Burgess COMMENTARY

Peter Burgess

Accounting for the Journals First 100 Years: A Timeline From 1905 to 2005 The century of American accounting the Journal of Accountancy has recorded so far has seen the growth of regulations, organizations and technological innovations. In contrast, during the previous 100 years, accounting and auditing practices developed in the near absence of authoritative requirements. The federal government in particular had relatively few programs or laws requiring accountants’ involvement, there were very few professional accounting organizations, and most new technology affected areas outside accounting. As the timeline demonstrates, the years from 1905 to 2005 were filled with new activity in these areas. The AICPA has had different names over the past century. For simplicity’s sake, it is here often called “the Institute.” Stephanie Moussalli, PhD, is an assistant professor of accounting at Nicholls State University in Thibodaux, La. 1905 The Journal of Accountancy’ s first issue appears, based on an earlier journal of the Illinois Society of CPAs, The Auditor. The Interstate Commerce Commission (created in 1887) seeks to set up a uniform system of accounting for the railroads. 1906 The U.S. Census Bureau calls a conference on uniform municipal accounting that adopts a tentative schedule of standard accounts. A committee of the American Association of Public Accountants (the AAPA—a predecessor of the AICPA) is appointed to help the federal Keep Commission introduce business methods into government, an important Progressive Era goal. This is an early instance of the federal government’s use of professional accountants as official advisers. The AAPA forms a committee to create ethics standards for members. 1909 A federal excise tax is levied on corporations. Charles Kettering invents an accounting machine for the National Cash Register Co. 1913 The 16th Amendment to the U.S. Constitution is ratified, permitting a federal income tax. The Federal Reserve Act passes, establishing the Federal Reserve Board. 1914 The Clayton Antitrust Act passes, creating the Federal Trade Commission. The FTC puts increased government focus on private sector audits and reporting and promotes official standards and independent audits. 1916 The American Association of University Instructors in Accounting is founded (and renamed the American Accounting Association in 1935). The AAPA changes its name to the American Institute of Accountants (AIA). In reorganizing, the group rejects the move toward federal licensing of accountants. 1917 “Uniform Accounting,” a project spearheaded by the AIA and published in the Federal Reserve Bulletin , is the first guidance promulgated by any professional accounting body. The AIA’s governing council approves eight rules of professional conduct and a model CPA law. The AIA offers state accountancy boards a written examination for use in testing entrants to the profession. 1919 The National Association of Cost Accountants, the predecessor of today’s Institute of Management Accountants (IMA), is formed. Early 1920s The AIA, under some pressure from the Treasury Department, bans contingent fees and most advertising. 1921 John Cromwell, a New Hampshire accountant, becomes the first black CPA. With the passage of CPA legislation in New Mexico, all states in the union at that time now have such laws. The American Society of Certified Public Accountants is founded. The ASCPA tries to stop the sale of CPA credentials and is oriented to state-level authority and multiple accounting services, while the AIA focuses on national authority and has an East Coast and auditing orientation. The two organizations ultimately merge in 1936. The federal Budget and Accounting Act passes, creating the General Accounting Office (today called the Government Accountability Office) and the Office of Management and Budget. 1922 Beta Alpha Psi, the student accounting honor society, is formed. 1924 The federal Board of Tax Appeals is created as an entity independent of the Treasury Department. 1928 IBM introduces the 80-column, machine-readable punched card that will be in standard use for the next half-century, handling a wide range of accounting operations. 1929 The stock market crashes. The Great Depression begins. Over the next four years, U.S. industrial production plunges by 50%, the money stock drops by 28% and the number of banks falls by 25%. 1931 The Ultramares case defines accountants’ liability in cases of negligence and fraud. It opens the door for shareholder lawsuits by upsetting the widely accepted idea that accountants could be held liable for negligence only by those with whom they had a contractual relationship. 1932 Ivar Kreuger, the “Match King”—an influential proponent of financial secrecy for corporations—dies and his pyramid stock swindle is uncovered. His securities were the most widely held in the world; his company’s bankruptcy becomes the biggest to date. The New York Stock Exchange requires its listed companies to have audits. 1933–34 The American Woman’s Society of CPAs is founded. A survey finds there are 105 female CPAs. The New Deal creates extensive new banking regulations and federal programs requiring accounting oversight. The Securities Act of 1933 and the Securities and Exchange Act of 1934 pass. The Securities and Exchange Commission is created to regulate financial markets. Carman Blough is appointed SEC chief accountant. Leading accountants successfully oppose proposals for the government to oversee business directly or conduct audits of public companies. Instead, the new laws require independent audits but also limit accountants’ control over accounting standards. 1934 The New York Stock Exchange requests the AIA’s advice on financial statement formats. The National Committee on Municipal Accounting is organized to develop integrated accounting and reporting standards for state and local governments. 1936 The phrase “generally accepted accounting principles” is first used in an AIA report, “Examination of Financial Statements.” 