By offering a national qualifying examination and an ethics code, the Institute of Accountants in the United States of America assured businesspeople of the competence and integrity of the accounting profession.
The American Association of Public Accountants (AAPA) was established in 1887 in New York as the first organized body of professional accountants in the United States. In 1896, the AAPA prompted passage of the first state law pertaining to certified public accountants, and several other states soon followed suit. By 1915, thirty-nine U.S. states had granted legal recognition to the accountancy profession, and practicing accountants in various states perceived a growing need to communicate and exchange ideas with one another. The AAPA responded to this need by admitting members not only directly as individuals but also indirectly as members of state societies.
This practice of dual membership continued from 1896 through 1915. By then, it had become obvious that the practice was not satisfactory, especially when it came to disciplining members for bringing the profession into disrepute by their acts of omission or commission. It was also widely believed by then that the profession should set its own standards of competence and hold rigorous national qualifying examinations. At its meeting held on September 19, 1916, the AAPA approved its own merger with the newly created Institute of Accountants in the United States of America (IAUSA), a society composed of individual members. The IAUSA had 1,150 charter members. In January, 1917, the IAUSA adopted a new name: the American Institute of Accountants (AIA).
Accountancy as a profession was relatively unknown in the United States in the 1870’s, but it flourished as a respected profession in Great Britain at that time. Two years after incorporation of the AAPA, the organization’s membership stood at thirty-two. The AAPA made many attempts to elevate the status of the profession through collegiate instruction in accounting. For example, the University of Pennsylvania started the Wharton School of Finance and Economy and included accounting in its curriculum. The AAPA also obtained a two-year charter from the Regents of New York University and established a “college of accounts” with degree-conferring powers. This effort soon failed. The School of Commerce, Accounts and Finance was established at New York University in 1900. In 1906, the Pace Institute of Accountancy was founded. Overall, these attempts in collegiate education were largely unsuccessful. Seeing that accountancy would not gain recognition quickly through university degrees in the field, the AAPA started advocating public accountancy legislation so that accountants could gain status.
Leading public accountants were of the opinion that federal regulation and recognition would help the accounting profession. This argument was based on the fact that accounting was to a great extent an interstate enterprise. That is, most of the major accounting firms practiced in more than one U.S. state, and some practiced in foreign countries. A federal license would be recognized in all states and hence was very desirable from the accounting firms’ viewpoint. The AAPA’s attempts to get Congress to take legislative action were unsuccessful, however. Several large states, including New York, California, Pennsylvania, Florida, Illinois, Michigan, and Maryland, had legislation pertaining to certified public accountants (CPAs) in force, and Congress was reluctant to intrude on states’ rights to regulate. The AAPA was eager to help other states in obtaining state accountancy laws and held out the New York CPA law as the model. The AAPA was dominated by New York accountants at this time. State CPA laws were passed in Georgia, Connecticut, Ohio, Louisiana, and Rhode Island in 1908; in Nebraska, Minnesota, Missouri, Massachusetts, and Montana in 1909; and in Virginia in 1910. By 1924, all states had CPA laws, although they varied in their definition of the CPA title.
A major event in the history of the AAPA was the First International Congress of Accountants, held in St. Louis, Missouri, in 1904. More than one hundred fifty accountants from England, Canada, Holland, and the United States attended the congress, a large number for those days. George Wilkinson, president of the Illinois Society of Public Accountants, was elected secretary of the congress, and as such he organized and directed the meeting. The program of the 1904 congress included mostly technical accounting papers. The papers and discussions were subsequently published as proceedings of the congress. This proceedings volume became the most important professional accounting publication thus far in the United States. In many respects, this congress was a huge success and greatly contributed to the progress of the accountancy profession in the following years.
In 1906, the AAPA included fifteen state societies whose members were automatically AAPA members as well. Of these fifteen, only eight were societies of certified public accountants. Thus the dual-membership policy allowed the admission of both CPAs and non-CPAs as members of the AAPA. Even among CPAs, there were differences in the examinations they had taken to qualify for the CPA designation. Some states had rigorous standards, whereas others had standards that were considered lax. There was no national standard of qualification and no national test for public accountants.
The AAPA advanced two mechanisms for standardization: the model CPA law and the model state society bylaws. Neither mechanism was adopted widely. Some states required high school education; others did not. Many required practice for licensure, but Illinois, Vermont, and Washington did not. Many states were reluctant to grant reciprocity to qualified accountants from other states. State licensing board appointments were sometimes made as a result of political considerations rather than on the basis of candidate qualifications. There was no uniformity in the examinations administered by different states. Generally speaking, the minimum educational standards were not very high, and they varied from state to state.
In 1915, the national leaders of the AAPA appointed a Special Committee on the Form of the Organization of the Association. This committee, which included W. Sanders Davies, Elijah Watts Sells, Carl Nau, and Waldron Rand, submitted a report in 1916 suggesting that the profession should be represented and controlled by a national organization and that only individuals should be admitted as members. State societies would not be members of the new national institute. It was envisioned that this national organization would establish uniform admission standards and offer national qualifying examinations. At the meeting held on September 19, 1916, the AAPA approved its own merger with the newly created IAUSA, a society of individual membership. The IAUSA was incorporated under the laws of the District of Columbia, which had provisions for incorporating educational and scientific bodies.
One of the major impacts of the formation of the AIA came through its successful efforts to raise qualification standards. Because the state CPA examinations were not uniformly rigorous, one of the first acts of the AIA was to set up a board of examiners in 1916. The first national CPA examination under the auspices of the AIA was offered on June 15, 1917. This examination was used by California, Colorado, Florida, Michigan, Missouri, Nebraska, New Hampshire, New Jersey, and Tennessee. This examination was given in the fields of accounting theory and practice, auditing, and commercial law. By 1929, a majority of state licensing boards adopted the uniform CPA examination offered by the AIA. The AIA also strongly pushed states to adopt stringent practice requirements for certification.
