Professionalization of Accountancy

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The professionalization ofaccountancy

A history of protecting the publicinterest in a self-interested way

Tom LeeThe University of A labama,T uscaloosa, Alabama, USA

IntroductionAccountants and the institutions of accountancy are subject to increasingpublic scrutiny. Recent research suggests the typical strategy of response tocriticism adheres more to the economic self-interest of accountants than theirduty to protect a public interest. This article reviews the UK and US histories ofaccountancy professionalization, and identifies the early origins of the strategy.

The analysis suggests accountants use the public interest argumentcontinuously 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 defendingprofessionalization; and a retrospect and prospect. The methodology is a

traditional one in historical studies of explained narrative using secondarysources (Previtset al., 1990).

Nature and history of professionalizationBefore proceeding to a history of the UK and US accountancy profession, thissection outlines briefly the nature and history of professions and, in particular,distinguishes professional activities from other occupations. The review comesfrom 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 thepublic interest, and who offer client services related directly to an intellectually-

based body of knowledge. Professions emerged as institutionalized occupations

This article provides a broad review of the history of professional accountancy in the UK and theUSA. 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 ofEdinburgh and Dick Fleischman of John Carroll University commented on earlier drafts of thearticle and improved its focus. The content has been further enhanced by the comments of twoanonymous referees.

Accounting, Auditing &Accountability Journal, Vol. 8No. 4, 1995, pp. 48-69. MCBUniversity Press, 0951-3574


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in a Victorian Britain coping with economic and social changes such aspopulation shifts, industrialization of commerce and trade, decline of the churchand involvement of the state in matters of poverty, health and education (see,e.g. Smout, 1986). Organized professions were means by which the middle classexercised cultural control and established its social status (Bledstein, 1976). Theprofessional was perceived as an independent and knowledgeable practitionerwith 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 economicview of the role of professionals. In this perspective, they are perceived asorganizing to gain market control of an occupational service by means ofmonopolistic exclusion of individuals deemed unworthy or unqualified toprovide it (Larson, 1977). Professionals create explicit mechanisms tooperationalize this strategy, including entry prerequisites, institutionalizedprogrammes of academic education and work-related training and experience.Unless an individual satisfies these criteria, professional membership isimpossible and certain service opportunities denied. The professionalmonopoly is established when the state grants exclusive rights of service onlyto certified professionals. Each of these features is evident in the formation anddevelopment of the accountancy profession.

Birth of professionalization

A small number of eighteenth century accountants were the forerunners of theindividuals who formed the first professional society of accountants in Scotlandin 1853 (Brown, 1905a). Other researchers identify innovative accountants inScotland and England before and during the Industrial Revolution (e.g.Baladouni, 1986; Burley, 1958; Edwards and Newell, 1991; Fleischman andParker, 1990; Forrester, 1980; McKendrick, 1970; Robertson, 1970, 1984;Solomons, 1952; Stone, 1973; Walsh and Stewart, 1993). The stage was clearlyset in the UK for a formal professionalization process to start in the mid to late1800s.This raises an interesting question. Given the prior history of accountancy

and accountants, why did a very small group of mid nineteenth centuryScottish accountants in public practice feel compelled to organize in

institutional form? A typical response is that professionalization was a naturalconsequence of the economic and organizational changes of the IndustrialRevolution (e.g. Garrett, 1961; Howitt, 1966; Kedslie, 1990; Miranti, 1990;Stewart, 1977). More detailed analyses and arguments, however, suggest a morecomplex rationale. For example, in addition to the industrialization argument,Stewart (1977) suggests Scottish professionalization was a response tocompetitive pressures and a need to provide a unified view on accountancymatters. Brown (1905b) states Edinburgh accountants made severalunsuccessful attempts to provide this unification prior to 1853. However, in


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1853 they were successful and formed The Society of Accountants inEdinburgh, with a royal charter following in 1854.

Brown makes no suggestions regarding the reasons for professionalization inEdinburgh, but Kedslie (1990), Macdonald (1985), Parker (1986) and Walker(1988) argue a catalyst was a proposed change in bankruptcy law which wouldhave allowed lawyers to undertake work then dominated by Scottishaccountants. Thus, at least one major reason for professionalization waseconomic in nature, and consistent with the suggestion of Stewart thataccountants were reacting to competitive pressures. The possibility also existsof 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 suchmatters (Brown, 1905a; Kedslie, 1990; Macdonald, 1985; Parker, 1986; Walker,1988). Walker (1988 and 1993) also provides evidence that voluntaryinsolvencies and judicial factories were important parts of public accountancypractice 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 accountingor commercial auditing.

