Division. Ultimately we were able to convince
Secretary Forrestal that he should issue a directive requiring that wherever possible
cost-type contracts be converted into some form of fixed price contracts. Among other
things the cost-type contracts caused the hoarding of labor by contractors and there
were no incentives towards cost control. The cost-plus fixed fee variety of contract
being a form of profit control without cost control.. (It is doubtful that this problem
has been solved even today.)
I have always been very proud of the quality of work performed by the Cost
Inspection Service during World War II. We were fortunate to have an esprit de
corps and quality of personnel which came close to carrying out the original
instructions of Secretary Forrestal. In wide scale procurement there always will be
some types of irregularity and fraud. I believe, however, we were fortunate in early
detection and prosecution of those occurring in the Navy Department. The prevention
of fraud is of course a relatively minor part of the important function. By far the more
constructive aspects consisted in the prompt clearance of valid vouchers by
conscientious contractors in order to avoid financial strain on their working capital.
In this phase of the work I believe the Cost Inspection Service of the Navy ranked
very high.
At the end of the war the Cost Inspection Service also rendered effective work
in contract settlements under the guidance of the Director of Contract Settlements. This
work greatly facilitated the changeover to peacetime production and avoided the
depression which. many had expected following the termination of the war.
These comments are in no sense intended as a history of Cost Inspection.
Such a history, I understand, has been written and accordingly I shall not name any
of the persons who rendered outstanding service in this area during World War II
other than Admiral Baldwin. It would, of course, give me pleasure to name the 50 or
so people that I would remember but I shall avoid that pleasure for fear there might be
others who rendered equally valuable service whose names might not occur to me at
this time.
B - U.S. NAVY ACCOUNTING SYSTEM SURVEY
The volume labeled "B" is a survey report on the U.S. Navy Accounting System
which Secretary Forrestal requested that I undertake as an additional assignment. The
report ostensibly is a report by a Bureau of Supplies and Accounts committee under the
chairmanship of Captain Royal. This committee was appointed in order to give the
report a Bureau of Supplies and Accounts flavor and sufficient meetings were held
during the progress of the survey and after the completion of the report so that the
committee did unanimously adopt the report. However, the actual survey work was
performed by a few people under my direction, particularly James Richardson and Cecil
Gillespie. Mr. Richardson had been a manager with Arthur Andersen & Co. before the
war; he accepted the commission in the Cost Inspection Service and, after the war, be-
came associated with Price Waterhouse & Co. Ultimately he left Price Waterhouse to
accept the post of Treasurer and Director at Paramount Pictures Corporation. Cecil
Gillespie is a professor of accounting at Northwestern University and has written several
authoritative text books on cost accounting and accounting systems.
The principal recommendation in the report was to create an office of
Controller. It was a difficult assignment to convince the Paymaster General and his
assistants in the Bureau of Supplies and Accounts of the concept of controllership,
especially if it were to be performed on a civilian basis. I thought our committee had
convinced Admiral Carter on the controllership idea. After my departure from
Washington, Admiral Carter became less enthusiastic as will be evidenced by certain
letters filed in the front of the binder of this survey report.
An interesting sidelight on this report is that nothing was heard about it until
almost a year after my departure from the Navy in the year 1943. I then had a call
from Secretary Forrestal and on visiting his office he had a copy of the report with a
letter attached to the cover from Secretary Knox, dated prior to Secretary Knox's
death. The letter instructed Under-Secretary Forrestal to proceed with the
recommendations in the report immediately. Mr. Forrestal was quite embarrassed,
particularly since he had originated the idea of' the survey report in the first instance.
A week or so after the meeting with Secretary Forrestal he asked Struve Hensel,
Chief of' the Procurement Legal Division, and Captain Lewis Strauss to call on me in
New York and see if I could be persuaded to take the position of Controller of the
Navy as recommended in the report. I advised Mr. Hensel and Captain Strauss (later
Admiral) that I would accept the position if it were given legal status either by an act of
Congress or if President Roosevelt would issue a directive creating the office, which I
was sure would be recognized by the various bureaus and offices in the Navy
Department. Mr. Hensel and Admiral Strauss agreed with the reasonableness of my
position but apparently Secretary Forrestal did not consider it feasible to obtain either
one of these bases of authority. As an alternative measure the Office of Fiscal Director
was established within the Navy Department by order of the Secretary and on my
recommendation Captain -- later Admiral -- Wilfred J. McNeill was appointed as the
Fiscal Director. Captain McNeill was able to effect considerable improvement in the
Navy budgetary and accounting functions; although not as much as had been
contemplated in our original recommendation for the Controllership office.
