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The professionalization of

accountancy

A history of protecting the public

interest in a self-interested way

Tom Lee

The University of Alabama,Tuscaloosa, Alabama, USA

Introduction

Accountants and the institutions of accountancy are subject to increasing

public scrutiny. Recent research suggests the typical strategy of response to

criticism adheres more to the economic self-interest of accountants than their

duty to protect a public interest. This article reviews the UK and US histories of

accountancy professionalization, and identifies the early origins of the strategy.

The analysis suggests accountants use the public interest argument

continuously as a means of protecting their economic self-interest.

The article is divided into several sections: the nature of professionalization;

the birth of the accountancy profession; establishing and defending

professionalization; and a retrospect and prospect. The methodology is a

traditional one in historical studies of explained narrative using secondary

sources (Previts et al., 1990).

Nature and history of professionalization

Before proceeding to a history of the UK and US accountancy profession, this

section outlines briefly the nature and history of professions and, in particular,

distinguishes professional activities from other occupations. The review comes

from a variety of sources (e.g. Bledstein, 1976; Carr-Saunders and Wilson, 1933;

Freidson, 1986; Johnson, 1972; Krause, 1971; Larson, 1977).

The term professional is used in this article to denote occupations organized

in institutional form, whose practitioners are committed explicitly to serve the

public interest, and who offer client services related directly to an intellectuallybased

body of knowledge. Professions emerged as institutionalized occupations

This article provides a broad review of the history of professional accountancy in the UK and the

USA. Because of space limitations, not all relevant events are covered or dealt with in depth.

However, the references section contains sufficient information to sources of missing detail.

Research for this article was based on the prior work of numerous historians of accountancy,

and their contribution is gratefully acknowledged. In addition, Steve Walker of the University of

Edinburgh and Dick Fleischman of John Carroll University commented on earlier drafts of the

article and improved its focus. The content has been further enhanced by the comments of two

anonymous referees.

Accounting, Auditing &

Accountability Journal, Vol. 8

No. 4, 1995, pp. 48-69. © MCB

University Press, 0951-3574

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in a Victorian Britain coping with economic and social changes such as

population shifts, industrialization of commerce and trade, decline of the church

and involvement of the state in matters of poverty, health and education (see,

e.g. Smout, 1986). Organized professions were means by which the middle class

exercised cultural control and established its social status (Bledstein, 1976). The

professional was perceived as an independent and knowledgeable practitioner

with an explicit obligation to act in the public interest.

The traditional literature on professionalization suggests professional tasks

have a history and reputation as privileged work with altruistic objectives

(Carr-Saunders and Wilson, 1933). However, there is an alternative economic

view of the role of professionals. In this perspective, they are perceived as

organizing to gain market control of an occupational service by means of

monopolistic exclusion of individuals deemed unworthy or unqualified to

provide it (Larson, 1977). Professionals create explicit mechanisms to

operationalize this strategy, including entry prerequisites, institutionalized

programmes of academic education and work-related training and experience.

Unless an individual satisfies these criteria, professional membership is

impossible and certain service opportunities denied. The professional

monopoly is established when the state grants exclusive rights of service only

to certified professionals. Each of these features is evident in the formation and

development of the accountancy profession.

Birth of professionalization

A small number of eighteenth century accountants were the forerunners of the

individuals who formed the first professional society of accountants in Scotland

in 1853 (Brown, 1905a). Other researchers identify innovative accountants in

Scotland and England before and during the Industrial Revolution (e.g.

Baladouni, 1986; Burley, 1958; Edwards and Newell, 1991; Fleischman and

Parker, 1990; Forrester, 1980; McKendrick, 1970; Robertson, 1970, 1984;

Solomons, 1952; Stone, 1973; Walsh and Stewart, 1993). The stage was clearly

set in the UK for a formal professionalization process to start in the mid to late

1800s.

This raises an interesting question. Given the prior history of accountancy

and accountants, why did a very small group of mid nineteenth century

Scottish accountants in public practice feel compelled to organize in

institutional form? A typical response is that professionalization was a natural

consequence of the economic and organizational changes of the Industrial

Revolution (e.g. Garrett, 1961; Howitt, 1966; Kedslie, 1990; Miranti, 1990;

Stewart, 1977). More detailed analyses and arguments, however, suggest a more

complex rationale. For example, in addition to the industrialization argument,

Stewart (1977) suggests Scottish professionalization was a response to

competitive pressures and a need to provide a unified view on accountancy

matters. Brown (1905b) states Edinburgh accountants made several

unsuccessful attempts to provide this unification prior to 1853. However, in

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1853 they were successful and formed The Society of Accountants in

Edinburgh, with a royal charter following in 1854.

Brown makes no suggestions regarding the reasons for professionalization in

Edinburgh, but Kedslie (1990), Macdonald (1985), Parker (1986) and Walker

(1988) argue a catalyst was a proposed change in bankruptcy law which would

have allowed lawyers to undertake work then dominated by Scottish

accountants. Thus, at least one major reason for professionalization was

economic in nature, and consistent with the suggestion of Stewart that

accountants were reacting to competitive pressures. The possibility also exists

of a nationalistic rivalry underlying the professionalization events.

A number of writers reveal the close relationship between accountants and

lawyers in bankruptcies and sequestrations during the nineteenth century.