The conventional evidence of accounting history therefore suggests theexistence of a small but growing public accountancy community in Scotland by

the mid 1800s. Members of this community are portrayed as facing a potentialeconomic threat because of proposed bankruptcy law changes. Unsurprisingly,they are perceived as reacting to protect their economic self-interest. They aredescribed as organizing to form institutions which justified the term profession,thus mimicking previously-established bodies in other areas such as law andmedicine (Kedslie, 1990; Walker, 1988). More specifically, as Brown (1905b)documents, 61 Edinburgh accountants petitioned Queen Victoria in 1853 toform The Society of Accountants in Edinburgh. The petition pointed out thepublic interest focus of the proposed organization. Accountants were stated toneed to unite into one body to ensure their legal and actuarial work wascompleted by appropriately qualified individuals for the benefit of the public. AGlasgow body was chartered in 1855 on petition by 49 accountants, who alsoadopted an actuarial and legal basis to their argument to protect the publicinterest (Brown, 1905b). Once formed, the two Scottish bodies proceeded toresist the proposed bankruptcy laws and ensure the continuing employment ofaccountants in such work (Brown, 1905b; Walker, 1995b).

Evidence of the origins of accountancy professionalization in Scotland isreassessed by Walker (1995). In a study of a mix of economic, political andsocial factors at work in mid nineteenth century Scotland, an alternativeexplanation is provided which, nevertheless, is consistent with previoushistories. As in other studies (e.g. Kedslie, 1990), the impetus for professionalorganization 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 proposalto base Scottish insolvency practice on English legal provisions which requiredlawyers, rather than accountants, to act as administrators. The practical reasonfor the proposal was an English concern about the effectiveness of Scottishbankruptcy law, and its economically damaging effects on English businessestrading in Scotland. The intellectual argument for reform was related to thecase for improving free trade. Scottish accountants in public practice organizedin Edinburgh to defeat the threat. They not only organized, but presented theircase in the context of a prevailing Scottish nationalism. They initiated a debateto obtain public support, convincing senior members of the Scottish legalprofession and Scottish Members of Parliament that the English proposal to

reform should be resisted. This was successfully accomplished between 1854and 1856.

Establishing and defending the professionWhat the above brief analysis reveals is evidence of an organized professioncreated to provide market control of accountancy services. It is consistent withthe professionalization model of Larson (1977). In particular, the Scottishaccountancy bodies sought legitimacy in royal charters. The primarysignificance of this was the creation of institutions with royal permission to self-regulate professional accountancy, and to describe their members as charteredaccountants. Brown (1905b) points out the immediate use of this designationfollowing formation. It was a deliberate act to publicly separate chartered

accountants from other accountants, provide a basis for public confidence in thework of chartered accountants, and stimulate demand for their accountancyservices.

Both Walker (1988) and Kedslie (1990) provide evidence of the strengtheningof the Scottish professionalization process by entry, education, examination andtraining requirements. These provisions had the dual effect of explicitlyrevealing professional accountancy as a learned occupation with highstandards, and also restricting the number of institutionalized members. Thenature of these requirements has been researched by Walker (1988) whodemonstrates that early accountancy professionalization in Scotland wasalmost exclusively middle class, and associated through family, friendship andclient relations with lawyers and landed gentry.

A similar sequence of professionalization occurred in England, with theformation of local societies of accountants in the 1870s (Brown, 1905c; Howitt,1966). Unlike the Scottish formation, however, the English movement appearsto have been little more than a series of copy-cat events as local accountantssought the credibility and authority of Scottish chartered accountants. It has tobe presumed such credibility had positive economic benefits. In addition,English professionalization was initially characterized by competitive disputesbetween London-based bodies and those in other regions. These disputes wereconcerned with litism and the concentration of power and influence inaccountancy matters by accountants working in London firms. To portray


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public unity on accountancy matters, however, talks quickly took place tomerge five English bodies into The Institute of Chartered Accountants inEngland and Wales in 1880. According to Howitt (1966), the Institute proceededquickly to impose standards of entry, examination and training, and wasinvolved in influencing changes in law relating to accounting for bankruptciesand municipal auditing.

Internal r ivalr iesHowever, all was not well with UK accountancy. Garrett (1961) describes thefounding of The Society of Incorporated Accountants in England in 1885. Itwas licensed by the Board of Trade as a competitive response to the conditions

of entry imposed by The Institute of Chartered Accountants in England andWales. Of particular concern were the Institutes requirement of anapprenticeship system, and the restricting of the activities of its members tothose of public accountancy. In contrast, Society membership was UK-widewith regional organizations and members in both public and private sectors ofthe economy. An examination system was initiated, and specific professionaldesignations agreed. There also appears to have been a desire that the Societyinfluence 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 post-foundation 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 wereregarded as lite (Brown, 1905d), and their institutions co-operated in variousways. For example, the Scottish bodies adopted similar entry and trainingrequirements, formed a joint national examination system in 1893, consultedover responses to proposed bankruptcy and corporate legislation, issued anational directory of chartered accountants in 1896, published a joint journal(T he Accountant s Magazine) in 1897, arranged joint lecture courses, hadsimilar student societies and writtenTransactionsof proceedings, and mergedin 1951 (Brown, 1905b; Kedslie, 1990).