The 1944 fiscal year report by the Secretary of the Navy to the President of the
United States deals with the handling of Navy funds on page 41 and makes specific
reference to the survey report dealt with in this section. This Annual Report is also
marked with the identifying letter "B".
Subsequent to the close of World War II, as part of the recommendations of the
two Hoover Commissions, subsequent legislation did establish the Controllership
function in the Department of Defense and in the military departments. The offices of
the Controller in these departments are now at the level of Assistant Secretaryships.
C - CONTRACT SETTLEMENT LEGISLATION AND IMPLEMENTATION
In 1944 it became evident that the United States and its allies were winning the
war and that preparations should be made for the large scale transition from war
production to peacetime production. Messrs. Bernard Baruch and John Hancock
headed an informal Task Force to obtain the required legislation to create a contract
settlement agency to act as the focal point in streamlining procedures for settlement
of military contracts when and as no further production was needed.
The report by Messrs. Baruch and Hancock is labeled "C".
I spent about two weeks in Washington as a part of the informal Task Force
during the period required for passage of the legislation. Under Mr. Hancock’s
direction members of the Task Force were given key locations in the military
departments to provide instant information, if it should be needed. I was located
in the office of Colonel Kenneth Royal, in the Fiscal Division of the War Department.
We attended our posts during the daytime and met at night to discuss the progress of
the legislation and to clear up any new problems.
Mr. Robert H. Hinckley was appointed Director of the Office of Contract
Settlement which organizationally was part of the President's office, and he selected a
small but capable staff from the military departments. Captain J. Harold Stewart, my
replacement in the Cost Inspection Service of the Navy, was one f the Deputy Directors.
The office did a great job of cutting red tape and effecting prompt settlements on a
broad basis without interminable wrangling over minor items of costs. With the high
rates of income tax and renegotiation as protective measures against "profiteering"
this was a sensible philosophy which speeded reconversion to peacetime production
and avoided the post war depression which many had feared.
D -- FISCAL MANAGEMENT OF NATIONAL MILITARY ESTABLISHMENT
Item "D" is a report by a committee on fiscal management of the national
military establishment. This committee was set up by Secretary James Forrestal of the
Department of Defense, in 1948, to make an objective study of the fiscal responsibilities,
policies, principles, and procedures effecting the national military establishment and to
furnish its report and recommendations. The chairman of the committee was Mr. E. M.
Voorhees of the United States Steel Corporation. This report was completed and
delivered to Secretary Forrestal in the fall of 1948 which was toward the end of his
distinguished service to the nation. It was obvious at the time of the last meeting with
Secretary Forrestal that he was in a precarious state of health and it was not many
months after that he came to a sad and untimely death. The Secretary of Defense's
office had a study made of this report by Mr. Howard Bordner, one of the principal
accounting and budgetary assistants to Assistant Secretary McNeill. Mr. Bordner's
analysis and comment on the report are attached to the fly leaf at the end of the report.
So far as I am aware Mr. Forrestal's successors did not follow up the recommendations
in this report to any particular extent.
E-- JOINT-PROGRAM FOR IMPROVEMENT IN GOVERNMENT
ACCOUNTING AND REPORTING
For several years after the close of World War II, I acted as chairman of the
Council on Federal Financial Administration. This was established as a group of
representatives of various national organizations interested in the improvement in
financial and accounting programs of the federal government. I was acting as a
representative of the American Institute of C.P.A.’s. The National Association of
Municipal Finance officers and several other organizations were represented on the
committee. The committee had substantial influence in promoting the program
for improvement in government accounting and reporting by active cooperation with
the Treasury Department, the Bureau of the Budget and the General Accounting office.
The first two annual reports on the joint program are included as Item "E" of these
papers.
The Council was disband after it was felt that the government departments were
carrying on the project in a satisfactory manner. This cooperative effort between the
three departments of government still continues and an annual report is issued
each year on the improvements accomplished in the preceding year.
STUDY OF THE OFFICE OF THE PRESIDENT
The two volumes labeled "F" is a study of the office of the President,
particularly departmental management in federal administration. The study was made
by H. Struve Hensel and John D. Millet for the first Hoover commission. The studies
were considered confidential at the time and the attached volumes are numbered 39.
Obviously this is an area which still needs considerable study and improvement. The
office of President under our system of government is almost an impossible assignment
for any man. It probably remains devoid of sound management concepts because this is
left to the whims and desires of the incumbent. A large portion of the so-called "
credibility gap" probably is attributable to the lack of organization in the President's
office.