Another impact of the newly formed AIA was in the area of professional ethics. In 1918, the AIA set up the Special Committee on Ethical Publicity to make recommendations about advertising and solicitation of clients by public accountants. In 1919, the AIA passed a resolution, proposed by accounting scholar George O. May, that disapproved of circular letters that promised prospective clients substantial tax savings. In 1921, the AIA passed stringent ethical rules prohibiting such activities as advertising and direct solicitation of clients. This infuriated some practitioners. The AIA was thought to be controlled by big national firms and by the elite from the East. Many local practitioners rebelled against these rules, which were thought to be useful for large firms to consolidate their practices. A rival accounting association, the American Society of Certified Public Accountants (ASCPA), was started in December, 1921. The AIA and the ASCPA coexisted until 1937, when these two organizations merged, retaining the AIA name.
An important achievement of the AIA was the creation of a world-class accounting library. In 1917, George May and his partners at the accounting firm of Price Waterhouse donated $25,000 to the Library Endowment Fund. Sells subscribed $15,000, and by 1919, $150,000 had been collected. The AIA library began its operations with eleven hundred bound books and thirteen hundred unbound books and pamphlets. A singular achievement of the librarians at the AIA library was the publication of the Accountants’ Index in 1921. This volume listed all articles and books on accounting published until that time. In 1926, the AIA also established a Bureau of Research, which existed for some twenty-five years.
Leaders of the accounting profession perceived a need to disseminate technical accounting information to educators and practitioners who could not attend annual meetings and special congresses. In 1905, the AAPA made arrangements to take over a magazine titled the Auditor, which had been launched by the Illinois Society of Accountants. The organization changed the periodical’s name to the Journal of Accountancy and published its first issue in 1905. Since that time, the journal has been published continuously by the AIA and successor organizations. This journal freed American accountants from relying on the British journal the Accountant. By 1909, circulation of the Journal of Accountancy had reached nearly two thousand. Five years later, the journal had a circulation of nearly five thousand. It became the principal medium through which educators and practitioners throughout the nation exchanged information, ideas, and opinions.
During the years of World War I, the AIA offered its services to the Naval Consulting Board and the Council of National Defense. An AIA committee conferred with both these bodies. The Journal of Accountancy published many articles on topics such as wartime taxes, construction records and accounts, Navy Yard cost accounting, and the determination of costs for contract purposes. Accountants were needed for audits of costs and other accounting work. Many AIA members were appointed as division auditors. They drew up manuals for audits and generally supervised accounting for the army. Joseph Strett served as the vice chairman of the Excess-Profits Tax Review Board, Lieutenant Colonel Robert H. Montgomery served as the representative of the War Department on the Price-Fixing Committee of the War Industries Board, and Arthur Teele served on a committee appointed by the quartermaster’s department to consider the determination of property accountability. The AIA took justifiable pride in its war activities. In addition, the friendships that institute members formed with important people in Washington, D.C., during the war years helped the organization gain access to government leaders after the war.
-
Academy of Accounting Historians. Working Paper Series. Edited by Edward N. Coffman. Richmond, Va.: Author, 1979. Collection of twenty research papers on accounting history. Useful for researchers. -
Carey, John L. The Rise of the Accounting Profession: From Technician to Professional, 1896-1936. New York: American Institute of Certified Public Accountants, 1969. Describes the first forty years of the accounting profession in the United States from the viewpoint of the AICPA. Accessible to readers with no accounting background. -
Chatfield, Michael, ed. Contemporary Studies in the Evolution of Accounting Thought. Belmont, Calif.: Dickenson, 1968. Collection of articles with a focus on accounting history. Chapter 16, “Some Significant Developments of Public Accounting in the United States,” gives a good summary of factors contributing to the growth of the American accounting profession. Includes annotated bibliography. -
Edwards, James D. History of Public Accounting in the United States. 1960. Reprint. Philadelphia: Taylor & Francis, 1988. Readable, reasonably concise history of the accounting profession. Provides a discussion of the European antecedents of American accounting practices and describes the evolution of the educational, legal, and organizational aspects of the profession. -
Miranti, Paul J., Jr. Accountancy Comes of Age: The Development of an American Profession, 1886-1940. Chapel Hill: University of North Carolina Press, 1990. Highlights major events in the history of the accounting profession in the United States. Chapter 6 covers the period between 1916 and 1923, which includes the formation of the American Institute of Accountants. -
Previts, Gary John, and Barbara Dubis Merino. A History of Accountancy in the United States: The Cultural Significance of Accounting. Rev. ed. Columbus: Ohio State University Press, 1998. Chronicles the history of the accounting profession in the United States, from the colonial period to the late 1990’s. Addresses accountancy from social, economic, and political perspectives. Includes bibliography and index. -
Strawser, Jerry R., and Robert H. Strawser. Auditing: Theory and Practice. 9th ed. Houston: Dame, 2001. College textbook includes excerpts from newspaper and journal articles relating to developments in the accounting profession. -
Zeff, Stephen A., ed. The U.S. Accounting Profession in the 1890s and Early 1900s. New York: Garland, 1988. Collection of essays by eminent scholars discusses the early decades of the accounting profession in the United States. Includes three kinds of papers: historical studies, contemporary accounts, and recollections.
U.S. Government Begins Using Cost-Plus Contracts
U.S. Congress Imposes a Wartime Excess-Profits Tax
McKinsey Founds a Management Consulting Firm
Ultramares Case Establishes Liability for Auditors