ACCOUNTS AND ACCURACY

Daily Telegraph (Napier), Volume 58, Issue 56, 9 April 1929, Page 6

ACCOUNTS AND ACCURACY

— — Among the matters laid ba're by the Itoyal Commission's report on liarbour matters in Hawke's Bay was one opening up tlie question of accurate accounts. Up till recently no harbour board was compelled to do more than publish a cash acconnt. This state of things does not obtain now, the Ctovernment having recently brought into existence a law compelling the publication not only of a cash aceount, but of a revenue account also. Uor very many years, however, the ratepayers interested — and even members of the boards — were kept in ignorance of vital matters. We may illustrate this by going back no fartber than the year 1020-27. The subject has been touched upon before, but the j m'atter is of such vital importanoe that additional reference is pertinent. The chairman, ]\Ir A. E. Jull, had in his stat-ement to the board declared that for the year he dealt with the board had been able to spend a large sum out of "surplus revenue" and then finish ap with a surplus.

Had it then been incumbent — as now fortunately it is — for the board to publish a revenue account, the inaccuracy of the statement oould have been discovered at once. As things were it was left for the publication of the Royal Commission's report to make clear what the actual position for 192627 had been. That report, aided by a closer study of the board 's accounts laid bare the fact that for the year which from the chairman's standpoint has been such a satisfactory one from the financial standpoint, the revenue had been more than £8000 less than ihe expenditure. The purpose of this article is to suggest that the late Government's step, in rendei'ing compulsory the publication annually of a revenue account as well as a cash account, could be improved upon by a little amplification, to be set out before closing. We have two reasons for this. One is that the bulk of our Harbour Board ',s constituents are persons unskilled in accounts, and the 'other is that the differenees sliown by the cash' account and a proper revenue account are capable of being quite easily explained to persons possessing no skill or

training in accounts. We think that these considerations indieate that members of ths Harbour Board and many of .tkeii constituents would welcome a statement that embodied the interworking of the following proposh tions : — - (1) If all a board's revenue transactions for a year could be completed by cash receipts and payments within the year the cash account would disclose the result of the year's working. , The increase in the cash balance (or decrease in overdraft) would represent net revenue or profit, whilst converselv a decrease in cash (or increase in overdraft) would represent shortage of revenue or loss. (2) In actual practice the revenue transactions are never complete in the record of cash receipts and payments for the period. Bevenue is sometimes paid in advance ; more often some of it is oarned, but uncollected, on balanee day. Working and administrative costs and expenses are sometimes paid in advance, and frequently, though incurred, are unpaid on balance day. As the cash book records only actual receipts and disbursements it is both incomplete and inaccurate when looked to for gui dance as to the result of the year's working. (3) The cash account records all cash transactions for the year, and some of them, being capital receipts or payments, have no direct bearing on the result of the year's working. Bor instance, the board may sell horses or lorries, or discarded plant ; it may huy a new crane or a locomotive engine. The £2000 paid for an engine reduces cash by £2000, Iput the transaction increases ''rolling stock" by exactly the same amount and leaves the total assets unaltered and the revenue results for the year unaffeoted. Here again the cash book, talcen alone, is misleading as an indication of a favourahle or unfavourable result of the year's operations. ! It is becquse of these considerations that the legislature has decrecd that in future harbour boards must prepare and publish a peyenue account for eaeh year. The L-evenqe account is as to probablv tio pey cent of its items a cppy of Ihe cash book, but with the followr ing differenees :-tJt eliminates: (a) Capital items ;ueb as sale of lapd or purehase Df engine ; (b) revenue itenas p&id I

or receive-d during the year, but belonging to another financial period. i It adds: (c) Bevenue itenis belonging to the year, but not actually paid or received in cash ; (d) depreciation, obsolence and loss by destruction, which represent inevitable loss during the year through sources which do not figure in the cash book. Our recommendation is that there is set out for board and people (1) cash account ; (2) revenue account ; and (3) a reconciliation statement showing how the difference between cash account and revenue account is accountcd for.