G -- HOOVER COMMISSION STUDIES OF THE EXECUTIVE-BRANCH OF
THE GOVERNMENT
None of the Task Force reports to the two Hoover commissions or of the
commission's own reports are included in these papers because the Hoover Presidential
Library already has a complete set of these documents.
The folder labeled "G" contains certain letters, newspaper and magazine
articles related to both of the Hoover commissions. It also includes a few matters
relating to liquidation of the Reconstruction Finance Corporation. Among the letters
is one from Mr. Hoover regarding the dissents of Senator Aiken and Dean Acheson,
which I commented on in the "oral history" interview with Mr. Ray Henle.
H -- CORRESPONDENCE RE ACCOUNTING AS AN INSTRUMENT OF
MANAGEMENT CONTROL
This is a folder of correspondence with Assistant Secretary of Defense
Wilfred J. McNeill. The purpose of the correspondence was to reach a better
understanding with Secretary McNeill about the functions of accounting as a tool for
management control and responsibility in the Defense Department. At the time
of this correspondence Secretary McNeill was very much enamored of the merits of
using working funds for each separate business type operation in the Department of
Defense. We considered that he was going somewhat overboard in the use of this
particular means of vest pocket funding for government operations and tried to
demonstrate how accounting might be used as a means of centering and identifying
responsibilities in given areas as well as keeping track of the programmed and actual
costs. This correspondence was a joint product with my esteemed partner, Herman W.
Bevis, who had supervised several studies by Price Waterhouse & Co. of various
military operations.
I -- CABINET COMMITTEE ON PRIVATE PENSION PLANS
For two years I served as a member of the Council to the Secretary of Labor on
Welfare and Pension reports. This is a statutory council and is composed of
representatives of labor, business and the public. I was appointed as a representative of
the American Institute of C.P.A.’s.
Other than problems related to the Secretary's administration of pension and
welfare reports which are required to be filed for all private pension plans, the item of
greatest importance was the study of the Cabinet Committee Report on Private
Pension Plans. The report to the President by the cabinet committee emphasized unduly
and incorrectly the tax subsidy aspect of private pension plans. Inasmuch as the cost of
pensions represent a valid business expense, we tried to correct the impression held
most strongly in the Treasury Department that there was an element of tax subsidy
involved. We also tried to emphasize the importance of not regulating private pension
plans to the extent that would cause companies considering the adoption of such plans
to fail to do so. All of this of course was on the assumption that the committee and the
government departments meant what they said when they indicated that it was their
belief that private pension plans served a useful purpose in the economic structure of
the United States. The minutes of an Interagency Task Force on Private Pension Plans
with members of the Accounting Principles Board, which I arranged at the request of
the Secretary of Labor, is attached to the Report of the Cabinet Committee.
J -- COMMITTEE REPORT AND RECOMMENDATIONS ON
SAFEGUARDS OF NUCLEAR MATERIALS
Item "J" is a report by an Ad Hoc Advisory Committee to the Atomic Energy
Commission on safeguards of nuclear materials in the United States and in foreign
countries insofar as materials have been furnished by the AEC. It is pleasing and
rather unusual to be able to report that the Atomic Energy Commission adopted or
is in process of implementing all of the recommendations contained in this report.
The commission has also established a permanent Advisory Committee on the
safeguarding of nuclear materials which meets approximately four times a year. The
work of this Committee I believe has been helpful to the AEC particularly in reference
to the safeguards program of the International Atomic Energy Agency (IAEA) and of
Euratom as related to the Nuclear Treaty which has recently been negotiated between
Russia and the United States and is now in process of being accepted by various nations
of the world.
K -- SURVEY OF TOWN GOVERNMENT - GREENWICH, CONN.
This survey of the Town Government in Greenwich, Connecticut was performed
by a citizens committee of which I was Chairman. The -recommendations of the
Committee relating to administration I understand have been accepted and implemented
almost one hundred percent. The recommendations on changes in the basic organization
structure of the Town Government have not yet been acted on to any considerable
degree.
L -- SURVEY OF VOLUNTARY HEALTH AND WELFARE AGENCIES--IN U.S.A.
This study was sponsored by the Rockefeller Foundation and I believe it: has had
considerable influence in improvement of the voluntary health and welfare agencies
accounting and reporting functions. The Rockefeller Foundation and the Committee
which it brought together felt that it was most important that the voluntary
health and welfare agencies conduct their affairs in an open and understandable manner
in order to avoid the type of scandals which might impair public confidence in the work
of these important health and welfare agencies.