Accountants in public practice dealt with the accounting aspects of such

matters (Brown, 1905a; Kedslie, 1990; Macdonald, 1985; Parker, 1986; Walker,

1988). Walker (1988 and 1993) also provides evidence that voluntary

insolvencies and judicial factories were important parts of public accountancy

practice at that time. However, accountants covered a variety of other functions

(e.g. merchants accounts; accounting for canal, rail, and banking companies;

estate management; insurance and stockbroking; and legal work) (Brown,

1905b; Kedslie, 1990). Few accountants were employed in industrial accounting

or commercial auditing.

The conventional evidence of accounting history therefore suggests the

existence of a small but growing public accountancy community in Scotland by

the mid 1800s. Members of this community are portrayed as facing a potential

economic threat because of proposed bankruptcy law changes. Unsurprisingly,

they are perceived as reacting to protect their economic self-interest. They are

described as organizing to form institutions which justified the term profession,

thus mimicking previously-established bodies in other areas such as law and

medicine (Kedslie, 1990; Walker, 1988). More specifically, as Brown (1905b)

documents, 61 Edinburgh accountants petitioned Queen Victoria in 1853 to

form The Society of Accountants in Edinburgh. The petition pointed out the

public interest focus of the proposed organization. Accountants were stated to

need to unite into one body to ensure their legal and actuarial work was

completed by appropriately qualified individuals for the benefit of the public. A

Glasgow body was chartered in 1855 on petition by 49 accountants, who also

adopted an actuarial and legal basis to their argument to protect the public

interest (Brown, 1905b). Once formed, the two Scottish bodies proceeded to

resist the proposed bankruptcy laws and ensure the continuing employment of

accountants in such work (Brown, 1905b; Walker, 1995b).

Evidence of the origins of accountancy professionalization in Scotland is

reassessed by Walker (1995). In a study of a mix of economic, political and

social factors at work in mid nineteenth century Scotland, an alternative

explanation is provided which, nevertheless, is consistent with previous

histories. As in other studies (e.g. Kedslie, 1990), the impetus for professional

organization by Scottish accountants in public practice is identified as a

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significant threat to their economic self-interest. There was a London proposal

to base Scottish insolvency practice on English legal provisions which required

lawyers, rather than accountants, to act as administrators. The practical reason

for the proposal was an English concern about the effectiveness of Scottish

bankruptcy law, and its economically damaging effects on English businesses

trading in Scotland. The intellectual argument for reform was related to the

case for improving free trade. Scottish accountants in public practice organized

in Edinburgh to defeat the threat. They not only organized, but presented their

case in the context of a prevailing Scottish nationalism. They initiated a debate

to obtain public support, convincing senior members of the Scottish legal

profession and Scottish Members of Parliament that the English proposal to

reform should be resisted. This was successfully accomplished between 1854

and 1856.

Establishing and defending the profession

What the above brief analysis reveals is evidence of an organized profession

created to provide market control of accountancy services. It is consistent with

the professionalization model of Larson (1977). In particular, the Scottish

accountancy bodies sought legitimacy in royal charters. The primary

significance of this was the creation of institutions with royal permission to selfregulate

professional accountancy, and to describe their members as chartered

accountants. Brown (1905b) points out the immediate use of this designation

following formation. It was a deliberate act to publicly separate chartered

accountants from other accountants, provide a basis for public confidence in the

work of chartered accountants, and stimulate demand for their accountancy

services.

Both Walker (1988) and Kedslie (1990) provide evidence of the strengthening

of the Scottish professionalization process by entry, education, examination and

training requirements. These provisions had the dual effect of explicitly

revealing professional accountancy as a learned occupation with high

standards, and also restricting the number of institutionalized members. The

nature of these requirements has been researched by Walker (1988) who

demonstrates that early accountancy professionalization in Scotland was

almost exclusively middle class, and associated through family, friendship and

client relations with lawyers and landed gentry.

A similar sequence of professionalization occurred in England, with the

formation of local societies of accountants in the 1870s (Brown, 1905c; Howitt,

1966). Unlike the Scottish formation, however, the English movement appears

to have been little more than a series of copy-cat events as local accountants

sought the credibility and authority of Scottish chartered accountants. It has to

be presumed such credibility had positive economic benefits. In addition,

English professionalization was initially characterized by competitive disputes

between London-based bodies and those in other regions. These disputes were

concerned with élitism and the concentration of power and influence in

accountancy matters by accountants working in London firms. To portray

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public unity on accountancy matters, however, talks quickly took place to

merge five English bodies into The Institute of Chartered Accountants in

England and Wales in 1880. According to Howitt (1966), the Institute proceeded

quickly to impose standards of entry, examination and training, and was

involved in influencing changes in law relating to accounting for bankruptcies

and municipal auditing.

Internal rivalries

However, all was not well with UK accountancy. Garrett (1961) describes the

founding of The Society of Incorporated Accountants in England in 1885. It

was licensed by the Board of Trade as a competitive response to the conditions

of entry imposed by The Institute of Chartered Accountants in England and

Wales. Of particular concern were the Institute’s requirement of an

apprenticeship system, and the restricting of the activities of its members to

those of public accountancy. In contrast, Society membership was UK-wide

with regional organizations and members in both public and private sectors of

the economy. An examination system was initiated, and specific professional

designations agreed. There also appears to have been a desire that the Society

influence legislation affecting accountancy work (Garrett, 1961).

