Taking Account of History

A look back at that first meeting shows not only some of the origins of the profession but also the importance of the issues being discussed. In a profession that was still inventing itself in many ways, the attendees were debating topics such as auditing, accounting for profits and government issues, all of them timeless themes. In addition, the proceedings show the quality of ideas being generated by those involved. At a time long before codified generally accepted accounting principles or auditing standards, participants were developing and discussing some of the standards and procedures that would form the basis of professional practice.

“A century is a good time to take stock,” notes Gary Previts, CPA, professor of accountancy and associate dean of undergraduate programs at the Weatherhead School of Management at Case Western Reserve University in Cleveland. Previts says many of those who attended the first world congress would become important figures in the profession. “What stands out is how many names are familiar and still recognized today as potential or actual Accounting Hall of Fame members,” says Dale Flesher, CPA, a professor at the University of Mississippi’s school of accountancy. In addition, in reviewing the proceedings of this first gathering, “I am impressed that it is a very important portfolio about the ideas of practice. The ideas reflect fundamental issues that face us today,” Flesher says. This article highlights that pivotal event.

KEY THEMES
Consolidating the profession. An important but unspoken agenda of the congress was to try to find a way to organize the profession nationally. Great Britain had a more highly developed accounting profession at the time and many British accountants—such as Arthur Lowes Dickinson—who had come to the United States to practice became very influential, but the American accountants wanted to build their own profession. “Federal recognition of the profession of the public accountant can be secured only by a strong representative national body speaking with one voice from Maine to California,” the congress’s chairman, Joseph Sterrett, said in his opening remarks. Many of the people behind the congress hoped to lay the groundwork for a single recognized national organization, but some in attendance had reservations about the idea.

“There were the same kinds of tensions we see today, between large and small firms and between global and regional organizations,” Previts says. “People learn how to manage these issues, but they don’t necessarily solve them.”

One year after the congress, the movement toward a single national organization was strengthened by a merger of two early national bodies, the Federation of Societies of Public Accountants and the American Association of Public Accountants, based on discussions that had begun at the congress.

A burgeoning market economy. What was the foundation of the nascent accounting profession in 1904? The rise in wealth and commercial activity during the last half of the 19th century was one factor, according to Sterrett. “Within the past few years, the wealth of an empire has been concentrated under the control of a few great corporations,” he noted. These developments in the economy led to better housing, education and transportation. They also created a demand for more timely information—a need still felt today. “Men responsible for the conduct of large enterprises today require not history but news,” Sterrett said. “It is of little avail to find out three or six months afterward that last year’s business was conducted at a loss.”

Sterrett also outlined the standard accounting professionals should attain. “The public accountant touches business life on every side,” he said, adding elsewhere in his speech that “the crowning glory of our profession is that it must ever stand for the highest ideals in the life of the individual and for the slow but sure evolution of society into a state where honor and honesty shall not be mere abstractions.”

Audit companies. Form of practice was a hot topic at the 1904 meeting and one the profession has revisited and refined over the years. At stake were questions such as whether it would be acceptable for auditors to work in a corporation—or as part of another business—or whether they should, instead, work only in professional practices. More fundamental, however, was the question of whether an audit should be presented as something performed by an individual or by a firm. “In those days,” Previts says, “there was still a proprietary view of a personal professional service,” which favored the idea that an individual performed an audit. “That changed during the last century because of global business and consolidations. Capital allocation processes grew to be so complicated and so global,” that it became impractical to expect one person alone to conduct the audit, he says.

At the congress in 1904, George Wilkinson, a founder of the Federation of Societies of Public Accountants, questioned the commercialization of the profession with what were then being referred to as “audit companies,” but practitioner James Miller responded that, as long as a professional had the proper character and ability, “I believe we cannot say to our fellow accountant how he can practice.”

“The way you practice will always be controversial because that’s where the economic realities meet the profession’s ideals,” observes Previts. “When that collision happens you are likely to have some friction.”

Measuring profits. Arthur Lowes Dickinson, the senior partner of the U.S. branch of Price Waterhouse at the time, gave an important speech to the congress on the profits of a corporation. “In its time it was the equivalent of an intellectual bombshell,” Previts says, even though in its simplicity the speech did not encompass topics such as discounted cash flow or current values. The discussion covered issues such as the definition of profits, the legal considerations, the applicable accounting principles, methods for dealing with capital or fixed assets, liabilities and consolidated earnings statements. “From an accounting point of view, it was a tour de force because it addressed all the issues involving profit determination at that time, and provided a good reference point for understanding the theory of profit and loss,” Previts says. In an age of speculative ventures and rampant monopolies, money was lent based on expected profits, and Dickinson “knew this was the right time for income determination to become a more prominent issue.”

A few years later, Dickinson’s ideas would become the basis of Uniform Accounts, a document published by the Federal Reserve Board that drew from the work of a group of distinguished accountants who provided guidance on audit procedures and the form of financial statements. “It was a significant intellectual contribution he was making in 1904,” Previts says. Dickinson is remembered among other accomplishments for creating the format for a consolidated financial report for U.S. Steel Corp.

LOOKING BACK IN 2004
For those who would like to learn more about the 1904 gathering, the proceedings of the Congress of Accountants can be found on the official 10th World Congress of Accounting Historians Web site at http://accounting.rutgers.edu/raw/aah/worldcongress/highlights.htm . The 10th World Congress of Accounting Historians, which will take place in St. Louis and Oxford, Mississippi, August 1–5, will take the subject of world congresses as one of its themes.

—Anita Dennis

ANITA DENNIS is a journalist who specializes in business topics and is a former JofA managing editor.

Profiles in Accomplishment Some of the distinguished early leaders of the profession in attendance at the first world congress, most of them now in the Accounting Hall of Fame at Ohio State University in Columbus, were
George O. May , who was involved in the creation of the landmark 1934 document, Audits of Corporate Accounts, a joint effort between the Institute and the New York Stock Exchange. Along with Robert Montgomery, May was part of the group of accountants who contributed to Uniform Accounts, a key early auditing document published by the Federal Reserve Board. Robert H. Montgomery , who was an important contributor to early auditing and taxation literature, as well as a driving force behind the 1904 congress. A cofounder of Lybrand, Ross Bros. & Montgomery—a forerunner of PricewaterhouseCoopers—he also was instrumental in the development of what would become the AICPA. He was involved in launching the publication that ultimately would become the Journal of Accountancy.	Ernest Reckitt , who was an important local practitioner from Chicago and a mentor of Andrew Barr, a distinguished early SEC chief accountant. Elijah Watt Sells , who was a founder of Haskins & Sells, the first large firm established by American accountants at a time when British professionals dominated the profession. A prize given to the top scorers on the CPA exam is named in his honor.