that most of the States would permit the dividend to be treated as a distribution of principal and not of income.

Precisely the same rule should apply where stocks are carried on balance sheets at very high figures and are reduced in price per share through the distribution of large stock dividends. Unless it is very clear that the declaration consists of the earnings of a recent period, the whole dividend should be treated as capital. If it can be apportioned, it would be proper to apply that part of it representing a distribution of the earnings of the last year or period to current income. Where State laws govern the matter the laws must be observed. The auditor should be thoroughly informed as to the provisions of the law in this respect in his own State and in any others where he practices.

Capital Stock: A trial balance should be taken of the stock ledger to see that the aggregate outstanding is in agreement with the general ledger account. It should be noted if there is any account in the name of the company or its treasurer, which was intended to represent treasury stock, but which may or may not be such.

The stock certificate books should be examined and reconciled with the stock ledger. All canceled certificates should be inspected or accounted for. As stated on page 353 under "Banks," fraud has been practiced by raising certificates.

Bonds: A proof should be taken of the bond ledger or register to ascertain that the aggregate outstanding is correct and is in agreement with the general ledger. Canceled bonds should be inspected or accounted for. The bond agreement should be read, and if it contains any provisions as to sinking funds, etc., it should be seen that these are carried out or report made thereon.

It should be determined whether or not the amount of interest accrued has been set up in the accounts and whether the amount due has been paid.

Careful methods should be in force relative to coupons. They should be canceled effectively immediately upon receipt, and kept on file, not destroyed. The auditor should see that the canceled coupons are accounted for.

Taxes: Corporations are subject to special taxes, such as the Federal Corporation Tax, State Franchise Tax, etc. The auditor

should see that these, as well as the usual taxes on property, are provided for.

In New York State there is a tax of two cents per hundred dollars of par value or fraction thereof, imposed on all transfers of stock. The seller of the stock, or his broker, pays this tax by affixing revenue stamps to the certificate surrendered. The officer of the corporation, however, who transfers the stock or causes it to be transferred is liable to the penalty for failure to pay the tax.

OFFICE METHODS

In nearly every audit where no previous work had been done for the client the auditor was formerly asked to note any improvements or changes which might occur to him during the progress of the audit. It did not seem incongruous that a professional accountant whose whole time was spent in examining and criticizing accounts should in the course of an extensive practice acquire experience of great value, and that he should be able to give to new clients the benefit of such experience. At the present time there is somewhat of a feeling that the auditor is not a specialist in system work and that in order to be up-to-date an "efficiency engineer" must be employed. But suppose we compare present conditions with those of about ten years ago. At that time stationery houses, which carried an “auditing department" as a side line, were making a great stir through advertising and traveling solicitors, and were offering to produce wonderful results, including daily balance sheets and profit and loss statements, the only requirement being the installation of their patented stationery. Offices were turned inside out and new books and blanks were installed by the ton, but for some reason the service did not measure up to the promises, and hundreds of offices discarded much of the "junk" which had been thrust upon them and went back to saner methods.

For a short time the auditor was back in favor. He had no cut-and-dried system, nor did he know before he entered an office how its system should be mapped out, but out of long experience he was able to make suggestions which cut out unnecessary work and proposed changes which embraced the use of all the latest labor-saving devices. Then came the "efficiency engineer," who

again modestly affirmed that the auditor was not a specialist in systems and that he could not be expected to keep his clients. up-to-date. The crop of over-charged and dissatisfied patrons of the "efficiency engineer" is commencing to be heard from, and it is believed by some who have studied the situation that before long the auditor will be back in his former position as a recognized authority on business systems.

The auditor should keep fully informed on the latest devices, mechanical and other kinds, for saving labor or rendering it more efficient; he should understand and be prepared to explain the relation of one department of a business to another and the advantages of coördination; he should study cost systems and be ready to install any required accounting system; he should acquire and follow up a knowledge of the means of imparting information by means of charts and other visual methods.

It might be urged that an auditor cannot hope to cover more than a small part of the field of auditing within a considerable period of practice, and that to expect him to add the work of a system specialist is unreasonable. The answer to this is that no one can be a good auditor without picking up all of the rudiments of systematizing, and that in any event system is a matter of evolution.