The subsequent history of the UK accountancy profession is characterized

by a form of unity among the royal chartered bodies, despite pre- and postfoundation

English concerns regarding centralization of power in London.

Arguably, this unity may have been a consequence of an institutional feeling of

superiority over non-chartered accountants. Chartered accountants were

regarded as élite (Brown, 1905d), and their institutions co-operated in various

ways. For example, the Scottish bodies adopted similar entry and training

requirements, formed a joint national examination system in 1893, consulted

over responses to proposed bankruptcy and corporate legislation, issued a

national directory of chartered accountants in 1896, published a joint journal

(The Accountant’s Magazine) in 1897, arranged joint lecture courses, had

similar student societies and written Transactions of proceedings, and merged

in 1951 (Brown, 1905b; Kedslie, 1990).

However, creating and maintaining a profession was not an easy task for UK

accountants. Several writers comment on attempts by Scottish and English

accountancy bodies to obtain statutory registration of the title of professional

accountant (e.g. Garrett, 1961; Howitt, 1966; Kedslie, 1990; Macdonald, 1985;

Walker, 1991). A variety of reasons combined to create rivalry in accountancy

over a period of more than 50 years. These reasons include a proliferation of

bodies serving different membership needs and occupying traditionally

competitive geographical locations, the specific use of the title chartered

accountant by members of the chartered bodies to create exclusiveness and

economic benefit, and the organizational aggressiveness of latecomers to the

professional accountancy market.

Statutory registration of suitably qualified individuals to practice

accountancy was seen by the leaders of the competing bodies as the most

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sensible way of protecting the public interest against substandard accountants.

It also presumably assisted in a sharing of the available economic pie by a

restricted number of accountants. Many registration attempts in the form of

parliamentary bills were made by chartered and incorporated bodies. All failed

for various reasons, not least of which was an underlying rivalry between the

Scottish and English chartered bodies concerning their geographical

jurisdictions (Macdonald, 1985). In addition, the Scottish chartered bodies

successfully used the court system to defend their right to the exclusive use of

the invented and abbreviated title C.A. when that was challenged by two nonchartered

bodies in the period 1854 to 1914 (Walker, 1991). The chartered bodies

argued that their professional monopoly provided a higher value of service

because of the competence of their members, and that competition devalued the

chartered accountant designation. Scottish chartered accountants such as

Marwick, Touche, and Niven, together with a number of English colleagues

such as Guthrie, used this argument when emigrating to the USA and helping

to found its accountancy profession (Brown, 1905e; Carey, 1969; Kedslie, 1990;

Wise, 1982).

US experience

The most obvious feature of early UK professionalization is the pursuit by

accountants and their institutions of economic self-interest in the name of a

public interest. Use of entry, examination and training requirements, lobbying

over legislative matters, defending the exclusive use of professional

designations and attempting statutory registration each illustrate this point. A

similar pattern emerged in the USA in the late 1880s, although the specific

rationale for professionalization was different from that of the Scots chartered

accountants.

Several writers have researched the US history of professional accountancy

(e.g. Brown, 1905e; Carey, 1969, 1970; Merino, 1975; Miranti, 1990; Previts and

Merino, 1979). Their work needs to be read in the context of change in American

economic and social conditions between 1870 and 1900 (Bledstein, 1976;

Bruchey, 1990; Galambos and Pratt, 1988). This period witnessed population

expansion, industrialization, railroad competition, agricultural boom and

decline, population drifts from country to city and the emergence of a

professional middle class. Economic opportunities for investment by UK

companies and individuals opened the way for a significant influx of

experienced Scottish and English chartered accountants. They quickly

organized as firms of accountants, and sought the professional credibility to

which they were accustomed in the UK. They found no institutionalized bodies

in the USA devoted to public accountancy, and began to form institutions

similar to those of the Scottish and English chartered accountants.

The first body of US professional accountants was the Institute of Accounts

formed in 1882. Membership was open to any accountant passing its admission

test. The Institute’s main function was the education of accountants. Several

other bodies were founded from 1882 onwards. One such body was the

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American Association of Public Accountants (1887) which was concerned

solely with a public accountancy membership. Its structure and constitution

were patterned on the UK chartered accountancy model, and its membership

initially comprised 31 individuals based in the north-east of the USA.

These accountants were mainly UK chartered accountants concerned with

stewarding UK investments in US agricultural, manufacturing and railroad

industries. They appear to have founded the Association to obtain professional

status and economic rewards perceived to be unavailable from membership of

the Institute of Accounts. The Institute was open to all professional

accountants. The Association restricted its membership to individuals in public

practice. An initial problem for the Association’s members was changing a

public perception of accountants from bookkeepers to professionals (Carey,

1969). That they did so is evidenced by the employment of early members of the

Association by US bankers financing various industries.

In 1895 and 1896, the Association and the Institute individually and then

collectively sought to create legislation in the State of New York to license

professional accountants who met prescribed educational and residential

requirements, emphasizing a public interest focus in US accountancy and

mirroring similar UK events. Unlike the UK situation, however, the US outcome

was state-accredited professional accountancy in which, following prescribed

examinations and training, a licence was granted by the state in which the

individual accountant worked. Only licensed accountants could use the title

certified public accountant. Following New York, this system was adopted in

several other states. Each state founded a society of accountants to regulate and

administer its certified public accountants separate from federal bodies such as

the Association.

