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With the establishment of the first English colonies
in America, accounting or bookkeeping, as
the discipline was referred to then, quickly assumed
an important role in the development of
American commerce. Two hundred years, however,
would pass before accounting would separate
from bookkeeping, and nearly three hundred
years would pass before the profession of accounting,
as it is now practiced, would emerge.
For individuals and businesses, accounting
records in Colonial America often were very elementary.
Most records of this period relied on
the single-entry method or were simply narrative
accounts of transactions. As rudimentary as they
were, these records were important because the
colonial economy was largely a barter and credit
system with substantial time passing before payments
were made. Accounting records were often
the only reliable records of such historical transactions.
THE EMERGENCE OF ACCOUNTING
Prior to the late 1800s, the terms bookkeeping and
accounting were often used interchangeably because
the recording/posting process was central
to both activities. There was little need for financial
statements (e.g., income statements) because
most owners had direct knowledge of their businesses
and, therefore, could rely on elementary
bookkeeping procedures for information.
Although corporations (e.g., banks, canal
companies) were present in the United States
prior to the early 1800s, their numbers were few.
Beginning in the late 1820s, however, the number
of corporations rapidly increased with the creation
and expansion of the railroads. To operate
successfully, the railroads needed cost reports,
production reports, financial statements, and operating
ratios that were more complex than simple
recording procedures could provide. Alfred
D. Chandler, Jr. (1977), noted the impact of the
railroads on the development of accounting in
his classic work, The Visible Hand, when he stated
‘‘after 1850, the railroad was central in the development
of the accounting profession in the
United States’’
With the increase in the number of corporations,
there also arose a demand for additional
financial information that A.C. Littleton (1933/
1988) in his landmark book, The Rise of the Accounting
Profession, called ‘‘figure’’ knowledge.
With no direct knowledge of a business, investors
had to rely on financial statements for information,
and to create those statements, more complex
accounting methods were required. The accountant’s
responsibility, therefore, expanded
beyond simply recording entries to include the
preparation, classification, and analysis of financial
statements. As John L. Carey (1969) wrote in
The Rise of the Accounting Profession, ‘‘the nineteenth
century saw bookkeeping expanded into
accounting’’ Additionally, as the development of the corporation
created a greater need for the services of
accountants, the study of commerce and accounting
became more important. Although
there had been trade business schools and published
texts on accounting/bookkeeping, traditional
colleges had largely ignored the study of
business and accounting. In 1881, however, the
Wharton School of Finance and Economy was
founded, and two years later, the school added
accounting to its curriculum. As other major
universities created schools of commerce, accounting
secured a significant place in the curriculum.
With a separation of management and ownership
in corporations, there also arose a need for
an independent party to review the financial
statements. Someone was needed to represent the
owners’ interest and to verify that the statements
accurately presented the financial conditions of
the company. Moreover, there was often an expectation
that an independent review would discover
whether managers were violating their fiduciary
duties to the owners. Additionally,
because the late nineteenth century was a period
of major industrial mergers, someone was
needed to verify the reported values of the companies.
The independent public accountant, a
person whose obligation was not to the managers
of a company but to its shareholders and potential
investors, provided the knowledge and skills
to meet these needs.
In 1913, the responsibilities of and job opportunities
for accountants again expanded with
the ratification of the Sixteenth Amendment to
the Constitution, which allowed a federal income
tax. Accountants had become somewhat familiar
with implementing a national tax with the earlier
passage of the Corporation Excise Tax Law. Despite
the earlier law, however, many companies
had not set up proper systems to determine taxable
income and few were familiar with concepts
such as depreciation and accrual accounting.
As tax rates increased, tax services became
even more important to accounting firms and
often opened the door to providing other services
to a client. Accounting firms, therefore, were often
engaged to establish a proper accounting
system and audit financial statements as well as
prepare the required tax return.
Thus, in contrast to bookkeeping which often
had been considered a trade, the responsibilities
of accounting had expanded by the early
twentieth century to such an extent that it now
sought professional status. One foundation of the
established professions (e.g., medicine, law) was
professional certification, which accounting did
not have. In 1896, with the support of several
accounting organizations, New York State passed
a law restricting the title certified public accountant
(CPA) to those who had passed a state examination
and had acquired at least three years of
accounting experience. Similar laws were soon
passed in several states.
PROFESSIONAL ORGANIZATIONS
Throughout the history of accounting, professional
organizations have made major contributions
to the development of the profession. For
example, in 1882, the Institute of Accountants
and Bookkeepers of New York (IABNY) was organized
with the primary aim of increasing the
level of educational resources available for accountants.
In 1886, the IABNY became the Institute
of Accounts, and it continued to be active in
promoting accounting education for nearly
twenty years. Meanwhile, the first national organization
for accounting educators, the American
Association of University Instructors in Accounting
(AAUIP), was organized in 1916. In
1935, the AAUIP was reorganized as the American
Accounting Association.
The national public accounting organization,
the American Association of Public Accountants
(AAPA), was incorporated in 1887. Reflecting the
need of most professions for a code of ethics, the
AAPA added a professional ethics section to its
bylaws in 1907. The AAPA was reorganized as the
American Institute of Accountants in the United
States of America and then later as the American
Institute of Accountants (AIA). In 1921, the
American Society of Certified Public Accountants
(ASCPA) was established and became a rival
to the AIA for leadership in the public accounting
area. The rivalry continued until 1937, when the
ASCPA merged with the AIA. In 1957, the AIA
became the American Institute of Certified Public
Accountants (AICPA).
