12. Inspective accounting.—A review of the work done by the bookkeeper for the purpose of detecting errors of principle, mechanical errors and fraud is inspective accounting. It is an extension of the idea of auditing discussed in a previous section.
Bookkeepers, at times, commit errors. Moreover, some weak ones who also handle funds or other con vertible wealth are guilty of frauds which they try to conceal. Frauds, too, sometimes take the form of misrepresentations perpetrated by the proprietors. The purpose of inspective accounting is to detect and correct these errors.
13. Interpretive accounting.—The extraction of the meaning from data which has already been com piled by the bookkeeper, and which has been verified by the inspective accountant is termed interpretive accounting. The interpretive accountant obtains from this data: information concerning the financial condition of the enterprise; information concerning its profitableness; information concerning the econ omy and efficiency with which its operations have been transacted. From this data, also, he gathers hints concerning the degree of fidelity and honesty which has been exercised by the employes.
The three other divisions of the subject exist for the sake of interpretive accounting. Accounting systems are not devised for their own sake. Book keeping and inspective accounting are designed to furnish properly classified and verified data. From a proper interpretation of this data, information neces sary for the guidance of managers and proprietors is obtained.
Interpretive accounting is performed for the most part by business managers who consult the accounts daily for information to guide them in their work. Interpretation of accounts, however, also constitutes a part of the work of public auditors.
14. Public accounting.—Constructive, inspective and interpretive accounting all enter into the work of the public accountant. Public accounting is dis tinguished as a separate branch of accounting be cause of the class of persons who pursue it rather than because of the work itself. When they engage in con structive accounting their work is often termed "sys tematizing." Work designated as public accounting is performed by public accountants who offer their services to the general public for hire in a manner similar to men in other professions. The term ac countancy has been defined as "a profession, the mem bers of which, by virtue of their general education and professional training, offer to the community their services in all matters having to do with the re cording, verification and presentation of facts involv ing the acquisition, production, conservation and transfer of values." In the United States the emphasis in the work of the public accountant is placed upon the interpre tive rather than on the inspective side of the subject.
The reverse is true in England. There, public ac counting consists mainly of inspective accounting—a detailed verification of the bookkeeper's work—while interpretive accounting is represented by a certified statement of financial condition (a balance sheet) , ac companied by a summary of the sources of income and expense.
15. Discussion of interests involved.—Inasmuch as their chief concern is with the construction • of a system and its operation, public accountants and book keepers look first at the mechanical side of account ing; accuracy and clearness of information become their watchwords. They will consider the other view points only in a general way. The public accountant, of course, is frequently called upon to interpret as well as to construct or check.
All accountants or bookkeepers, however, should possess the interpretive ability. They can not meas ure the success of their work until they know it is fur nishing the kind of information that is needed. Also, tho such a statement may appear academic, the book keeper must remember that his chances for advance ment depend upon his preparedness. Acquired prac tice in interpreting accounting data will be an asset to him in this regard.
The manager or owner, having another point of view, looks at the interpretive side of his accounting system. He reads and measures the progress of his enterprise thru the information furnished him by his accounting records. In addition, he must understand constructive accounting as a possible means of ob taining more information. Furthermore, he must un derstand the mechanical aspects of the records in order to be certain that the information he receives is not misleading. And lastly, he can measure the efficiency and economy of operation of his own accounting de partment if he has a thoro knowledge of accounting construction and bookkeeping. " 16. Summary.—In conclusion we may define ac counting as the science and the art : (1) of classifying and tabulating the effects of business operation and of verifying the accuracy of these tabulations ; (2 ) of interpreting these effects so as to show the financial condition of the business, the profitableness of its op erations, the efficiency and economy with which these operations have been carried on, and the fidelity of employes, and to establish budgetary and financial control; (3) of devising and installing mechanism and routine necessary for accomplishing these purposes.
It is seen, therefore, that accounting is a compre hensive subject which falls into three separate di visions dealing with: (1) the mechanical operations of keeping books; (2) the provision of rules for these operations or the checking of them; and (3) the in terpretation of the results shown by the records.