t 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, described the 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.
THE EARLIEST FIRMS
What were accounting firms like circa 1900? 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.
|CPA 1900 |
How hard was the first CPA exam, given in 1896 by the state of New York? Judge for yourself. Here’s one of the questions in the “theory of accounts” section of the test:
“State the purpose for which series of perpendicular columns are employed in books of original entry, and how these purposes may be accomplished relative to the following conditions: (a) several Ledgers comprehended in one system of accounts, (b) several departments comprehended in one business, (c) several accounts comprehended in income and expenditure.”
The entire test, which also covers practical accounting, auditing and commercial law is available online at http://weatherhead.cwru.edu/accounting/cpaexam.html or in appendix A of A History of Public Accounting in the United States, by James Don Edwards. Would you have qualified to be one of the first CPAs?
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. 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.
In The Rise of the Accounting Profession: From Technician to Professional, 1896–1936, John L. Carey cited the experiences of James T. Anyon, a chartered accountant in England, who emigrated to become partner in charge of the New York office of Barrow, Wade, Guthrie & Co. According to Carey, Anyon wrote that after six months in business in 1886, the operations produced a “gross service credit” of $4,482.08, and a net profit, after charging his salary of $1,250 for the half year, of $2,133.50. Anyon was unable to afford an assistant, but he did employ an office boy who dusted, filled the inkstand, mailed letters and ran errands.
Even when the demand for accounting services picked up, “the most important and responsible engagements entrusted to accountants in those days were given to visiting British accountants,” according to Carey. U.S. Steel set a precedent, he wrote, when it published the first audited financial statements in 1903. The auditors were Price Waterhouse, originally a British firm.
A DAY IN THE LIFE
For a turn-of-the-century accountant, good handwriting was crucial. Most reports were prepared and submitted in longhand, according to Previts and Merino, since typewriters had only begun to catch on in the mid-1890s. As is the case in any era, many practitioners resisted new technology, preferring inexpensive lead pencils to costly and unfamiliar machinery.
The work itself could be quite tedious. Montgomery described the “holler and tick” method, in which one junior accountant would call out a ledger posting and another would check it against the original entry, sometimes for hours on end. “Frequently books had been out of balance for months or years, and the finding of errors was a terrific task,” he said.
|What They Were Reading at
the Turn of the Century |
The Book-Keeper, November 1908
Offices were far from luxurious. In the first office of the pioneer American firm Lybrand, Ross Bros. & Montgomery, the four partners shared one rolltop desk, while the staff made do with a “high-standing desk,” according to recollections in the firm’s 25th anniversary publication. “During the first few months of the firm’s existence, engagements were not numerous, but the business activity which followed the [Spanish-American] war brought an extension of the firm’s activities.”
Even the most prosperous firms were unlikely to have branch offices, so road trips were long and generally unpleasant. During an assignment for a client, Montgomery traveled from the Northeast to Vicksburg, Mississippi, camping out at a mill and bathing in—and drinking straight from—the muddy Mississippi River. During one engagement in the mountains of North Carolina, Montgomery had to share a double bed with colleague Adam Ross, and snow fell straight down the chimney into their room. Reminiscing about accommodations on the road, he wrote, “Maybe there isn’t much of a choice, but I think I prefer bedbugs to fleas.”
Among this hardy breed, business acumen apparently was more important than technical knowledge in a profession that was inventing itself as it went along. “The most important qualifications that a prospective employee had to possess were, first, character, and second, judgment—mental balance,” according to Montgomery’s firm’s Journal. “These qualifications are still regarded as much more essential than mere technical skill in accountancy.”
However, some accountants were proving their technical abilities by taking the new CPA exam, following passage of the first CPA law in New York in 1896. CPA legislation would be enacted in all 48 states by the 1920s, most of it calling for a high school diploma or the equivalent.
CPAs AT MID-CENTURY
By 1950 the accountant’s position in the business world had changed dramatically. The 1913 income tax legislation and the securities acts of 1933 and 1934 focused a spotlight on the importance of CPAs’ skills and created steady demand for their services. The country also had changed, becoming heavily industrialized in the first half of the century—particularly in the wake of World War II.
Along with this evolution came an expansion of the investing public. As John L. Carey noted in the second volume of his history of the profession, The Rise of the Accounting Profession: To Responsibility and Authority 1937–1969, there were about 4 million stockholders in 1940. That number grew to 7 million by 1952 and would surge to 17 million by 1962. Earnings per share became an important issue for these stockholders, and the net income figures that were used to arrive at EPS, “audited by independent CPAs, became a matter of national importance,” he wrote. “The accounting principles on which net income was determined attracted more attention from the public and the press than ever before in the history of the accounting profession.”
AN AMBITIOUS BUT SOBER GROUP
What was the profession like circa 1950? Overwhelmingly male—and pale. “There were no women,” recalled Alex Rosenthal, a CPA with Goldenberg, Rosenthal in Jenkintown, Pennsylvania, who started his accounting career in 1927. Stanley Person, a CPA who began his career in the 1950s, said in his first years on the job all his colleagues were white.
In the 1953 version of Duties of the Junior Accountant, R. K. Mautz portrayed the profession as a place for ambitious people. “The top positions in most of the public accounting firms in this country are occupied by men who came into the field with nothing more than their own native abilities, a reasonably sound educational background and a desire to get ahead by their own efforts,” he wrote. “No one stands still in public accounting.”