Early US accountants were concerned to demonstrate publicly their high

professionalism in terms of education, training and ethics (Carey, 1969). Much of

this concern was due to external criticism of accounting and auditing

standards, and internal concern about the variety of entry standards of state

societies. A need for overall control was perceived and, in 1902, the Federation

of Societies of Public Accountants was formed. It merged with the Association

in 1905, was retitled as the Institute of Certified Public Accountants in the

United States of America in 1916, and further changed to the American Institute

of Accountants in 1917. The Institute attempted to provide uniformity in

professional standards to enhance the title certified public accountant, seek new

areas of service for its members (particularly in the governmental sector), and

work with regulators to standardize accounting and auditing practices at an

acceptable quality level.

The above analysis describes briefly a system of professionalization in the

USA different from that created in the UK. The US system was founded on

accreditation by the state, and effectively provided for certified public

accountants an economic monopoly in the name of the public interest. Such a

monopoly could not be provided by the UK system of control of professional

accountants by institutionalized bodies, even though the title chartered

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accountant was protected by the courts. In addition, the US system created an

explicit duality of potential responsibility by the accountant to the state and his

professional body. What was similar in the UK and USA, however, was the

phenomenon of economic self-interest driving the professionalization process in

the name of a public interest. Also similar was the existence of nationalistic

rivalry (Scots and English in the UK, and British and Americans in the USA),

and the seeking of economic opportunity by influencing legislators and

regulators. In the US, however, the pursuit of uniform accounting and auditing

standards (e.g. the Federal Reserve Bulletin on Uniform Accounting in 1917) in

conjunction with the state was different from the UK, where standardization

was not a professional issue until the 1940s.

Historians such as Carey (1969), Previts and Merino (1979), and Miranti

(1990) provide considerable detail about other aspects of the early history of the

US accountancy profession. They evidence the early development of university

and college-based accountancy education, a concern of practitioners with the

need for and quality of financial accounting and auditing standards, the

reciprocation between states regarding the professional designation of certified

public accountant, and a move towards a uniform examination. Merino (1975)

also observes the concern of early US professional accountants with a culture of

professionalism including integrity, character, and personal responsibility and

judgement. She demonstrates the early professional concern with ethics and

individual accountability.

Image building

By the beginning of the twentieth century, the US accountancy profession had

laid its institutional foundations and established a bridgehead in terms of

relations with the state. The title of certified public accountant was protected

and explicit standards of professional conduct were being discussed. However,

despite a federal body of professional accountants and numerous state societies,

not everything was under institutional control. The various bodies of

accountants lacked the prestige and status associated with the UK chartered

bodies. Each state regulated the practice of accountancy by means of legislation

and state societies. US institutions were structured as trade associations, and

major variations existed between states in the quality of accountants and

accountancy services. In effect, the US profession entered the twentieth century

with a need to initiate actions designed to create an image consistent with

public perceptions of professionalized activities (Carey, 1969).

Of particular concern was the need to make explicit the virtues and benefits

of professional accountancy. Thus, most state societies attempted to site

accountancy education in reputable universities (Carey, 1969; Langenderfer,

1987; Previts and Merino, 1979). This had two effects reflecting a co-habiting of

economic self-interest and public interest. The first effect deflected the economic

burden of accountancy education away from professional firms and bodies. The

second effect assisted in legitimizing the educational basis of professional

accountancy. These developments were accompanied by a slow but persistent

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interest by academics and practitioners in accounting research concerned with

accounting theory and the development of a body of acceptable accounting

principles (Langenderfer, 1987; Lee, 1993; Previts and Merino, 1979). This

interest was the foundation for a critical debate on accounting principles in the

1930s onwards (Carey, 1969, 1970; Storey, 1977; Zeff, 1982a).

Internal US schism

Establishing the professionalism of US accountants proved to be a difficult task

because of internal disputation (Carey, 1969; Miranti, 1990; Previts and Merino,

1979). Leaders of the American Institute of Accountants modelled it on the

Scottish and English chartered accountancy bodies, with the apparent aim of

making it appear to be a self-regulating federal body of American chartered

accountants. A roadblock to this goal was the variable system of state-based

licensing of certified public accountants. The Institute’s leadership sought

control of a self-regulating, independent profession of individual accountants

rather than have a system in which government controlled the right to practice

accountancy. However, the large majority of Institute members were statelicensed

and had allegiances to their individual states. A schism was created in

the Institute which lasted from 1916 to 1936.

The Institute initially set high entry standards of examination and

experience which contrasted markedly with those of most of the licensing

states. Its membership was open to all qualified accountants and not restricted

to certified public accountants. State-licensed accountants objected to the entry

conditions. The conflict appears to have been between accountants in large, east

coast firms and those in small, provincial firms. In 1920, the leadership of the

Institute removed all professional designations from its membership records

(including that of certified public accountant).

Dissatisfaction reached a point at which a rival organization, the American

Society of Certified Public Accountants, was founded in 1921. Its founder

described accountancy not as a profession, but as a business of the very highest

type, thus emphasizing the economic nature of the professionalization process.

The Society’s initial objective was protection of the title certified public

accountant, and admission was based solely on the possession of this

certification.

Eventually, a dialogue commenced to restore professional unity, with

emphasis on admitting certified public accountants to the Institute, forming

state chapters of the Institute and creating greater uniformity in examinations.

