Academic journal article Journal of Accountancy

"No One Stands Still in Public Accounting"

Academic journal article Journal of Accountancy

"No One Stands Still in Public Accounting"

Article excerpt

The CPA firm in 1900, 1950 and 2000.

At the turn of the past century, the United States was a country in desperate need of an accounting profession.

On one hand, times were good. The nation was becoming a center of industry, moving steadily away from its agricultural past. Railroads had carved shipping and travel lines across the country, the telephone and the light bulb were changing the way people lived, and continuing waves of immigration were bringing new workers and consumers.

In the absence of government regulation, however, monopolies were strangling competition and companies ran their businesses with virtually no scrutiny--even from their hapless shareholders.

"Before World War I, the most pressing problem in the United States was to restore credibility to balance sheet valuations," said Gary John Previts and Barbara Dubis Merino in A History of Accountancy in the United States--The Cultural Significance of Accounting. Up until then, companies were reluctant even to share financial data. John Moody, a pioneer financial analyst, noted that "until the early 1890s, balance sheet secrecy was a distinctive characteristic of financial statement disclosure by railroads," one of the dominant industries of the period.

Robert H. Montgomery, one of the pioneers of the auditing profession, describedthe difficulty practitioners faced in prying information from companies. "I recall the first time it occurred to me to ask to see the insurance policies covering the stock in process and on hand," he wrote in Fifty Years of Accountancy. "I might as well have thrown a bomb." Montgomery said it was not unusual for auditors to be forbidden to see corporate minutes and "many a time I was refused access to subsidiary records." Getting information was important, according to Previts and Merino, because "two out of three new audit engagements during the 1890s were likely to reveal defalcations."

This absence of hard data coincided with a period of recurrent economic instability, punctuated by financial panics that cropped up about once a decade. Previts and Merino labeled one such event--in 1893--one of the most severe depressions in the country's history.

Given such an uncertain beginning, how has the accounting profession fared during its first century of organized existence in the United States? A reading of contemporary accounts from the turn and the middle of the past century reveals how well the profession reflected the most dynamic activity of the period.


What were accounting firms like circa 19007 The nascent profession had experienced tremendous growth in the last decade or so of the nineteenth century, but it still had a long way to go. During the early years of the twentieth century, the clamor for greater oversight of the burgeoning business world resulted in the creation of the first federal regulatory agencies, including the Interstate Commerce Commission, the Federal Trade Commission and the Federal Reserve Board. However, many companies still saw little reason to hire an outside accountant.

Early firms struggled to convince them otherwise. "The advantage of having such service performed by an independent, responsible and well-equipped company with a recognized financial and commercial standing must be apparent," insisted an advertisement by the firm Baker-Vawter Co., "Accountants, Auditors, Devisers of Business Systems" in a 1903 edition of the New York Accountants and Book-Keepers' Journal.

Jobs in the profession often were hard to come by. "As a junior on the staffs of three prominent New York accounting organizations, I met the not unusual condition of being out of employment on several occasions," recalled H. Dumbrille, who finally made his career at the firm of Lybrand, Ross Bros. & Montgomery beginning in 1905. Many accountants worked for firms headquartered in Britain, where the profession was more developed. …

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