However, creating and maintaining a profession was not an easy task for UKaccountants. Several writers comment on attempts by Scottish and Englishaccountancy bodies to obtain statutory registration of the title of professionalaccountant (e.g. Garrett, 1961; Howitt, 1966; Kedslie, 1990; Macdonald, 1985;Walker, 1991). A variety of reasons combined to create rivalry in accountancyover a period of more than 50 years. These reasons include a proliferation ofbodies serving different membership needs and occupying traditionallycompetitive geographical locations, the specific use of the title charteredaccountant by members of the chartered bodies to create exclusiveness andeconomic benefit, and the organizational aggressiveness of latecomers to theprofessional accountancy market.

Statutory registration of suitably qualified individuals to practiceaccountancy 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 arestricted number of accountants. Many registration attempts in the form ofparliamentary bills were made by chartered and incorporated bodies. All failedfor various reasons, not least of which was an underlying rivalry between theScottish and English chartered bodies concerning their geographical

jurisdictions (Macdonald, 1985). In addition, the Scottish chartered bodiessuccessfully used the court system to defend their right to the exclusive use ofthe invented and abbreviated title C.A. when that was challenged by two non-chartered bodies in the period 1854 to 1914 (Walker, 1991). The chartered bodiesargued that their professional monopoly provided a higher value of service

because of the competence of their members, and that competition devalued thechartered accountant designation. Scottish chartered accountants such asMarwick, Touche, and Niven, together with a number of English colleaguessuch as Guthrie, used this argument when emigrating to the USA and helpingto found its accountancy profession (Brown, 1905e; Carey, 1969; Kedslie, 1990;Wise, 1982).

US exper ienceThe most obvious feature of early UK professionalization is the pursuit byaccountants and their institutions of economic self-interest in the name of apublic interest. Use of entry, examination and training requirements, lobbyingover legislative matters, defending the exclusive use of professional

designations and attempting statutory registration each illustrate this point. Asimilar pattern emerged in the USA in the late 1880s, although the specificrationale for professionalization was different from that of the Scots charteredaccountants.

Several writers have researched the US history of professional accountancy(e.g. Brown, 1905e; Carey, 1969, 1970; Merino, 1975; Miranti, 1990; Previts andMerino, 1979). Their work needs to be read in the context of change in Americaneconomic and social conditions between 1870 and 1900 (Bledstein, 1976;Bruchey, 1990; Galambos and Pratt, 1988). This period witnessed populationexpansion, industrialization, railroad competition, agricultural boom anddecline, population drifts from country to city and the emergence of aprofessional middle class. Economic opportunities for investment by UKcompanies and individuals opened the way for a significant influx ofexperienced Scottish and English chartered accountants. They quicklyorganized as firms of accountants, and sought the professional credibility towhich they were accustomed in the UK. They found no institutionalized bodiesin the USA devoted to public accountancy, and began to form institutionssimilar to those of the Scottish and English chartered accountants.

The first body of US professional accountants was the Institute of Accountsformed in 1882. Membership was open to any accountant passing its admissiontest. The Institutes main function was the education of accountants. Severalother bodies were founded from 1882 onwards. One such body was the


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American Association of Public Accountants (1887) which was concernedsolely with a public accountancy membership. Its structure and constitutionwere patterned on the UK chartered accountancy model, and its membershipinitially 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 railroadindustries. They appear to have founded the Association to obtain professionalstatus and economic rewards perceived to be unavailable from membership ofthe Institute of Accounts. The Institute was open to all professionalaccountants. The Association restricted its membership to individuals in publicpractice. An initial problem for the Associations 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 theAssociation by US bankers financing various industries.

In 1895 and 1896, the Association and the Institute individually and thencollectively sought to create legislation in the State of New York to licenseprofessional accountants who met prescribed educational and residentialrequirements, emphasizing a public interest focus in US accountancy andmirroring similar UK events. Unlike the UK situation, however, the US outcomewas state-accredited professional accountancy in which, following prescribedexaminations and training, a licence was granted by the state in which theindividual accountant worked. Only licensed accountants could use the titlecertified public accountant. Following New York, this system was adopted in

several other states. Each state founded a society of accountants to regulate andadminister its certified public accountants separate from federal bodies such asthe Association.