1938 The Institute Committee on Accounting Procedure (CAP) effectively becomes the first U.S. accounting standard-setting body for the private sector. 1939 The SEC’s highly publicized investigation of the McKesson & Robbins fraud discovers the auditors had not confirmed accounts receivable or verified the existence of inventory. In response, the AIA sets up a standing committee to issue pronouncements on generally accepted auditing standards. The AIA’s Committee on Accounting Procedure publishes the first Accounting Research Bulletin. Iowa professor John Atanasoff designs the first working model of an electronic digital computer, using vacuum tubes. 1940 The American Accounting Association publishes William Paton and A. C. Littleton’s Introduction to Corporate Accounting Standards, which defends and establishes historical cost valuation and the matching principles in accounting literature. 1941 The Institute of Internal Auditors is founded. 1941–45 IBM produces more than 5,000 accounting machines used in Washington and overseas for military logistics. The United States begins income tax withholding. IBM creates the W-2 form and the equipment to track withheld taxes. Wartime wage and price controls are imposed, requiring extensive cost calculations. An excess profits tax with a marginal rate of 93% is levied. The individual income tax changes from a “class tax” to a “mass tax.” The accounting profession thrives. In 1940 there is one professional accountant for every 406 U.S. workers; by 1950 there is one for every 283 workers. 1945 The GAO establishes the Corporate Audits Division to oversee government audits and names CPA T. Coleman Andrews as its first head. 1948 The National Committee on Municipal Accounting is reactivated, is renamed the National Committee on Governmental Accounting, and publishes 18 pronouncements on state and local accounting over the next 20 years. 1948–51 The first fully electronic stored-program computers—true computers in today’s terms—are set up in England. Soon afterwards, America’s first commercial computer, UNIVAC 1, is delivered to the Census Bureau. Very large corporations also use UNIVAC 1, which can perform 2,000 calculations per second. 1950 The Accounting Hall of Fame is established at The Ohio State University. 1953 The CAP publishes the first codification of GAAP in Accounting Research Bulletin no. 43. T. Coleman Andrews becomes the first CPA to head the Internal Revenue Service. Mid-1950s Arthur Andersen designs and installs a computer-controlled payroll system for General Electric, one of the first business systems applications of a computer. GE creates ERMA, Electronic Recording Machine Accounting, for the Bank of America, a major accounting improvement for the banking world. 1956 The Commission on Standards of Education and Experience for CPAs issues the Perry Report, which recommends a five-year professional accounting degree as qualification to become a CPA. 1957 The American Institute of Accountants renames itself the American Institute of Certified Public Accountants. 1959 The Accounting Principles Board replaces the CAP as the Institute’s authoritative financial accounting body. The Special Coordinating Committee to Study the Report of the AICPA Commission on Standards of Education and Experience for CPAs recommends a postbaccalaureate (five-year) education requirement for the CPA certificate. This recommendation is subsequently endorsed by the AICPA council. 1962 APB Opinion no. 2 is issued to defer the new investment tax credit’s effects on income statements. Corporate managers, the Treasury Department and many congressional representatives overwhelmingly oppose it and, in 1964, the SEC declares companies need not implement it. 1965 Congress passes a law allowing CPAs to represent clients before the IRS. Congress creates Medicare and many other Great Society programs involving very complex cost allocations. The accounting profession continues to thrive; there is one professional accountant for every 294 American workers in 1960, but by 1970, there is one for every 197 workers. The American Accounting Association (AAA) recommends accounting professors have doctorates. 1966 The AAA issues A Statement of Basic Accounting Theory (ASOBAT) , which proposes evaluating accounting information based on its relevance, verifiability, freedom from bias and measurability, and says such information should be oriented to the user. 1967 The AICPA and the Carnegie Corp. issue Horizons for a Profession, which recommends a common body of knowledge for accounting students and a five-year education requirement. The Department of Defense creates ARPANET, eventually linking computers across the country and leading ultimately to the creation of the Internet. 1968 The Tax Reform Act of 1968 changes the focus of the income tax from economic incentives to social objectives. The National Committee on Governmental Accounting publishes authoritative GAAP for state and local governments: GAAFR (governmental accounting, auditing and financial reporting). 1969 The National Association of Black Accountants is organized in New York City. 1970 The Penn Central Railroad experiences the largest bankruptcy to date. The AICPA issues Statement of Auditing Procedures no. 49, requiring auditors to report on internal controls. The Accounting Principles Board issues Opinion nos. 16 and 17 on accounting for business combinations and goodwill. These prove so controversial that three of the Big Eight firms notify the AICPA they have lost confidence in the APB. 1971 The American Accounting Association calls for an alternative to the Accounting Principles Board. 1972 The AICPA endorses its Wheat committee’s (Report of the Study Group on the Establishment of Accounting Principles) call for an alternative to the APB. The GAO publishes Government Auditing Standards (the “Yellow Book”). The AICPA rescinds its ban on advertising. 