To the Editor of the Nonrs-Carxa Dany News.
Sm,—It_ was stated ut yesterday's meeting of the Shanghai Engineering and Dock Go. that it is the practice of all Shanghai companies to append the words "E, & O. F.".to their accounts, and as the question of companies' balance sheets affects awreat many people, a few words on the subject may not he out of place.
The annual acorunts of joint stock companies and the duties of directors and auditors have been the subject of much litigation in England owing in a great measure to the fact that no general rule has yet been established for the rendering of accounts and the ascertaining of profits, and the forms in use have permitted a latitude which has in several recent cases brought disastrous results'to directors and shareholders. There are four methods re ised, hut the two chief ways of ascertaining profits are First, by inserting your balance from profit and loss account asa debit item in your balance sheet with your paid up capital and liabilities, and deducting the same from your property and assets.
Under this system loss of capital has fe good before a dividend can be psid, while an increase in the value of the assets augments tha fun I available for distribution. The balance sheet under this system ix the important account, the profit. and loss account being entirely subsidiary, Secondly, by keeping your profit and loss account and balanceshee: separate and treating the whole net amount to the credit of profit and foss (i.e., your profit on tradin as available for dividend.
In this case com: any can pay dividends out of excess of income, although it may have lost the ter part of its capital: accretion or diminution of capital may be disregarded.
Both these systems are equally ley But whatever system is adopted, it is usual to make the account conclusive, and the legislature with a view of protecting the persons who from time to time may he shareholders, has had the object in view. Now an account qualified by the words "errors and omissions excepted" cannot be conclusive against the parties rendering it. The object of merchants in inserting those words is to prevent these accounts being treated as stated and when inserted in a company's accounts, with the consent of the shareholders, they would protect the Directors from responsibility for accounts which might afterwards turn out to have entirely misrepresented the company's position. Tt would, I think, be interesting to hear the views of Shanghai business people on thet subject.
Thotice that institutions like the Hongkong and Shanghai Bank, the Chartered Bank, the Yokohama Bank, and the Chins Merchants' S. N. Ca. do not use the qualifying words in question, Tam, ete., A. S, P, Warte-Cooren.
Text read from the printed page and cleaned; old type leaves the occasional error.