Early US accountants were concerned to demonstrate publicly their highprofessionalism in terms of education, training and ethics (Carey, 1969). Much ofthis concern was due to external criticism of accounting and auditingstandards, and internal concern about the variety of entry standards of statesocieties. A need for overall control was perceived and, in 1902, the Federationof Societies of Public Accountants was formed. It merged with the Associationin 1905, was retitled as the Institute of Certified Public Accountants in theUnited States of America in 1916, and further changed to the American Instituteof Accountants in 1917. The Institute attempted to provide uniformity inprofessional standards to enhance the title certified public accountant, seek newareas of service for its members (particularly in the governmental sector), andwork with regulators to standardize accounting and auditing practices at anacceptable 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 onaccreditation by the state, and effectively provided for certified publicaccountants an economic monopoly in the name of the public interest. Such amonopoly could not be provided by the UK system of control of professionalaccountants by institutionalized bodies, even though the title chartered


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accountant was protected by the courts. In addition, the US system created anexplicit duality of potential responsibility by the accountant to the state and hisprofessional body. What was similar in the UK and USA, however, was thephenomenon of economic self-interest driving the professionalization process inthe name of a public interest. Also similar was the existence of nationalisticrivalry (Scots and English in the UK, and British and Americans in the USA),and the seeking of economic opportunity by influencing legislators andregulators. In the US, however, the pursuit of uniform accounting and auditingstandards (e.g. the Federal Reserve Bulletin onUni form Accountingin 1917) inconjunction with the state was different from the UK, where standardizationwas 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 theUS accountancy profession. They evidence the early development of universityand college-based accountancy education, a concern of practitioners with theneed for and quality of financial accounting and auditing standards, thereciprocation between states regarding the professional designation of certifiedpublic accountant, and a move towards a uniform examination. Merino (1975)also observes the concern of early US professional accountants with a culture ofprofessionalism including integrity, character, and personal responsibility and

judgement. She demonstrates the early professional concern with ethics andindividual accountability.

Image buildingBy the beginning of the twentieth century, the US accountancy profession hadlaid its institutional foundations and established a bridgehead in terms ofrelations with the state. The title of certified public accountant was protectedand 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 ofaccountants lacked the prestige and status associated with the UK charteredbodies. Each state regulated the practice of accountancy by means of legislationand state societies. US institutions were structured as trade associations, andmajor variations existed between states in the quality of accountants andaccountancy services. In effect, the US profession entered the twentieth centurywith a need to initiate actions designed to create an image consistent withpublic perceptions of professionalized activities (Carey, 1969).

Of particular concern was the need to make explicit the virtues and benefitsof professional accountancy. Thus, most state societies attempted to siteaccountancy education in reputable universities (Carey, 1969; Langenderfer,1987; Previts and Merino, 1979). This had two effects reflecting a co-habiting ofeconomic self-interest and public interest. The first effect deflected the economicburden of accountancy education away from professional firms and bodies. Thesecond effect assisted in legitimizing the educational basis of professionalaccountancy. These developments were accompanied by a slow but persistent


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interest by academics and practitioners in accounting research concerned withaccounting theory and the development of a body of acceptable accountingprinciples (Langenderfer, 1987; Lee, 1993; Previts and Merino, 1979). Thisinterest was the foundation for a critical debate on accounting principles in the1930s onwards (Carey, 1969, 1970; Storey, 1977; Zeff, 1982a).

Internal US schismEstablishing the professionalism of US accountants proved to be a difficult taskbecause of internal disputation (Carey, 1969; Miranti, 1990; Previts and Merino,1979). Leaders of the American Institute of Accountants modelled it on theScottish and English chartered accountancy bodies, with the apparent aim of

making it appear to be a self-regulating federal body of American charteredaccountants. A roadblock to this goal was the variable system of state-basedlicensing of certified public accountants. The Institutes leadership soughtcontrol of a self-regulating, independent profession of individual accountantsrather than have a system in which government controlled the right to practiceaccountancy. However, the large majority of Institute members were state-licensed and had allegiances to their individual states. A schism was created inthe Institute which lasted from 1916 to 1936.

The Institute initially set high entry standards of examination andexperience which contrasted markedly with those of most of the licensingstates. Its membership was open to all qualified accountants and not restrictedto certified public accountants. State-licensed accountants objected to the entry

conditions. The conflict appears to have been between accountants in large, eastcoast firms and those in small, provincial firms. In 1920, the leadership of theInstitute removed all professional designations from its membership records(including that of certified public accountant).

Dissatisfaction reached a point at which a rival organization, the AmericanSociety of Certified Public Accountants, was founded in 1921. Its founderdescribed accountancy not as a profession, but as a business of the very highesttype, thus emphasizing the economic nature of the professionalization process.

The Societys initial objective was protection of the title certified publicaccountant, and admission was based solely on the possession of thiscertification.

Eventually, a dialogue commenced to restore professional unity, withemphasis on admitting certified public accountants to the Institute, formingstate 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 publicaccountants and a uniform examination (adopted by all states in 1952).