M -- OUTLINE FOR-STAFF TRAINING IN-AUDIT PROCEDURES
This is the beginning of the professional accounting and auditing books and
papers. The book labeled "M" is an outline for staff training in audit procedures. It
was written in 1946 primarily for staff training within the firm of Price Waterhouse &
Co.
A loose-leaf volume on this subject had been written by me in 1940 when. I was
a partner in the firm of Arthur Andersen & Co. This book had been copyrighted with
me as the author but with the copyright vested in the firm. I departed from that firm in
the early part of 1942 to go with the Navy Department. Before my departure the
volume on staff training had been withdrawn from use because the partners feared the
content might be used against the firm in adversary proceedings or by government
regulatory agencies such as the SEC.
I explained the background of this matter to my partners in Price Waterhouse &
Co. and they agreed that the material would serve a useful purpose in staff training.
The revised edition of 1946 was prepared and privately published as a bound volume.
It served a useful purpose in staff training over many years and I understand was
translated and published in the Philippines, without formal permission by a group of
local accountants. It has recently been translated and published in Portuguese and is in
current use in Brazil for staff training by the firm Price Waterhouse - Peat & Co,
PUBLICATIONS BY COMMITTEE ON AUDITING PROCEDURES AICPA
DURING MY CHAIRMANSHIP (1944-48)
The items carrying the designation "N" "O" and "P" represent work performed
by the Auditing Committee during the four years I was Chairman. These documents
have been bound under one cover and are submitted to the Library for convenience in
this form.
N - GENERALLY ACCEPTED AUDITING STANDARDS
This pamphlet represents the first statement on generally accepted auditing
standards by a senior technical committee of the American Institute of C.P.A.’s. The
term "generally accepted auditing standards" had been used for some time in reports
by C.P.A.’s, but there had been no formal statement or explanation as to what was
meant by the term. The report was labeled a tentative statement in order that the
Council and full membership of the Institute might have the opportunity to thoroughly
study the volume before adopting the summary of the generally accepted accounting
standards proposed in the report.
The summary of standards was adopted by the membership of the Institute and
the standards are, therefore, binding on all members in their every day work. The
summary of the standards represent the composite work and judgment of the full
membership of the committee and of the Director of Research, Mr. Carman G. Blough.
The detail work of writing the report was done almost entirely by Mr. Edward A.
Kracke of Haskins & Sells. Naturally, editing changes were made by the Chairman and
other members of the Committee but Mr. Kracke deserves all of the credit for an
excellent job of authorship.
O --SPECIAL REPORT ON INTERNAL CONTROL
The concept for the report and the definition of Internal Control and the major
characteristics by which it may be identified were developed by me, as Chairman of the
Committee, Mr. Alvin R. Jennings of Lybrand, Ross Bros. & Montgomery performed
most of the writing task in the text of the report. The illustrative flow charts were
prepared under the guidance of Mr. Garret P. Burns of Arthur Andersen & Co. This
special report on Internal Control has probably been used as widely by practitioners
and students as any other document published by the American Institute of C.P.A.s.
It is my understanding that more than 100,000 copies have been issued up to date and
it remains on the current list of publications of the Institute at the present time.
P -- CASE STUDIES IN AUDITING PROCEDURE
These studies were undertaken because it was felt that they would serve a
useful purpose to practitioners and students in illustrating specific auditing procedures
followed in actual cases, without identification of the company being audited. Case
study number 5 relating to the audit of a corn processing company was prepared under
my supervision by Mr. E. L. Ring of Price Waterhouse & Co.
MEMOIRS AND ACCOUNTING THOUGHT OF GEORGE O. MAY
This book was published in 1962 by the Ronald Press or within a year following
Mr. May's death. The task of editorship perhaps involved more than the usual amount
of writing. However, the purpose of the editor was to preserve the authorship of
George 0. May from the several rough drafts of memoirs he had dictated, rather than
write a biography of this eminent leader of the accounting profession for more than
fifty years. The favorable comments of my partners and of the May family cause me to
believe that the purpose was reasonably fulfilled.
R - COMMTTEE ON PRACTICE REVIEW
In the mid nineteen forties, when I was Chairman of the Institute's Committee
on Auditing Procedure, I suggested that a Committee on Practice Review be established
to perform a polite type of policing of the published reports by members of the
Institute. My proposal- was adopted by Council which authorized the appointment
of such a committee by the Executive Committee. After further consideration the
Executive Committee apparently concluded that this type of review work would be
resented by members of the Institute and the Committee was never appointed.
Seventeen years later during the administration of John W. Queenan as President of
the Institute, the Committee on Practice Review was created and I was appointed its
first Chairman. The Committee has performed an important function and has been
well accepted by the membership. The pamphlets enclosed in the folder labeled "R"
represent the initial publications by the Committee.