The Institute and the Society merged in 1936 into the American Institute of

(later, Certified) Public Accountants, with a membership of only certified public

accountants and a uniform examination (adopted by all states in 1952).

What Carey describes as the “Great Schism” reflects the internal rivalry

generated by a combination of economics, professional status, national

differences and geographical allegiances. Such rivalry appeared in the UK

earlier than in the USA. In both countries, however, the battle was an economic

one to determine who was entitled to practice as an accountant. Of no lesser

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significance was the associated struggle to establish the right to regulate

accountants. In the UK the professional bodies established and maintained that

right. In the USA the main professional body has never attained such an

autonomous position because of state licensing.

In other words, in contrast to the USA, the early UK professional accountants

created an institutionalized environment separate from the state and were left to

self-regulate. Unlike the US experience, the British tendency was not to use

state-based higher education facilities to enhance professionalism. Only in

Scotland was this a significant policy, with provision for compulsory university

classes in law and the creation of part-time chairs of accountancy at Scottish

universities (filled by leading practitioners) (Brown, 1905b). These

developments were not followed in the larger English community, and it is

unsurprising to find less interaction between practice and academe in the early

history of the English bodies as compared to the Scottish and US situations.

Developing professionalism

The use of the journal (e.g. the Journal of Accountancy from 1905) was one

means of publicly signalling the knowledge base of accountancy, and the

intellectual leadership of the US profession (Carey, 1969; Previts and Merino,

1979). It was a strategy already in use in the UK with the The Accountant (1874)

and The Accountants’ Magazine (1897) (Brown, 1905b; Garrett, 1961; Howitt,

1966). These journals identified accounting, auditing, tax, legal and business

issues affecting professional accountants. They provided a means of publicizing

and criticizing the accountancy body of knowledge, and the élite accountants

developing and teaching it (Kitchen and Parker, 1980).

Other means of presenting the professionalism of accountants and their

institutions took a physical form. For example, early efforts were made in the

UK to found libraries as depositories of accountancy knowledge (Brown, 1905b;

Garrett, 1961; Howitt, 1966). Similar developments occurred during a later

period in the USA (Carey, 1969). In addition, consistent with more generalized

evidence of impression management by nineteenth and twentieth century

organizations (see Ewen, 1988; Featherstone, 1991; Harvey, 1989), the main UK

accountancy bodies acquired or erected magnificent buildings on key city sites

(Brown, 1905b; Garrett, 1961; Howitt, 1966; Macdonald, 1989). These events can

be characterized as part of the UK accountancy profession’s drive to

respectability and social standing. The histories of Carey (1969) and Previts and

Merino (1979) suggest this was not a priority of the early US accountancy

professionals.

The early accountancy profession extended its menu of services when

economic opportunities arose. Kedslie (1990) describes how early Scottish

chartered accountants developed a range of services beyond those existing at

the time of foundation, including accounting and auditing work for corporate

entities and municipalities. Hein (1978) documents accountants’ involvement in

periodic parliamentary reviews of UK corporate legislation. Winsbury (1977)

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documents work expansion in a large UK practice. Carey (1969) and Miranti

(1990) describe the US experience with audit, tax and advisory services.

The UK history of expanding professional accountancy services is

characterized by a long-standing and complex mutual economic and social

dependency which existed between accountants and lawyers, and a strained

relationship between accountants and the state (Bromwich and Hopwood, 1992;

Freedman and Power, 1992; Walker, 1988). The equivalent US situation has

permitted more harmonious and productive relations between the state and the

institutions of accountancy. However, the issues at stake in both the UK and the

USA have been identical. There was a desire by professional accountants to

secure the right to provide specific accountancy services, and a need to control

the debate on which standards to apply to such work.

Napier and Noke (1992) provide a history of this process in the UK. The first

part ranges from the late nineteenth century to the mid twentieth century, and

suggests restrained involvement by accountants. In particular, they appear to

have extended their political influence in corporate accounting and auditing

gradually, without explicitly lobbying legislators, and without writing practice

standards. This development seems to have been an extension of their

established work in bankruptcies and liquidations. They did not have to lobby

for new work, and operated in a relatively liberal and flexible environment

without explicit standards. This conclusion is consistent with the findings of

other historical researchers (Aranya, 1974; Edwards, 1976; Hein, 1978; Kitchen,

1982).

The second phase identified by Napier and Noke suggests a more proactive

role by accountants from the 1940s onwards. It followed legal cases dealing

with accounting and auditing failures and subsequent criticism, and reflects a

growing awareness by UK accountants that their economic self-interest was not

well served by ignoring their public interest responsibilities. As Nobes and

Parker (1984) demonstrate, the major professional bodies began writing

accounting and auditing standards – first as non-mandatory Recommendations

on Accounting Principles, then as required Statements of Standard Accounting

Practice. UK accountants had also influenced corporate legislation (e.g. by

evidence to company law reform committees) and, in the Companies Act 1948,

obtained a legal monopoly of corporate audit services.

Developing standards

The most recent history of UK professional accountancy standards is a cycle of

criticism of perceived accounting and auditing failures, public expectations of

accounting and auditing performance, extended prescriptions in standardsetting,

reduced public concerns, followed by further sustained criticism as a

result of new business failures (Lee, 1979; Mumford, 1979). The most significant

change over time has been the increased writing of accounting and auditing

standards by accountants (e.g. chronologically, by the Taxation and Research

Committee of the English Institute, then the Accounting Standards Steering

Committee and, most recently, the Accounting Standards Board). Thus, even

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though appropriate accounting and auditing practice is ultimately a matter to

be decided by lawyers in the UK, the precise practices used by accountants and

auditors have been historically determined within the accountancy profession.