What Carey describes as the Great Schism reflects the internal rivalrygenerated by a combination of economics, professional status, nationaldifferences and geographical allegiances. Such rivalry appeared in the UKearlier than in the USA. In both countries, however, the battle was an economicone 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 regulateaccountants. In the UK the professional bodies established and maintained thatright. In the USA the main professional body has never attained such anautonomous position because of state licensing.

In other words, in contrast to the USA, the early UK professional accountantscreated an institutionalized environment separate from the state and were left toself-regulate. Unlike the US experience, the British tendency was not to usestate-based higher education facilities to enhance professionalism. Only inScotland was this a significant policy, with provision for compulsory universityclasses in law and the creation of part-time chairs of accountancy at Scottishuniversities (filled by leading practitioners) (Brown, 1905b). Thesedevelopments were not followed in the larger English community, and it isunsurprising to find less interaction between practice and academe in the earlyhistory of the English bodies as compared to the Scottish and US situations.

Developing professionali smThe use of the journal (e.g. theJournal of Accountancyfrom 1905) was onemeans of publicly signalling the knowledge base of accountancy, and theintellectual leadership of the US profession (Carey, 1969; Previts and Merino,1979). It was a strategy already in use in the UK with theThe Accountant(1874)andT he Accountants Magazine(1897) (Brown, 1905b; Garrett, 1961; Howitt,1966). These journals identified accounting, auditing, tax, legal and businessissues affecting professional accountants. They provided a means of publicizing

and criticizing the accountancy body of knowledge, and the lite accountantsdeveloping and teaching it (Kitchen and Parker, 1980).

Other means of presenting the professionalism of accountants and theirinstitutions took a physical form. For example, early efforts were made in theUK to found libraries as depositories of accountancy knowledge (Brown, 1905b;Garrett, 1961; Howitt, 1966). Similar developments occurred during a laterperiod in the USA (Carey, 1969). In addition, consistent with more generalizedevidence of impression management by nineteenth and twentieth centuryorganizations (see Ewen, 1988; Featherstone, 1991; Harvey, 1989), the main UKaccountancy bodies acquired or erected magnificent buildings on key city sites(Brown, 1905b; Garrett, 1961; Howitt, 1966; Macdonald, 1989). These events canbe characterized as part of the UK accountancy professions drive to

respectability and social standing. The histories of Carey (1969) and Previts andMerino (1979) suggest this was not a priority of the early US accountancyprofessionals.

The early accountancy profession extended its menu of services wheneconomic opportunities arose. Kedslie (1990) describes how early Scottishchartered accountants developed a range of services beyond those existing atthe time of foundation, including accounting and auditing work for corporateentities and municipalities. Hein (1978) documents accountants involvement inperiodic 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 ischaracterized by a long-standing and complex mutual economic and socialdependency which existed between accountants and lawyers, and a strainedrelationship between accountants and the state (Bromwich and Hopwood, 1992;Freedman and Power, 1992; Walker, 1988). The equivalent US situation haspermitted more harmonious and productive relations between the state and theinstitutions of accountancy. However, the issues at stake in both the UK and theUSA have been identical. There was a desire by professional accountants tosecure 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, andsuggests restrained involvement by accountants. In particular, they appear tohave extended their political influence in corporate accounting and auditinggradually, without explicitly lobbying legislators, and without writing practicestandards. T his development seems to have been an extension of theirestablished work in bankruptcies and liquidations. They did not have to lobbyfor new work, and operated in a relatively liberal and flexible environmentwithout explicit standards. This conclusion is consistent with the findings ofother historical researchers (Aranya, 1974; Edwards, 1976; Hein, 1978; Kitchen,1982).

The second phase identified by Napier and Noke suggests a more proactiverole by accountants from the 1940s onwards. It followed legal cases dealingwith accounting and auditing failures and subsequent criticism, and reflects agrowing awareness by UK accountants that their economic self-interest was notwell served by ignoring their public interest responsibilities. As Nobes andParker (1984) demonstrate, the major professional bodies began writingaccounting and auditing standards first as non-mandatoryRecommendationson Accounting Principles, then as requiredStatements of Standard AccountingPractice. UK accountants had also influenced corporate legislation (e.g. byevidence to company law reform committees) and, in the Companies Act 1948,obtained a legal monopoly of corporate audit services.