Ready-made systems have been popular, but never successful. No system will work out well unless a good man studies the concern and becomes acquainted with its personnel before he starts, and then "lives with the job" until its completion. The auditor may not be able to handle many such engagements, but he should not allow the so-called system experts to bluff him out of the remunerative work. He is probably better qualified to perform it than anyone else.

Styles of Books and Records: The auditor will note by actual inspection whether the records are kept economically and efficiently or otherwise. If the old-fashioned bound books are in use and loose-leaf records would be an improvement, he should recommend a change. On the other hand, it may be that some records are being kept on cards or loose leaves which could be written up more readily and referred to more easily in bound books. In such a case the latter would be recommended.

In view of the elasticity and convenience of cards and loose

leaf records, these systems are becoming more and more popular. In the early stages it was feared that the leaf or card might be lost, destroyed, or easily altered, but after a number of years of experience this fear has practically disappeared.

Filing Systems: With the unit system of records has come the unit system of filing. Press copy books are becoming a rarity and have been discarded by most modern offices. Documents, correspondence, etc., are now filed in vertical files and in such a form as to be readily accessible.

In many modern offices the method is in force of making a carbon copy of each letter, and in the mailing department a press copy in a letter book. The carbon copy takes the place of a "tickler" and is filed so that it will come up for further attention on the day decided upon. The letter book impression is taken just before the letter is put in the envelope and records the signatures and other identifying marks. It is properly indexed, and becomes a safeguard against the loss of the carbon or the unwarranted alteration of the letter.

The essential features of a filing system are:

1. Certainty of obtaining any paper or all papers on a particular subject.

2. Rapidity of obtaining filed papers.

3. Rapidity of filing papers.

4. Cheapness of operation.

5. Simplicity.

6. Small space required.

7. Cross-reference, numbering, etc.

In a report on the handling and filing of correspondence, President Taft's Commission on Economy and Efficiency makes the following suggestions, which apply with as great force to the average business corporation as to the government service:

1. That all correspondence shall be filed flat in vertical files.

2. That all correspondence should be filed by subjects arranged upon

a self-indexing basis.

3. No book or card record of correspondence is desirable.

4. That carbon copies should supplant press copying.

5. That the employment of the dictation machine (phonograph) for dictating should be extended widely.

6. That transparency or "window" envelopes should be used.

7. That forms that must be filled in on the typewriter should be so arranged as to facilitate the work.

8. That on internal correspondence no salutation or complimentary closing should be used and that the initials of the person addressed and the writer should be used instead of full names.

Copying: Where large quantities of copies are desired, there are the multigraph, the revolving duplicator, and the oldfashioned flat duplicator. The revolving duplicator is perhaps the most popular, requiring only the typewriting of a waxedpaper stencil. For work requiring more than a thousand impressions, the multigraph or one of the several makes of printing machines is preferable.

Mailing Department: The handling of mail is important and has come to be a separate department. Incoming mail usually contains remittances in cheques and cash, and has proven in more cases than one a simple source of illegitimate wealth to enterprising but ill-paid clerks and cashiers. Some responsible personpreferably an officer of the company-should have charge of the incoming mail. As it is opened it should be distributed to baskets designated for the various departments, and should be delivered with as much care as is used in opening it.

Outgoing mail must be handled differently. It is desirable to have the stenographers who write letters address the envelopes at the same time, and then, instead of delivering them both to the executive, the letter only should be delivered, and the envelope (together with any inclosures) sent to the mailing department. When the letter has been signed it is sent to the mailing department, where it is put in the envelope, with the inclosures, and is sealed, stamped, and mailed. It is the duty of the mailing department to keep posted on changes in closing hours for the various domestic and foreign mails.

Stock on Hand: In many cases the auditor will find it practicable to introduce a perpetual inventory of stock on hand. He may base his suggestions on the following general recommendations quoted from "The Accountant's Manual," Vol. II:

(1) Debit and credit accounts should be opened, as far as possible, for each description of stores used. On one side of the accounts the receipts would be entered, showing the date, weight, quantity, or number, and other particulars; and, on the other side, the stores issued from time to time would be entered, with such particulars as were necessary or suitable, the difference