1973 The Financial Accounting Standards Board replaces the APB. The International Accounting Standards Committee is formed. (It is renamed the International Accounting Standards Board in 2001). The AICPA publishes the Trueblood committee report, Objectives of Financial Statements, which says providing corporate information to outside users is the primary purpose of financial reports. Equity Funding collapses and its massive computer-based fraud is discovered. As a result, auditors may no longer “audit around the computer.” 1974 AICPA appoints the Commission on Auditors’ Responsibilities (the Cohen commission) in response to the Equity Funding and other scandals. The Cohen report concludes, in 1978, that there is an “expectations gap” between what auditors do and what the public expects of them. 1975–78 The first widely used PCs appear: the MITS Altair 8800, followed by the Apple and Apple II. 1976 Congress’s Moss and Metcalf committees conclude their wide-ranging investigation of accounting and auditing. They recommend increased federal regulation of the profession and a government takeover of private sector standard setting. 1977 The Foreign Corrupt Practices Act forbids American companies to bribe any officials of foreign governments and requires that corporations keep extensive records of transactions for disclosure purposes. The AICPA creates an SEC Practice Section and a Private Companies Practice Section, both of which implement self-regulation, including peer review and quality control. Soon, the Public Oversight Board is set up to oversee the SEC Practice Section. The International Federation of Accountants is formed. 1978 The SEC’s Accounting Series Release 250 compels companies to disclose the ratio of nonaudit to audit fees. The next year, ASR 264 attempts to restrain the provision of nonaudit services to audit clients. Both are later rescinded. 1979 The Federal Trade Commission and the Department of Justice ask the AICPA to revise its Code of Conduct by ending its ban on direct uninvited solicitation, arguing the ban is a restraint on trade. SSARS no. 1, the first statement on standards for accounting and review services, defines reviews and compilations and prescribes the form of reports to be issued. VisiCalc, the first electronic spreadsheet software, is introduced. 1982–83 Lotus 1-2-3 revolutionizes accounting for small and midsize businesses. 1984 The Single Audit Act requires a comprehensive single audit for state and local governments receiving federal money. The AICPA and the National Association of State Boards of Accountancy publish the first joint model bill to regulate the practice of public accounting, later known as the Uniform Accountancy Act. The Governmental Accounting Standards Board replaces the National Council on Governmental Accounting. 1985–88 After the gigantic collapse of the savings and loan industry, Rep. John Dingell (D.–Mich.) holds a series of hearings investigating whether the government should take over the issuance of accounting standards and oversight of auditors. 1986 The Tax Reform Act of 1986, one of the most far-reaching reforms of the U.S. tax system since the inception of the income tax, is signed into law. The Anderson committee issues its report, Restructuring Professional Standards to Achieve Professional Excellence in a Changing Environment, in response to concerns over the profession’s ability to serve the public interest and retain public confidence. The American Accounting Association publishes the Bedford Report, which is critical of accounting education. 1987 The AICPA celebrates its 100th anniversary. The Journal of Accountancy issues a special AICPA centennial issue in May. As part of the Plan to Restructure Professional Standards, Institute members vote to amend the bylaws to require, among other changes, that all members who audit publicly traded companies work for a firm that is a member of the SEC Practice Section. The National Commission on Fraudulent Financial Reporting (popularly known as the Treadway commission) reports on how fraudulent financial management can be reduced and how auditors can reduce the “expectations gap” between themselves and the public. The AICPA introduces the Personal Financial Specialist credential. 1988 The AICPA approves the requirement of 150 hours of education for new members after 2000. Members approve the AICPA bylaw that makes the existing voluntary peer review program mandatory. 1990 The Federal Accounting Standards Advisory Board is created. In 1999 the AICPA council will recognize the FASAB as a body entitled to establish GAAP standards for federal government entities. 1991 The World Wide Web is launched. 1994 The AICPA Special Committee on Financial Reporting (the Jenkins committee) proposes a business reporting model. 1995 The Institute launches the CPA Vision Project, a grassroots initiative to define the future of the profession. 1996 For the first time, more AICPA members are employed in industry than in public accounting firms. 1997 The AICPA offers the first exam for its Accredited in Business Valuation credential. 2000 The AICPA introduces the Certified Information Technology Professional designation. 2001 Enron restates its earnings back to 1997 and files for bankruptcy protection. The firm of Arthur Andersen will collapse due to its association with Enron. A verdict of obstruction of justice against the firm is overturned in 2005 by the U.S. Supreme Court. 2002 WorldCom’s accounting fraud is discovered, and the company files for bankruptcy protection. The Sarbanes-Oxley Act is passed. Among other changes, it creates the Public Company Accounting Oversight Board to set public company auditing standards. 2004 The PCAOB issues its first auditing standards for public companies. A new computerized Uniform CPA Examination, focused more on research skills and problem solving, replaces the paper-and-pencil version. FASB amends Statement no. 123 on compensatory stock options to eliminate alternatives to expensing the options and to bring American rules closer to international accounting standards. 2005 The Journal of Accountancy begins its second century. What will it record about the profession in the next 100 years?