Developing standardsThe most recent history of UK professional accountancy standards is a cycle ofcriticism of perceived accounting and auditing failures, public expectations ofaccounting and auditing performance, extended prescriptions in standard-setting, reduced public concerns, followed by further sustained criticism as aresult of new business failures (Lee, 1979; Mumford, 1979). The most significantchange over time has been the increased writing of accounting and auditingstandards by accountants (e.g. chronologically, by the Taxation and ResearchCommittee of the English Institute, then the Accounting Standards SteeringCommittee and, most recently, the Accounting Standards Board). Thus, even


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though appropriate accounting and auditing practice is ultimately a matter tobe decided by lawyers in the UK, the precise practices used by accountants andauditors 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 onespecific difference. The US change fromlaissez-faireto prescription of standardstook place earlier than in the UK as a result of the Great Depression. Followinga period of relative flexibility in and persistent criticism of accountancypractice, leaders of the US profession realized it needed to control the debateover generally accepted accounting principles. The evolution from

recommendation to mandate was from non-mandatory Account ing ResearchBulletinsandAccounting Principles Board Opinionsof the American Institute ofCertified Public Accountants to Statements of Financial Accounting Standardsof 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-independentboards (e.g. the Financial Accounting Standards Board). In this respect, thestate (represented by the Securities Exchange Commission from the early1930s) usually left the accountancy profession to manage the standards process.

This may have been a legacy of the early relationships built between thevarious institutions of US professional accountancy and legislators andregulators, in which accountants demonstrated their willingness and

competence to institute quality standards. However, the US profession has nothad complete control over standards, and regulators have occasionallycriticized and intervened to assist in improving accounting and auditingpractices (Miller and Redding, 1988). Indeed, relationships between theSecurities Exchange Commission and the American Institute of Certified PublicAccountants have been far from harmonious in more recent times (Olson, 1982).

What the histories of UK and US standard-setting suggest is a delicateprocess, managed by the professional accountancy bodies, of balancingeconomic self-interest against public interest. Professional accountants havepersistently attempted to retain control over standards and standard-setting.

They have done so by maintaining a dialogue with the agents of the statesufficient to give comfort to the latter that standards can be prescribed byaccountants in the public interest. In recent times, such comfort has been givenby separating the institutions of standard-setting from the professional bodies(e.g. the Accounting Standards Board in the UK and the Financial AccountingStandards Board in the USA). The issue at stake is an economic one. Loss ofcontrol over standards suggests loss of control over the body of knowledge, andloss of the body of knowledge brings into question the appropriateness of theprofessional monopoly of service.

Contemporary researchers have focused on how the institutions ofprofessional accountancy have faced up to the issue of setting standards overrecent decades. For example, Richardson (1988) reports that US audit


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practitioners maximize their rewards by responding to politically sensitiveissues, and standardizing their practices in these areas. This suggestsprofessional accountants respond to issues only when they perceive aneconomic incentive to do so. Byington and Sutton (1991) provide evidenceconsistent with this observation. Identifying four events between 1938 and 1985which threatened the autonomy of US professional accountants, they foundsignificant increases in published accounting and auditing standards in thefour years following each event.

In auditing, Humphrey et al. (1993) outline a history of accountantsresponses to the fraud detection expectation issue in which, while appearing toaccept more responsibility, they have reduced their role. Sikka et al. (1992)

conclude there was a late nineteenth century tendency by UK accountants andlawyers to diminish the importance of fraud detection in auditing for economicreasons, and a late twentieth century pressure by government to reverse thatposition as a result of increased economic crime in the corporate sector.

Fogarty et al. (1991) describe the above institutionalized responses as acomplex strategy of doing nothing. It involves decoupling pronouncements ofideal accountings and audits from corrective actions by responding to concernsand maintaining the status quo so long as this is economically viable. Such astrategy is a familiar feature of the history of the accountancy profession. Forexample, in relation to the expectations gap debate over several decades,Humphrey et al. (1992) identify the UK accountancy professions ability tocontrol and manage the debate in order to maintain the status quo regarding the

role of the auditor. Controlling the debate reaffirmed accountants profes-sionalism, but deflected attention from auditors towards the limitations of theproposed reforms.

Fogartyet al. (1991) confirm this strategy in a wider historical context of theUS accountancy profession. They examined several responses to such pressure,including the lack of clarification of fraud detection duties; increasedcompetition for audit services; diversification to non-attest services; demandsfor legal reform to reduce liability costs; cost containment measures to reduceaudit time; expectations gap projects; and failures to develop better accountingand auditing practices, discipline deviant accountants, issue qualified auditopinions and improve quality control procedures. Fogarty et al. further arguethat these responses to criticism make good economic sense so long as it isviable for professional accountants to absorb liability losses without changingthe nature of the audit. The strategy of doing nothing also can be argued tohave political as well as economic benefits for the accountancy profession.Power (1993a, 1993b) states that UK standard-setters have for some timeadopted a political approach to issues which is cosmetic in substance and richin form. In particular, he perceives the UK profession defining issues, setting upinstitutional structures to respond, and issuing standards or guidance topractitioners which maintain a zone of discretion for the practitioner.

