Chapter One: 1945-1954

Article excerpt

Public accounting as we know it today in the United States was born near the turn of the 20th Century in conjunction with a spate of legislative, social and economic events. Its growth was forced by these events and its framework fashioned in the limelight of public attention.

In the past 100 years, public accounting has won for itself public esteem and the privilege of being taught in colleges and universities. It has contributed to public trust in American business; has attracted men and women of talent and intellect; has fought and won harrowing legislative battles; has shown a phenomenal growth; has contributed a flood of literature about and to the accounting profession; and has, in turn, become an antecedent of the newer fields of management consulting and financial planning.


Five major events may be considered as causes of the fantastic rise of public accounting to its present professional status: ratification of the 16th Amendment to the Constitution, the stock market crash of 1929, the Securities Act of 1933 and 1934, the Social Security Act of 1935 and the growth of professional accounting organizations.


One of the famous accountants in American history is John Adams, who discounted the tax on English tea for George Washington. Adams later studied law, went into politics, and followed Washington to become the second President of the United States.

We are indebted to English and Scottish accountants who came to the U.S. in the 19th century to audit foreign investments. Their unofficial on-the-job training awakened wholesale ambition in Americans to become professional public accountants. At first they worked only part time in the new career. Then as the nation's commercial enterprises expanded and became American owned, accounting began to develop into full-time work. The formation of partnerships occurred during the latter half of the century.


The first accounting society in the nation was incorporated in July 1882 in New York City as the Institute of Accountants and Bookkeepers, then shortened its name in June 1886 to the Institute of Accountants. It heralded the advent of over half a dozen such organizations which came into being, merged, dropped from sight or reorganized in the next five decades. In 1902 an organization called the Federation of Societies of Public Accountants in the U.S. held its first convention. The Federation was short-lived, but it set firmly in place the principle that accountants in public practice wanted and would support a national organization.


The United States was the first nation to give accounting a place in university curricula. Although Robert E. Lee, as president of the institution later known as Washington and Lee University, suggested the idea in 1869, the first American college to establish a school of business was the University of Pennsylvania. Its Wharton School of Finance and Economy, now the Wharton School, was formed in Philadelphia in 1881. By the end of the century, British textbooks had been discarded, American accounting literature was burgeoning, and educational facilities were offering accounting courses to their students.


Credit for the first steps in seeking legislation to obtain legal recognition and licensing of public accountants goes to New York practitioners who introduced a bill in their legislature in 1895. It did not pass until the restrictive position - which would have allowed only certified public accountants to practice - was removed. Like Pandora's box, this initial regulatory law opened the way for a host of subsequent state and national laws and attendant problems, some of which still remain unresolved.


In 1909, the new franchise tax (1% of net corporate income) received almost no public attention. This first income tax paved the way for the 16th (and shortest) Amendment to the U. …