COMPANY PRACTICE

Daily Telegraph (Napier), Volume 59, Issue 72, 28 April 1930, Page 4

COMPANY PRACTICE

BALANCE-SHEETS. MORE INFORMATION SOEGHT. — In view of the intimation that has heen made' by the Attorney-General 'the Hon. Sir Thomas Sidey) that the Government will introduce a new companies5 bill next session, an article recentlv contrihuted to The Times by Mr Heni-v Morgan, president of the British Societw of Tncorporated Accountants and Aiulitors, is of special interest. Dealing with one particular aspeet, Mr ^Morgan says, "The large majorit> of important publie companies present their halance-sheets and accounts in a form to which no excention can be taken, and give shareliolders all the information to which they can reasonably elaim to be entitled and which can be published without detriment to the interests of the shareliolders tliemselves. There is, however, an increasing number of companies which publisTi their accounts in such a manner that shareliolders can form very little opinion as to the real position of the company or the valne of their shares. "The Companies Act, 1929, provides that compamesx must publish a profit and Ioss aceount, but the absence of any direction-as to what this accouut must disclose may render this provision of little value to shareliolders. The real earning capacity of a company is at least as important to shareholders as its financial position, hecause such capacity is generally the predominant factor in determining the value of its shares. "At the International Congress of Accountants held in Amsterdam in 1926, surprise was expressed that this country cliffered from nearly all other C'cntinental couutries in that the auditors5 certificate was confined to the balance-sheet and did not extend to tlie profit and loss account. There is very much to be said in favour of the Continental practice, and it shouid be enacted that the profit and loss acconnfi must contain reasonably full lnfonnation. . . _ "Tlie business earnings, income from properties and investments, » and espccially anything of a non-recurrent or t' ansitory character, shouid he clearly dfstinguished. Tbe fact that. this course is followed by many large aud suceessful public companies- is proof tliat no damage of any consequence' would he likely to. result.55 SUBS1DIARY COMPANIES. "The provisions of the Companies Act, 1929, relating to subsidiary companies, do not go nearly far enough. In most cases, the object of the formatioii of a subsidiary company is ta 'opera^e a brancli or departraent of the parent eQmpany5s business through a separate eonipany, . it having been found more convenient so to do, specially where the business is carried ! on abroad. Without a subsidiary company the figures of the branch or department would necessarily • have to ■ be included in the •accounts submitted to. the shareliolders. The fact that a subsidiary company is in law a separate entity shouid not relieve the directorvs of the parent companv froni the obligation to pnhlish the halance sheet and accounts of tlie subsidiary company. An even hetter course would be :the- incorporation of the figures of the subsidiary company in tlie accounts of the parent company." ' THE OTHER, SIDE. There is a course, another side ta the question as tohawmuchinfonnation shouid. be supplied in halance-sheets and, curiously enough, and admirahle instance is supplied in the sanie issue of the Times which contains Mr Morgan5s article. In a report to Gourtaulds, Ltd., the biggest rayon manufacturers in the world, the chairman of'the company, Mr Samuel Cortauld, rep lying . to inquiries abont the American investments shown in tho balance. sheet, said: — "It is perfectly natural that shareliolders shottld want to know all they can about investments, and we. fully realise our responsibility in administerlng this large. investment for you. But we are still of opinion that it is to your best interests to withbold financial" details. I think. we can also maintain that the past history of the American investments justifies this. "It woyld be perfectly easy for us to give you the whole of the figures, and it would be pleasant for us to do it heve hecause it would put a stop to this distrust and also reduce our load of responsibility. At the same time it would he utterly wrong for. us to do so from a business point "of view. Very many people, especially our coxnpetitors. would give a great deal to know these figures, and when they got them you may be quite sure they would not use thein to our advantage. "None of our important * competitors issue figures which will tell you anything at all. We are always examining their balance-sheets, and would only like to know. No single company of any importance. gives the information you wish us to give. Most of those companies are linked up with other companies. They are su'bsidiaries of other companies. Many of them are private companies. There are no reliable statistics going about of figures to be got from halance-sheets at all ; and, of course, tliey do not publish their profits. - If -we- gave away all you ask for .it .would .simpty amount to giving away- the plan of your defences to the. encmy. I must .adhere to our previous practice of not giving any ' figures." ■ .