Doing nothing has been revealed in other ways by historians. Fogartyet al.(1993) evidence the history of a US state accounting societys failure to respond


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to reported accounting errors by its members because there was no economicincentive to expose its members. Parker (1994) analyses published disciplinarycases in the Australian accountancy profession over three decades and, withevidence of few exclusions from membership, concludes that the economic self-interest of accountants dominates their duty to the public interest. Sikka et al.(1989) recount a documented situation in which a major UK professionalaccountancy body prevented individual external scrutiny of its standard-setting process, yet allowed access by a large professional accountancy firm.

Each of the above studies provides evidence of the behaviour of professionalaccountants when under pressure to respond to issues. They reveal thedifficulty of being a professional with an explicit covenant to serve the public

interest in situations where there are considerable economic incentives to adhereto self-interest. The interesting feature of this analysis is that the conflict ispositioned at the institutional level. The professionalization of accountancy hasprovided institutional structures to permit accountants to maximize their self-interest in a publicly interested way. Davis and Strawser (1993) give aresearched example of this situation. They observe the professions historicalinvolvement in the debate over accounting for inventory, and the eventualdomination of individual client interests over the public interest. The broaderstudies by Briloff (1990) and Mitchell and Sikka (1993) of recent histories ofaccounting and auditing failures come to a similar conclusion. Client interestssupersede the public interest, thus leading to concerns that the accountancyprofession fails to make the powerful accountable, and itself remains

unaccountable.

Body of knowledgeEvident in the USA over several decades since the 1960s and, more recently inthe UK, is the accountancy professions desire to find an intellectual basis for itspractices. Using Zeffs (1984) chronology, it is clear the US institutionalizedsearch started with the 1938 study of Sanders, Hatfield and Moore, and the 1940study of Paton and Littleton. Both studies rationalized conventional practice.

The 1961 and 1962 studies of Moonitz and Sprouse, however, challenged thestatus quo, evoked considerable opposition and were quickly shelved (Zeff,1982b). The issue was not revisited until a 1970 study on concepts andprinciples and the 1973 Trueblood Report. The former pronounced onconventional practice. The latter provided a conceptual framework foraccounting change. It was later developed by the Financial AccountingStandards 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, shelvedfor more than 15 years, and reappeared in the 1991 conceptual proposals of theAccounting Standards Board. Despite this continuous effort in the UK and USAto expose a theoretical body of knowledge, there is a consistent view fromresearchers 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 projectspurpose is something other than for improving practice. Perhaps, as suggestedby Hines (1989), its presence is no more than an historical ploy to demonstratethe existence of a body of knowledge sufficient to maintain accountantsprofessional status and economic monopoly.

Fur ther developmentsLangenderfer (1987) discusses the historical attempts of US accountants tolegitimize accountancy education. This process initially concerned theinstitution 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 recentlyhas 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 havebecome more rigorous. The nature of the academic accountancy community haschanged also, from practice-based teaching by part-time practitioner/educatorsto a profession of full-time teachers and researchers. These changes haveenhanced the professional status of accountancy. But they have also createdschisms in the accountancy community concerning the relevance of bothteaching and research, and raised questions regarding the status ofaccountancy 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 latters economicwellbeing when the credibility of its body of knowledge and educators aredoubted.

Change has also been a feature of the institutional and organizationalframework of the accountancy profession. Renshall (1984) provides a UKanalysis, while Wootton and Wolk (1992) give a US perspective (see also Carey,1969, 1970; Olson, 1982; Previts and Merino, 1979). These analyses demonstrateconsiderable change in the professions structure. Over many decades, there hasbeen a significant increase in the number of professional accountants andstudents, coupled with a continuous consolidation of practice firms andinstitutional bodies (e.g. Winsbury, 1977). Accountancy has become amultinational activity and an important part of private enterprise economics inthe UK and USA. The range of professional services has extended beyond thetraditional areas of accounting, auditing and taxation. The professionsrelationship 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 professionalsor business executives (Dyckman, 1974; Zeff, 1987). Dyckmans concernsinclude the self-interest of professional accountants dominating their publicinterest commitment, lack of effective response to criticisms of practice byprofessional bodies, inability to find an acceptable theoretical foundation toaccountancy practices, and failure to punish accountants who have breached


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ethical standards. Zeffs comments are similar, concentrating on the issues ofaccountants responding to competitive pressures by treating managementrather than ownership as the client, offering a wide range of non-accountingbusiness services, and lacking intellectual leadership on accounting andauditing problems. More recently, the Chief Accountant of the SecuritiesExchange Commission has accused professional accountancy firms of beingcheer-leaders for their clients managements (Schuetze, 1994). According to itscritics, therefore, what has happened to the accountancy profession is a loss ofits sense of public mission, making it indistinguishable from any other form ofprofit-based business. Indeed, approximately one hundred years after itsfoundation, the American Institute of Certified Public Accountants was

prompted in the 1980s to amend its statement of mission to make explicit itscommitment to the public interest. But, as the previous analysis makes clear, thepublic mission of accountants has always been a smokescreen for economicmatters.