In contrast to the public accounting emphasis
of the AIA and ASCPA, the National Association
of Cost Accountants (NACA) was founded
in 1919. The NACA placed an emphasis on the
development of cost controls and proper reporting
within companies. In 1957, the NACA
changed its name to the National Association of
Accountants (NAA) in recognition of the expansion
of managerial accounting beyond traditional
cost accounting. Then, in 1991, recognizing its
emphasis on the managerial aspects of accounting,
the NAA became the Institute of Management
Accountants.
EXTERNAL AND INTERNAL REGULATION
During the nineteenth century, the federal government
generally allowed accounting to regulate
itself. Then, in 1913, Congress established the
Federal Reserve System and, one year later, the
Federal Trade Commission (FTC). From this
date forward, federal agencies have had an increasing
impact on the profession of accounting.
The government’s first major attempt at the
formalization of authoritative reporting standards
was in 1917 with the Federal Reserve
Board’s publication of Uniform Accounting. In
1918, the bulletin was reissued as Approved Methods
for the Preparation of Balance Sheet Statements.
Although directed toward auditing the
balance sheet, the report presented model income
and balance sheet statements. Because the
proposal was only a recommendation, however,
its acceptance was limited.
The impetus for stricter financial reporting
was provided by the collapse of the securities
market in 1929 and the revelation of massive
fraud in a company listed on the New York Stock
Exchange (NYSE). In 1933, the NYSE announced
that companies applying for a listing on the exchange
must have their financial statements
audited by an independent public accountant.
The scope of these audits had to follow the revised
guidelines set forth by the Federal Reserve
in 1929.
Another major innovation in the regulation
of accounting was the passage of the Securities
Act of 1933 and the Securities and Exchange Act
of 1934. The 1933 act conferred upon the FTC
the authority to prescribe the accounting methods
for companies to follow. Under this act, accountants
could be held liable for losses that
resulted from material omissions or misstatements
in registration statements they had certified.
The 1934 act transferred the authority to
prescribe accounting methods to the newly established
Securities and Exchange Commission
(SEC) and required that financial statements filed
with the SEC be certified by an independent public
accountant.
With the creation of the SEC and the passage
of new securities laws, the federal government
assumed a central role in the establishment of
basic requirements for the issuance and auditing
of financial reports. Additionally, these acts increased
the importance of accountants and enlarged
the accountant’s responsibility to the general
public. Under these acts, not only did
accountants have a responsibility to the public,
they were now potentially liable for their actions.
In 1938, the SEC delegated much of its authority
to prescribe accounting practices to the
AIA and its Committee on Accounting Procedures
(CAP). In 1939, CAP issued its first of fiftyone
Accounting Research Bulletins. Responding
to criticism of CAP, the AICPA (formerly the
AIA) in 1959 replaced the CAP with the Accounting
Principles Board (APB). The APB was designed
to issue accounting opinions after it had
considered previous research studies, and in
1962, the APB issued its first of thirty-one opinions.
Although the SEC had delegated much of its
standard-setting authority to the AICPA, the
commission exercised its right to approve all
standards when it declared that companies did
not have to follow the rules set forth in APB No.
2, The Investment Credit.
Responding to criticism of the APB, a study
group chaired by Francis M. Wheat was established
to review the board structure and the rulemaking
process. The committee recommended
that an independent, full time, more diverse standards
board replace the APB. Following the recommendations,
the Financial Accounting Standards
Board (FASB) was established in 1973. This
board is independent of the AICPA and issued its
first statement in 1973.
THE CHANGING GENDERIZATION OF THE
WORK FORCE
With the separation of bookkeeping from accounting,
the demand for women bookkeepers
dramatically increased, and by 1930, over 60 percent
of all bookkeepers were women. A similar
increase in the demand for women accountants,
however, did not occur. Although World War II
created some opportunities for women in accounting,
at the start of the second half of the
twentieth century, accounting still was not con-
sidered an appropriate career for most women.
In fact, in 1950, only 15 percent of the more than
300,000 accountants in the United States were
women. Moreover, less than 4 percent of college
students majoring in accounting then were
women.
In the 1960s, social and legal events began
that ultimately provided opportunities for
women in the profession of accounting. As these
events occurred, the overall demand for accounting
services and accountants also greatly increased.
This demand became so large that the
traditional labor pool of men was not sufficient
to maintain the accounting work force. Concurrently,
women majoring in accounting increased
dramatically from less than 5 percent of all accounting
majors in 1960 to over 50 percent in
1985.
Given the increase of women accounting majors
and the inability of the traditional labor pool
to meet the work force demand, accounting (especially
public accounting) increased the hiring
of women. By 1990, women comprised a majority
of the accounting work force. It would be the
turn of the twenty-first century, however, before
women began to obtain a significant number of
upper-level management positions in accounting.
THE TWENTY-FIRST CENTURY
The accountant, the accounting firm, and the
accounting profession of the twenty-first century
are quite different from what existed at the beginning
of the twentieth century. In contrast to a
bookkeeper manually recording entries in a large
bound volume, an accountant is now responsible
for information concerning all facets of a business
and is dependent on the latest technology for
processing that information. In contrast to small
local firms, accounting firms now can be large
international organizations with reported revenues
of billions of dollars. In addition to the
traditional audit/attest information, accounting
firms provide their clients with tax services, financial
planning, system analysis, consulting,
and legal services. At the beginning of the twentieth
century, the accounting profession was just
emerging. Today, the profession is comprised of
thousands of men and women working in public
and private firms as well as profit and nonprofit
organizations as members of management teams
or as valued consultants. |
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