The histories of researchers such as Carey (1969), Storey (1977), Previts and

Merino (1979), Zeff (1982a), Boockholdt (1983), Davidson and Anderson (1987),

and Miranti (1990) suggest a similar overall pattern in the USA, but with one

specific difference. The US change from laissez-faire to prescription of standards

took place earlier than in the UK as a result of the Great Depression. Following

a period of relative flexibility in and persistent criticism of accountancy

practice, leaders of the US profession realized it needed to control the debate

over generally accepted accounting principles. The evolution from

recommendation to mandate was from non-mandatory Accounting Research

Bulletins and Accounting Principles Board Opinions of the American Institute of

Certified Public Accountants to Statements of Financial Accounting Standards

of the Financial Accounting Standards Board.

Also relatively clear is the move from part-time professional committees (e.g.

the Committee on Accounting Procedure) to full-time, quasi-independent

boards (e.g. the Financial Accounting Standards Board). In this respect, the

state (represented by the Securities Exchange Commission from the early

1930s) usually left the accountancy profession to manage the standards process.

This may have been a legacy of the early relationships built between the

various institutions of US professional accountancy and legislators and

regulators, in which accountants demonstrated their willingness and

competence to institute quality standards. However, the US profession has not

had complete control over standards, and regulators have occasionally

criticized and intervened to assist in improving accounting and auditing

practices (Miller and Redding, 1988). Indeed, relationships between the

Securities Exchange Commission and the American Institute of Certified Public

Accountants have been far from harmonious in more recent times (Olson, 1982).

What the histories of UK and US standard-setting suggest is a delicate

process, managed by the professional accountancy bodies, of balancing

economic self-interest against public interest. Professional accountants have

persistently attempted to retain control over standards and standard-setting.

They have done so by maintaining a dialogue with the agents of the state

sufficient to give comfort to the latter that standards can be prescribed by

accountants in the public interest. In recent times, such comfort has been given

by separating the institutions of standard-setting from the professional bodies

(e.g. the Accounting Standards Board in the UK and the Financial Accounting

Standards Board in the USA). The issue at stake is an economic one. Loss of

control over standards suggests loss of control over the body of knowledge, and

loss of the body of knowledge brings into question the appropriateness of the

professional monopoly of service.

Contemporary researchers have focused on how the institutions of

professional accountancy have faced up to the issue of setting standards over

recent decades. For example, Richardson (1988) reports that US audit

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practitioners maximize their rewards by responding to politically sensitive

issues, and standardizing their practices in these areas. This suggests

professional accountants respond to issues only when they perceive an

economic incentive to do so. Byington and Sutton (1991) provide evidence

consistent with this observation. Identifying four events between 1938 and 1985

which threatened the autonomy of US professional accountants, they found

significant increases in published accounting and auditing standards in the

four years following each event.

In auditing, Humphrey et al. (1993) outline a history of accountants’

responses to the fraud detection expectation issue in which, while appearing to

accept more responsibility, they have reduced their role. Sikka et al. (1992)

conclude there was a late nineteenth century tendency by UK accountants and

lawyers to diminish the importance of fraud detection in auditing for economic

reasons, and a late twentieth century pressure by government to reverse that

position as a result of increased economic crime in the corporate sector.

Fogarty et al. (1991) describe the above institutionalized responses as a

complex strategy of doing “nothing”. It involves decoupling pronouncements of

ideal accountings and audits from corrective actions by responding to concerns

and maintaining the status quo so long as this is economically viable. Such a

strategy is a familiar feature of the history of the accountancy profession. For

example, in relation to the expectations gap debate over several decades,

Humphrey et al. (1992) identify the UK accountancy profession’s ability to

control and manage the debate in order to maintain the status quo regarding the

role of the auditor. Controlling the debate reaffirmed accountants’ professionalism,

but deflected attention from auditors towards the limitations of the

proposed reforms.

Fogarty et al. (1991) confirm this strategy in a wider historical context of the

US accountancy profession. They examined several responses to such pressure,

including the lack of clarification of fraud detection duties; increased

competition for audit services; diversification to non-attest services; demands

for legal reform to reduce liability costs; cost containment measures to reduce

audit time; expectations gap projects; and failures to develop better accounting

and auditing practices, discipline deviant accountants, issue qualified audit

opinions and improve quality control procedures. Fogarty et al. further argue

that these responses to criticism make good economic sense so long as it is

viable for professional accountants to absorb liability losses without changing

the nature of the audit. The strategy of doing “nothing” also can be argued to

have political as well as economic benefits for the accountancy profession.

Power (1993a, 1993b) states that UK standard-setters have for some time

adopted a political approach to issues which is cosmetic in substance and rich

in form. In particular, he perceives the UK profession defining issues, setting up

institutional structures to respond, and issuing standards or guidance to

practitioners which maintain a zone of discretion for the practitioner.

Doing “nothing” has been revealed in other ways by historians. Fogarty et al.

