Changing Legitimacy Narratives about Professional Ethics and Independence in the 1930's Journal of Accountancy
Roberts, Diane H., Accounting Historians Journal
Abstract: The 1930s in the U.S. were marked by an economic crisis, governmental regulatory response, and a significant audit failure. This paper examines the profession's struggle for legitimacy during these times through its choice of narratives regarding professional ethics and independence as revealed in the national professional organization's monthly, the Journal of Accountancy. Initially "ethics is a state-of-mind" or narrative of character was used but transitioned to a more objectively determinable narrative of technique as the decade progressed. To counter governmental regulation, the profession attempted to shift the independence discourse away from regulation of accountants to regulation of client companies.
Occupational groups that apply specialized knowledge and skills to complex tasks and claim to serve both their own and the public's interest seek to define themselves as professionals. A code of ethics is one of the most important attributes defining a profession [Montagna, 1974] and has been termed a "unique, dynamic record of the movement of an occupational group toward professional status" [Casler, 1964, p. 8]. This paper tempers this functionalist view of the code of ethics with the consideration that the effectiveness of such a code depends upon its reflecting cultural mores. In the process of changing the code of ethics in response to social and political events, professional groups attempt to influence members of the profession, the public, and regulators through discourse on components of its code. This discourse is in the form of narratives that allow society to define the criteria for competence and to evaluate performance. As such, narratives act as legitimating devices [Preston et al., 1995].
The form or content of these narratives changes over time, as does the code of ethics itself, and at the beginning of the 1930s, the phrase "ethics is a state of mind" [Richardson, 1931, p. 15] encapsulated the profession's narrative of character. Character is "a core constituent of personal identity" [Preston et al., 1995, p. 521] to be developed through moral education both at home and at school. The state-of-mind of the upright individual so developed provided the moral guidance that could be relied upon to direct his or her actions in an ethical manner. A corollary to this is that unethical behavior resided in the flawed individual instead of in the profession or its self-governance and, consequently, a limited number of rules were needed to constitute an ethics code.
By contrast, the narrative of technique uses legal and technical rhetoric in a specialized and esoteric subject as the means of legitmation. In this narrative, moral guidance is replaced with rules and professional judgment. Preston et al.'s  study of U.S. accountants' professional ethics found that a 1917 narrative invoking the legitimacy of character had shifted by 1988 to the legitimacy of technique. Their study does not address when this shift occurred; however, the transition is apparent in discourse in the American Institute of Accountants' (AIA) official magazine, the Journal of Accountancy (JA), in the 1930s.
The 1930s opened in the aftermath of economic crisis caused by the stock-market crash in October 1929, followed by the passage of the Securities Act of 1933 and the Securities Exchange Act of 1934. Abbott  argues that the extent of the shift from legitimacy of character to legitimacy of technique varies among professions depending upon the relative use of science and social structures for legitmation. The social structure of greatest significance is regulation, and the 1930s found the accounting profession subject to significantly enhanced regulation by the Securities and Exchange Commission (SEC). The profession was still coping with this increased regulatory attention when the fraud at McKesson & Robbins (M&R) was revealed in December 1938. This fraud was the "first time accounting practices were subject to significant public and governmental disclosure, comment, criticism and judgment" [Barr and Galpeer, 1987, p. …