S - INVENTORY OF GENERALLY ACCEPTED ACCOUNTINGPRINCIPLES
FOR BUSINESS ENTERPRISES
The term generally accepted accounting principles had been used for many
years in the reports of C.P.A.s. The above named volume is the first attempt to make
a full explanation of what the term comprehends and particularly of inventorying a
summary of the broad principles which can be said to be generally accepted.
The inventory (ARS 7) was prepared by me with the assistance of members of
the research staff during the period 1963-64 when I was director of accounting
research for the Institute. The volume was published in 1965 and 85 thousand copies
have been sold. An article by Weldon Powell in the Journal of Accountancy is accorded
the same identification letter because it gives a full explanation. of the purpose and
content of the inventory.
REPORT BY SPECIAL COMMITTEE ON RESEARCH PROGRAM OF AICPA
For some time many members of the Institute had considered that the research
program was inadequate and that the Committee on Accounting Procedure needed to
be strengthened in some manner in the performance of the duties of the senior technical
committee on accounting matters. The special committee's report in 1958 (folder
labeled "T") resulted in the dissolution of the Committee on Accounting Procedure and
the establishment of the Accounting Principles Board to take its place. A substantial
research program was established in the Institute under the direction of a Director
of Accounting Research.
U -- REPORTS OF SPECIAL COMMITTEE IN MID-SIXTIES ON THE
ACCOUNTING PRINCIPLES BOARD AND ACTION BY COUNCIL OF
THE AMERICAN INSTITUTE OF C.P.A.s IN CLARIFYING BOARD'S
AUTHORITY
The reports in this folder resulted from a substantial cleavage in accounting
thought by members of the Accounting Principles Board. One group took the position
that all pronouncements of the Accounting Principles Board should be binding on
members of the Institute as the one and only generally accepted principle in the area
dealt with even though the Certified Public Accountants and management of the
companies examined might feel that other principles also had substantial authoritative
support. Considerable heat as well as light was generated during the discussions
at several Council meetings.
During; the period in which the discussions were proceeding I had accepted the
post of Director of Accounting Research of the Institute but had made clear in my
acceptance that I intended to oppose the resolution which had been developed at the
Phoenix meeting. The first paper in this folder is the one presented by me at the Council
meeting. As a result of the meeting a special committee was appointed to study the
matter and I was asked to serve as a member. This Committee reported in two parts
in order to deal with the most crucial aspect of the matter by the following Council
meeting. The special committee adopted the authoritarian position,, from which I had
to dissent. I was able to convince the president elect, Mr. Thomas D. Flynn, of Arthur
Young & Co. of the soundness of my position and he proposed certain amendments to
the Committee report at the Council meeting which supported the substance of my
dissenting views, The adoption by Council of the amended resolution by almost a
unanimous vote, I felt was complete justification of the minority view which I had
taken and rather demonstrated the fact that the special committee had been stacked by
persons committed to an authoritarian viewpoint which was not supported by views of
the Institute members generally.
V -- ACCOUNTING AND REGULATION OF UTILITIES
During; many years of my professional practice I was considered a specialist in
public utility matters. As Chairman of the Institute committee on Public Utility
Accounting I did substantial work in the revision of the uniform systems of accounts
by the Federal Power Commission and other regulatory bodies. These uniform systems
introduced for the first time the concept of original cost to the first owner who had
devoted the property to public service. This could have been a useful concept for
accounting purposes had the provisions of the uniform systems themselves been
actually carried, out. However, the Federal Power Commission, wishing to establish
the lowest possible rate base, administered the uniform systems in its accounting orders
in such a manner as to force the write off of substantially all costs in excess of the
so-called original costs of tangible properties.
I opposed this arbitrary action as strongly as I could in reports by the Institute
committees and also in personal testimony given in accounting and rate case proceedings.
A list of my testimony is contained along with the chronological list of published papers
in the section Y of these documents.
The lengthy memorandum on original cost was prepared by me for use of P.W.
& Co. and clients, The volume related to regulations of natural gas was developed
under my supervision by Mr. R. E. Field and other members of the Price Waterhouse
staff.
W -- REPORT ON CERTAIN PETROLEUM INDUSTRY ACCOUNTING
PRACTICES
The report by the American Petroleum Institute on certain petroleum industry
accounting practices resulted from answers to questionnaires developed by the Fiscal
and Accounting Committee. For many years I had recommended to financial officers
in the petroleum industry that the industry itself undertake studies to bring about greater
uniformity in accounting practices. The&nb