(1993) evidence the history of a US state accounting society’s failure to respond

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to reported accounting errors by its members because there was no economic

incentive to expose its members. Parker (1994) analyses published disciplinary

cases in the Australian accountancy profession over three decades and, with

evidence of few exclusions from membership, concludes that the economic selfinterest

of accountants dominates their duty to the public interest. Sikka et al.

(1989) recount a documented situation in which a major UK professional

accountancy body prevented individual external scrutiny of its standardsetting

process, yet allowed access by a large professional accountancy firm.

Each of the above studies provides evidence of the behaviour of professional

accountants when under pressure to respond to issues. They reveal the

difficulty of being a professional with an explicit covenant to serve the public

interest in situations where there are considerable economic incentives to adhere

to self-interest. The interesting feature of this analysis is that the conflict is

positioned at the institutional level. The professionalization of accountancy has

provided institutional structures to permit accountants to maximize their selfinterest

in a publicly interested way. Davis and Strawser (1993) give a

researched example of this situation. They observe the profession’s historical

involvement in the debate over accounting for inventory, and the eventual

domination of individual client interests over the public interest. The broader

studies by Briloff (1990) and Mitchell and Sikka (1993) of recent histories of

accounting and auditing failures come to a similar conclusion. Client interests

supersede the public interest, thus leading to concerns that the accountancy

profession fails to make the powerful accountable, and itself remains

unaccountable.

Body of knowledge

Evident in the USA over several decades since the 1960s and, more recently in

the UK, is the accountancy profession’s desire to find an intellectual basis for its

practices. Using Zeff’s (1984) chronology, it is clear the US institutionalized

search started with the 1938 study of Sanders, Hatfield and Moore, and the 1940

study of Paton and Littleton. Both studies rationalized conventional practice.

The 1961 and 1962 studies of Moonitz and Sprouse, however, challenged the

status quo, evoked considerable opposition and were quickly shelved (Zeff,

1982b). The issue was not revisited until a 1970 study on concepts and

principles and the 1973 Trueblood Report. The former pronounced on

conventional practice. The latter provided a conceptual framework for

accounting change. It was later developed by the Financial Accounting

Standards Board into a series of conceptual statements.

A similar and later sequence of events occurred in the UK (Archer, 1992;

Peasnell, 1982). A conceptual framework study was published in 1975, shelved

for more than 15 years, and reappeared in the 1991 conceptual proposals of the

Accounting Standards Board. Despite this continuous effort in the UK and USA

to expose a theoretical body of knowledge, there is a consistent view from

researchers that it has not changed the nature of accounting practice (Archer,

1992; Hines, 1989; Peasnell, 1982). The historian is left with the distinct

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impression that, if practice has not changed, the conceptual framework project’s

purpose is something other than for improving practice. Perhaps, as suggested

by Hines (1989), its presence is no more than an historical ploy to demonstrate

the existence of a body of knowledge sufficient to maintain accountants’

professional status and economic monopoly.

Further developments

Langenderfer (1987) discusses the historical attempts of US accountants to

legitimize accountancy education. This process initially concerned the

institution of university degree-based studies in the early 1900s (Carey, 1969;

Previts and Merino, 1979), and contrasts with the traditional UK method of

part-time non-university study within an apprenticeship system. Only recently

has the US system been introduced to the UK. In both countries, however,

university courses are now subject to accreditation procedures by peer review.

In addition, expected qualifications for academic and student accountants have

become more rigorous. The nature of the academic accountancy community has

changed also, from practice-based teaching by part-time practitioner/educators

to a profession of full-time teachers and researchers. These changes have

enhanced the professional status of accountancy. But they have also created

schisms in the accountancy community concerning the relevance of both

teaching and research, and raised questions regarding the status of

accountancy as a profession (Bricker and Previts, 1990; Lee, 1989; Lee, 1995;

Strait and Bull, 1992; Zeff, 1989). Not only is the public interest potentially at

risk with a divided accountancy profession, but so too is the latter’s economic

wellbeing when the credibility of its body of knowledge and educators are

doubted.

Change has also been a feature of the institutional and organizational

framework of the accountancy profession. Renshall (1984) provides a UK

analysis, while Wootton and Wolk (1992) give a US perspective (see also Carey,

1969, 1970; Olson, 1982; Previts and Merino, 1979). These analyses demonstrate

considerable change in the profession’s structure. Over many decades, there has

been a significant increase in the number of professional accountants and

students, coupled with a continuous consolidation of practice firms and

institutional bodies (e.g. Winsbury, 1977). Accountancy has become a

multinational activity and an important part of private enterprise economics in

the UK and USA. The range of professional services has extended beyond the

traditional areas of accounting, auditing and taxation. The profession’s

relationship with government has been continuous and increasingly significant.

But growth and change have brought attendant problems. In combination,

they raise the question of whether contemporary accountants are professionals

or business executives (Dyckman, 1974; Zeff, 1987). Dyckman’s concerns

include the self-interest of professional accountants dominating their public

interest commitment, lack of effective response to criticisms of practice by

professional bodies, inability to find an acceptable theoretical foundation to

accountancy practices, and failure to punish accountants who have breached

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ethical standards. Zeff’s comments are similar, concentrating on the issues of

accountants responding to competitive pressures by treating management

rather than ownership as the client, offering a wide range of non-accounting

business services, and lacking intellectual leadership on accounting and

auditing problems. More recently, the Chief Accountant of the Securities

Exchange Commission has accused professional accountancy firms of being

cheer-leaders for their clients’ managements (Schuetze, 1994). According to its

critics, therefore, what has happened to the accountancy profession is a loss of

its sense of public mission, making it indistinguishable from any other form of

profit-based business. Indeed, approximately one hundred years after its

foundation, the American Institute of Certified Public Accountants was

prompted in the 1980s to amend its statement of mission to make explicit its

commitment to the public interest. But, as the previous analysis makes clear, the

public mission of accountants has always been a smokescreen for economic

matters.