Throughout the business sector, today’s casual style was unthought of at mid-century. “Clothes do not make the man it is true, yet there is much to be said for quiet, conservative dress,” Mautz wrote. “Somehow a loud shirt and a ‘race-track’ suit do little to inspire a feeling of confidence…. A clean hat, neat business suits, harmonizing ties are expected…. The junior accountant whose sporty attire is the joke of an office in which he is working is very likely to find himself and his work something of a joke as well.”
Accountants were expected to maintain a dignified reserve, especially in a client’s office. “Annoying personal habits must be guarded against,” Mautz said. “Humming or whistling while one works, unnecessary coughing or clearing of the throat, tapping with a pencil while considering a problem…may be extremely irritating to others.”
|What They Were Reading at
The Journal of Accountancy, July 1950
The New York Certified Public Accountant, May 1950
Although these constraints don’t make the profession sound like much fun, Mautz reassured young accountants about the collegial nature of a typical firm. Because of the many opportunities in the profession, he said, “there is little competition of an intense variety on the staff of a public accounting firm. There is much more of a team spirit.”
Support staff were more numerous, according to Person. “For every three or four people you had then, you need one today,” he says. He describes a production line, with original work handwritten by one person, the calculations checked by another, the entire document typed by a third person, copies made by someone else (if carbon paper wasn’t used), a proofreader to check the typing and a final check by a partner. “If one proofreader was out for a day, the work came to a halt,” he recalls.
On the client side, the relationship between CPA and client was already strong. The introduction to an August 1951 Journal of Accountancy article on services for small town businesses written by Seth Densmore, a Vermont CPA, explained: “The practitioner in a small community works under vastly different conditions from the staff man in a large firm in the cities. In addition to accounting and income-tax work, the local man must often keep his client’s books, serve as an instructor for the client’s new bookkeeping help, supervise installation of systems, counsel clients on business problems, operate an employment service, take part in maintaining professional standards through his state society, and in general be a model of discretion and wisdom.”
|A Bibliography of
Accounting History |
A History of Accountancy in the United States: The Cultural Significance of Accounting. Gary John Previts and Barbara Dubis Merino. Ohio State University Press, 1998.
A History of Public Accounting in the United States. James Don Edwards. University of Alabama Press, 1978.
Accounting Evolution to 1900. A. C. Littleton. Russell & Russell, 1966.
Duties of the Junior Accountant. Various authors. Garland Publishing, Inc., 1988.
Fifty Years of Accountancy. Robert H. Montgomery. Printed privately by the Ronald Press, 1939.
The Rise of the Accounting Profession: From Technician to Professional, 1896–1936. John L. Carey. AICPA, 1969.
The Rise of the Accounting Profession: To Responsibility and Authority, 1937–1969. John L. Carey. AICPA, 1969.
AICPA centennial issue of the Journal of Accountancy, 1987.
These publications are available through the AICPA Center for Knowledge and Research Services.
CPAs were concerned even then about reining in client costs. In a September 1951 JofA article, Louisiana CPA David C. Hearne advocated delegating work to the client’s staff, adopting a natural business year and relying on office machines to hold down the cost of an audit.
Office efficiencies were a primary concern. In a December 1951 JofA article on work simplification in CPA firms, Jay E. Robinson, a Los Angeles CPA, revealed that, according to the latest industrial research, gray is the best furniture color to reduce eyestrain and desks should be 29 inches high for the greatest comfort. He also advocated the use of window envelopes to save typing time and predicted that electric typewriters and adding machines would be standard equipment in a few years. The most important office equipment in his practice, he advised, was a Multilith Machine, an early copier.
The era was characterized by wages and prices that only a Federal Reserve Board chairman could love. In JofA classified ads from the early 1950s, an employment service offered positions ranging from $3,500 to $35,000. One firm was willing to pay a “thoroughly experienced senior” a starting salary of $6,000 to $8,000. A retiring CPA in Chicago asked $12,000 for a practice “consisting entirely of small accounts.” An insurance ad from the period portrayed a typical home as costing $14,449, nearly double what it cost in 1941.
AT THE DAWN OF A NEW CENTURY
The CPA firm of today is a far cry from its forerunners. A diverse workforce has joined the white men who dominated the profession in its early years, and firms now perform a variety of engagements that the earliest CPAs could never have imagined.
Today’s workforce is part of a profession where job prospects are strong. While accountants at the beginning of the century and again during the depression sometimes struggled to find work, firms today cite recruiting and retention as their chief concerns. It’s not unusual for some firms to pay large signing bonuses to get the best accounting graduates from the top schools.
Although firm members once might have shared a single rolltop desk, today they may take turns using one office or workstation as part of a telecommuting or hoteling arrangement. The electric typewriters the profession embraced in the 1950s have given way to new PC-based technologies that enable CPAs to communicate easily with clients around the world from firm locations or from virtual offices set up in their homes.
|What They’re Reading
Journal of Accountancy
Just as the profession invented itself over 100 years ago to serve the country’s new industrial interests, it continues to reinvent itself as the business sector changes, adding new services and competencies for clients. Person, who leads the 15-person Person & Co. in New York City, sees an increasing need for small firms to serve emerging businesses. “The virtual world needs an anchor in the real world. We can be the bridge between business reality and business concepts.”
This step is part of a natural evolution for CPAs. In recalling his early experiences at one of the country’s first firms, Robert Montgomery wrote, “We became more inquisitive, more imaginative, and I think more helpful to our clients.” Those words aptly sum up the profession’s progress through the twentieth century. Only time will tell what words historians will use to describe the accountant’s role in the twenty-first century and beyond.
ANITA DENNIS is a JofA contributing editor. The author acknowledges the assistance of Karen Neloms and the AICPA Center for Knowledge and Research Services in providing access to the original historical materials used to prepare this article and its illustrations.