Savings and loan bank failures in the USA have been linked with perceivedfailures in accounting and auditing services (Briloff, 1990). A similarphenomenon exists in the UK with respect to corporate disasters such asBritish Bank of Credit and Commerce International, and MaxwellCommunications (Mitchell et al., 1991). Law suits, public scrutiny and presscomment, as well as large court awards or out-of-court settlements, havebecome familiar features of accountancy life. The economic size of the problemis seen in a statement from the largest US audit firms describing their large

economic influence on US industry, and the significant economic consequencesof a perceived unfair litigation system (Cook et al., 1992). Although it is arguedthat this problem is facing all professions, its impact on accountancy is statedto 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 resultof a number of institutional responses to the self-interest versus public dutydilemma. First, in response to the charge of the audit client being perceived asmanagement rather than ownership, the American Institute of Certified PublicAccountants Public Oversight Board (AICPA, 1994) effectively denies it. Indoing so, however, the Board suggests various ways of enhancing theprofessionalism of auditors, including a need for the auditor to view the boardof directors as the client. Indeed, much of the Boards report appears to be avindication of the professional accountants duty to act in the public interest.But there are also signs within it of the persistent conflict with economic self-interest. In particular, the Board argues that decreasing auditor exposure tounwarranted litigation should be a leadership issue taken on by the SecuritiesExchange Commission to protect the investing public.

Meantime, professional accountancy firms and institutions in the USA havebeen hard at work to provide for economic protection. In 1994, it was reportedthat practising as a limited liability partnership is possible in about half thestates in the USA, and that about 5 per cent of the largest firms were doing soby 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 consideredby certain of the largest firms in the UK as a means of minimizing litigationeffects (Fleck and Foster, 1992). Additionally, in 1994, the American Institute ofCertified Public Accountants overwhelmingly voted to permit non-accountancyownership interests in accountancy firms, paving the way for state legislationto create diversified business practices in the USA (Public Accounting Report,1994). The 1980s strategy of doing nothing is arguably being replaced by a1990s strategy of doing something. As with nothing, the somethingappears to be motivated by economic rather than societal considerations.

Retrospect and prospect

The history of professional accountancy is relatively recent in the context of theexistence of accountants and auditors. It is an economic text with a publicinterest cover. Originally written in the mid nineteenth century, it has beenreworded on numerous occasions without changing the underlying emphasis.

The fundamental influence driving professionalization throughout its entirehistory has been economics. Professional accountants came together to providean institutional structure to protect a threatened economic monopoly. Theprocess has repeated over several decades, with the institutional structureelaborated to maintain and expand service monopolies. Professional rivals weredefeated or eventually absorbed by merger, and successful and unsuccessfulattempts were made to obtain a state monopoly by registration. A strategy ofusing explicit signals of professionalism was practised, and the range of

services increased. The size of the profession grew, accompanied by aconcentration 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 freeof major problems. The most significant issue is the persistent public criticismof accountants and their services. Of concern is the association of accountancywith business failure, and the apparent inability of accountants to assist in theaccountability process to protect the public interest.

Criticism originated before professionalization as a public concern about theability of public accountants to discharge legally-based responsibilitieseffectively, and evolved over many decades into a concern about the flexibilityof accounting practices and the inadequacy of audit procedures. Today,criticism involves doubts about the ability of accountants to resist managerialpressures to misreport. These criticisms have been externalized through thefinancial press, forcing the institutions of accountancy to respond morepublicly. They have done so with two effects. The first is a gradual exposure ofthe accountancy body of knowledge through conceptual statements, standardsand guidance recommendations. Explicit signals of the knowledge underlyingpractice have removed some of the mystique of accountancy, and made it easierfor non-accountants to criticize practice. The second effect has been theinstitutional adoption of a strategy of doing nothing, in which issues areresponded to without altering the status quo of accountancy practice.


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The combination of these effects ensures the accountancy professioncontinues to face the fundamental issue of whether accountants wish to beprofessionals or members of trade associations. The explicit covenant to protectthe public interest has to be taken seriously, perhaps for the first time in thehistory of the accountancy profession. It can no longer be taken as alegitimizing ticket to provide a range of services without public accountabilitybut with significant economic and social rewards. Instead, accountancy has tobe regarded as a vocation, in which service for a designated client also involvesduties to a wider public, and where failure to satisfy these duties results inpublic accountability and punishment. These are issues which require publicdebate 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 notbe forgotten or neglected.

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