Savings and loan bank failures in the USA have been linked with perceived

failures in accounting and auditing services (Briloff, 1990). A similar

phenomenon exists in the UK with respect to corporate disasters such as

British Bank of Credit and Commerce International, and Maxwell

Communications (Mitchell et al., 1991). Law suits, public scrutiny and press

comment, as well as large court awards or out-of-court settlements, have

become familiar features of accountancy life. The economic size of the problem

is seen in a statement from the largest US audit firms describing their large

economic influence on US industry, and the significant economic consequences

of a perceived unfair litigation system (Cook et al., 1992). Although it is argued

that this problem is facing all professions, its impact on accountancy is stated

to have created a crisis of economic survival for the profession.

Such a crisis has been exacerbated in very recent times in the USA as a result

of a number of institutional responses to the self-interest versus public duty

dilemma. First, in response to the charge of the audit client being perceived as

management rather than ownership, the American Institute of Certified Public

Accountants’ Public Oversight Board (AICPA, 1994) effectively denies it. In

doing so, however, the Board suggests various ways of enhancing the

professionalism of auditors, including a need for the auditor to view the board

of directors as the client. Indeed, much of the Board’s report appears to be a

vindication of the professional accountant’s duty to act in the public interest.

But there are also signs within it of the persistent conflict with economic selfinterest.

In particular, the Board argues that decreasing auditor exposure to

unwarranted litigation should be a leadership issue taken on by the Securities

Exchange Commission to protect the investing public.

Meantime, professional accountancy firms and institutions in the USA have

been hard at work to provide for economic protection. In 1994, it was reported

that practising as a limited liability partnership is possible in about half the

states in the USA, and that about 5 per cent of the largest firms were doing so

by the end of 1993 (Bowman, 1994). Provision for audit firms to incorporate

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with limited liability is possible in the European Union, and is being considered

by certain of the largest firms in the UK as a means of minimizing litigation

effects (Fleck and Foster, 1992). Additionally, in 1994, the American Institute of

Certified Public Accountants overwhelmingly voted to permit non-accountancy

ownership interests in accountancy firms, paving the way for state legislation

to create diversified business practices in the USA (Public Accounting Report,

1994). The 1980s strategy of doing “nothing” is arguably being replaced by a

1990s strategy of doing “something”. As with “nothing”, the “something”

appears to be motivated by economic rather than societal considerations.

Retrospect and prospect

The history of professional accountancy is relatively recent in the context of the

existence of accountants and auditors. It is an economic text with a public

interest cover. Originally written in the mid nineteenth century, it has been

reworded on numerous occasions without changing the underlying emphasis.

The fundamental influence driving professionalization throughout its entire

history has been economics. Professional accountants came together to provide

an institutional structure to protect a threatened economic monopoly. The

process has repeated over several decades, with the institutional structure

elaborated to maintain and expand service monopolies. Professional rivals were

defeated or eventually absorbed by merger, and successful and unsuccessful

attempts were made to obtain a state monopoly by registration. A strategy of

using explicit signals of professionalism was practised, and the range of

services increased. The size of the profession grew, accompanied by a

concentration of practice units and institutional organizations.

The accountancy profession developed over relatively few decades into a

powerful sector of the modern economy. But this progression has not been free

of major problems. The most significant issue is the persistent public criticism

of accountants and their services. Of concern is the association of accountancy

with business failure, and the apparent inability of accountants to assist in the

accountability process to protect the public interest.

Criticism originated before professionalization as a public concern about the

ability of public accountants to discharge legally-based responsibilities

effectively, and evolved over many decades into a concern about the flexibility

of accounting practices and the inadequacy of audit procedures. Today,

criticism involves doubts about the ability of accountants to resist managerial

pressures to misreport. These criticisms have been externalized through the

financial press, forcing the institutions of accountancy to respond more

publicly. They have done so with two effects. The first is a gradual exposure of

the accountancy body of knowledge through conceptual statements, standards

and guidance recommendations. Explicit signals of the knowledge underlying

practice have removed some of the mystique of accountancy, and made it easier

for non-accountants to criticize practice. The second effect has been the

institutional adoption of a strategy of doing “nothing”, in which issues are

responded to without altering the status quo of accountancy practice.

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The combination of these effects ensures the accountancy profession

continues to face the fundamental issue of whether accountants wish to be

professionals or members of trade associations. The explicit covenant to protect

the public interest has to be taken seriously, perhaps for the first time in the

history of the accountancy profession. It can no longer be taken as a

legitimizing ticket to provide a range of services without public accountability

but with significant economic and social rewards. Instead, accountancy has to

be regarded as a vocation, in which service for a designated client also involves

duties to a wider public, and where failure to satisfy these duties results in

public accountability and punishment. These are issues which require public

debate at a time when the global economy and technological change are

providing professional accountants with unparalleled economic opportunities.

In taking advantage of the latter, the need to protect the public interest must not

be forgotten or neglected.

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