The Legitimizing Power of Financial Statements in the Salvation Army in England, 1865-1892
Irvine, Helen, Accounting Historians Journal
Abstract: Since its inception the Salvation Army has relied heavily on external funds to survive. There is evidence to suggest that at the time of its founding, in 19th century England, and in its early years, financial statements played a powerful legitimizing role. This was crucial to an organization like The Salvation Army, newly formed and in desperate need of funds. This view is consistent with institutional theory, which emphasizes the importance of such legitimacy. However, it challenges the notion, prevalent in academic literature on accounting in religious organizations, that there is a resistance to the use of accounting as a "secular" activity in an organization with a "sacred" mission. The societal context of the early Salvation Army, the unique characteristics of William Booth, its founder, and its struggle for survival in its early years, all demonstrate an emphasis on an image of financial responsibility, and a reliance on the Army's audited financial statements to convey that image.
The Salvation Army is a religious/charitable organization, part of a world-wide Christian church, probably better known today for its social work than its evangelistic work. It was founded in England in the mid 19th century. In that era, when poverty and social injustice were rife, the new Christian Mission, the forerunner of The Salvation Army, became an organization with a focus on good works and a reliance on the public for funding. Even in those early days, the presentation of a sound financial image was vital to its ability to attract funds and to deflect criticism of its unconventional methods.
This paper, which is based on institutional theory and the notion of a sacred/secular tension in religious organizations, proposes that in the Army's early years (1865-1892), the organization used its financial statements to enhance and legitimize an image of financial reliability as a church and welfare service provider. These dates are significant because The Christian Mission began in 1865, and 1892 was the year in which The Salvation Army successfully defended its financial practices in an inquiry that was held into its "Darkest England" scheme. The paper begins by providing an institutional view of legitimacy and the importance of financial statements in creating a legitimate image. Next, the notion of a sacred/secular tension is briefly explored. The significance of the historic setting, Victorian England, is then outlined, followed by a history of the early Salvation Army which focuses particularly on its influential founder, William Booth. The fundraising activities, reporting practices and controversies surrounding financial management in the Army are subsequently discussed. Finally, conclusions are drawn about the significance of a sound financial reporting image to resource-dependent religious/charitable organizations such as The Salvation Army.
AN INSTITUTIONAL VIEW OF ORGANIZATIONS AND ACCOUNTING
Institutional theory offers an interpretation of the wider organizational and social context of accounting practice by emphasizing the influence of the institutions both of society and of the organization. It suggests that these institutions, which have been described as "societal expectations of appropriate organizational form and behavior", take on "rule-like status in social thought and action" [Covaleski and Dirsmith, 1988, p. 562], and develop over a period of time. Instead of, or in addition to, technical considerations organizations adopt institutionally acceptable practices to legitimate their existence [Covaleski and Dirsmith, 1988, p. 562], and, ultimately, to receive the prestige, stability, access to resources, and social acceptance they require in order to survive [Oliver, 1991; Ang and Cummings, 1997; Meyer and Rowan, 1977; Oliver, 1997; Meyer et al, 1992]. Because of this, there is a tendency for organizations within a particular field to assume similar structures and practices. …