Magazine article The CPA Journal

Birth of a Profession

Magazine article The CPA Journal

Birth of a Profession

Article excerpt

It's the 100th anniversary of the enactment of the first CPA law in the US.

April 17, 1996, is the one hundredth anniversary of the passage of the first law establishing the CPA designation in the U.S. It took place in New York and led to the establishment of the first state society of certified public accountants. Getting there was not easy and the establishment of a national organization was no piece of cake either This very important segment of history also tells of debates and conflict over advertising, non-CPA ownership, and whether accounting is a trade or a profession.

The certified public accounting (CPA) profession was a child of a broad pattern of social and economic change that began to radically transform America during the last quarter of the l9th century. During this transition, Americans began abandoning agriculture and life in small towns for new opportunities in rising urban-industrial centers. At the same time, the nation's population was becoming more diverse as millions of new peoples from Eastern and Southern Europe flocked to its shores in search of a better life. This flux motivated many who believed in progress to search for innovative ways of applying pragmatic knowledge to better order America's increasingly complex and interdependent social scene.

Public accountants began to flourish during this era because of the important roles they played in the communication of reliable financial information that was useful in corporate monitoring and management. Both large and small businesses depended on professional accountants to reduce risk perceptions of prospective investors by certifying financial statements. Leading underwriting firms, for example, began including statements audited by well-known accounting firms in the prospectuses used to market new securities of giant railroad and industrial enterprises both here and abroad. In addition, credit officers in commercial banks began to look to the financial statements of local businesses for information helpful in making their lending decisions. Besides attestations, both large and small businesses often turned to professional accountants to enhance the managerial effectiveness by developing cost measurement systems. And the passage of a Federal corporate excise tax in 1909 and the Federal income tax in 1913 provided more opportunities for these experts to apply their special knowledge in helping clients to resolve their tax planning and compliance problems.

Initiatives at State Level

Although public accountants by the 1890s had begun to organize their profession by forming representative organizations at many locations in the United States, it was in New York City, the nation's business capital, that the first successful effort was made to place this activity on a firmer footing through state licensing, as was already the case in law and medicine. But the pursuit of licensing was initially delayed by the unsuccessful drives of competing professional associations to establish alternative models for governing their common avocation. The first organization, the New York Institute of Accounts (NYIA), was a chapter in a loosely knit national organization founded in 1882 that brought together public accountants, bookkeepers, and businessmen interested in accounting. The second was the American Association of Public Accountants (AAPA) that had been formed in 1886 in New York City by an elite circle of chartered accountants and American practitioners who admired the professional traditions of their British colleagues.

Conflict. These two organizations first came into conflict early in the 1890s over the question of how best to certify practitioner competency. The controversy began when the NYIA organized qualifying examinations to differentiate three classes of its membership: associates, certified accountants, and fellows. Members of the AAPA, however, objected when some NYIA members began using distinguishing initials "C.A. …

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