1911 Encyclopædia Britannica/Accountants
ACCOUNTANTS. The term “accountant” is one to which, of late years, its original meaning has been more generally attributed—that of an expert in the science of book-keeping. It is sometimes adopted by book-keepers, but this is an erroneous application of the term; it properly describes those competent to design and control the systems of accounts required for the record of the multifarious and rapid transactions of trade and finance. It assumes the possession of a wide knowledge of the principles upon which accountancy is based, which may be shortly described as constituting a science by means of which all mercantile and financial transactions, whether in money or in money’s worth, including operations completed and engagements undertaken to be fulfilled at once or in a future, however remote, may be recorded; and this science comprises a knowledge of the methods of preparing statistics, whether relating to finance or to any transactions or circumstances which can be stated by numeration, and of ascertaining or estimating on correct bases the cost of any operation whether in money, in commodities, in time, in life or in any wasting property. Generally, accountancy may be described as being the science by means of which all operations, as far as they are capable of being shown in figures, are accurately recorded and their results ascertained and stated.
The origin of the profession of accountancy in Great Britain is difficult to trace; auditors of accounts were naturally of very early existence, being mentioned as officers of importance in the statutes of Westminster in the reign of Edward I. The art of accountancy on a scientific principle History.must certainly have been understood in Italy before 1495, when Friar Luca dal Borgo published at Venice his treatise on book-keeping; but the first known English book on the science was published in London by John Gouge or Gough in 1543. It is described as A Profitable Treatyce called the Instrument or Boke to learn to knowe the good order of the kepyng of the famouse reconynge, called in Latin, Dare and Habere, and, in Englyshe, Debitor and Creditor. A short book of instruction was also published in 1588 by John Mellis of Southwark, in which he says, “I am but the renuer and reviver of an auncient old copie printed here in London the 14 of August 1543: collected, published, made, and set forth by one Hugh Oldcastle, Scholemaster, who, as appeareth by his treatise, then taught Arithmetike, and this booke in Saint Ollaves parish in Marke Lane.” John Mellis refers to the fact that the principle of accounts he explains (which is a simple system of double entry) is “after the forme of Venice.” The very interesting and able book described as The Merchants Mirrour, or directions for the perfect ordering and keeping of his accounts; framed by way of Debitor and Creditor, after the (so tearmed) Italian manner, by Richard Dafforne, accountant, published in 1635, contains many references to early books on the science of accountancy. In a chapter in this book, headed “Opinion of Book-keeping’s Antiquity,” the author states, on the authority of another writer, that the form of book-keeping referred to had then been in use in Italy about two hundred years, “but that the same, or one in many parts very like this, was used in the time of Julius Caesar, and in Rome long before.” He gives quotations of Latin book-keeping terms in use in ancient times, and refers to “ex Oratione Ciceronis pro Roscio Comaedo“; and he adds: “That the one side of their booke was used for Debitor, the other for Creditor, is manifest in a certaine place, Naturalis Historiae Plinii, lib. 2, cap. 7, where hee, speaking of Fortune, saith thus:
Huic Omnia Expensa.
Huic Omnia Feruntur accepta et in tota Ratione mortalium sola Utramque Paginam facit.”
An early Dutch writer appears to have suggested that double-entry book-keeping was even in existence among the Greeks, pointing to scientific accountancy having been invented in remote times.
There were several editions of Richard Dafforne’s book printed—the second edition having been published in 1636, the third in 1656, and another was issued in 1684. The book is a very complete treatise on scientific accountancy, it was beautifully prepared and contains elaborate explanations; the numerous editions tend to prove that the science was highly appreciated in the 17th century. From this time there has been a continuous supply of literature on the subject, many of the authors styling themselves accountants and teachers of the art, and thus proving that the professional accountant was then known and employed. Very early in the 18th century the services of an accountant practising in the city of London were made use of in the course of an investigation into the transactions of a director of the South Sea Company, who had been dealing in the company’s stock. During this investigation the accountant appears to have examined the books of at least two firms of merchants. His report is described Observations made upon examining the books of Sawbridge and Company, by Charles Snell, Writing Master and Accountant in Foster Lane, London.
In 1799, when Holden’s Triennial Directory of London, Westminster and Southwark was first published, 11 individuals and firms were therein described as accountants; in the same directory, for the period 1809–1811, the number had risen to 24; and in that for 1822–1824, there were 73 firms of practising accountants recorded.
The earliest English books dealing with scientific book-keeping were written at a time when the English and Dutch were very actively engaged in foreign trade, in succession to the Italian merchants of the 14th, 15th and 16th centuries; but it was not until the beginning of the Modern development.19th century that, in consequence of the adoption of improved methods of manufacture and transit, resulting from the application of water and steam power to manufactures and methods of conveyance which largely increased the trade of Great Britain, the profession of an accountant became one which men of scientific knowledge and capacity adopted for their business career. Corporations and companies were formed to carry out large operations previously either left to the state or not undertaken, and for the development of trades and manufactures which were becoming less profitable when carried on by hand labour and with limited capital; and, for these, the services of public accountants were necessarily required to devise systems of accounts and methods of control, and to enable the results of the various transactions carried on to be ascertained with the least waste of power or chance of loss by negligence or fraud. The large number of companies formed in 1843 and 1844, when a great amount of capital was invested in railways and extensive speculation resulted, also added to the demand for the services of professional accountants. The Companies’ Clauses Consolidation Act 1845 made provision for the audit of the accounts of companies regulated by act of parliament, and gave some extensive powers to the auditors, who are now, to a very large extent, selected from among professional accountants. The Companies Act of 1862 led to a large extension of the business of accountants, both as auditors and liquidators of companies; and the acts relating to bankruptcy passed between the years 1831 and 1883 added to the work devolving on professional accountants. The Companies Act 1879, which affected banking companies, made provision for the audit of their accounts, and it has been found desirable, in most cases, to appoint professional accountants to this duty. The experience and professional knowledge of trained accountants have, in fact, been utilized by their appointment as auditors in the majority of joint-stock companies, whether manufacturing, banking, trading or created for any other purpose. Until the Companies Act 1900 was passed there was no general obligation upon limited companies to have auditors; this act not only requires that auditors shall be appointed in all cases, but provides for their remuneration, and to a limited extent defines their rights and duties. The legislature evidently did not find it easy to formulate at all clearly the duties of auditors, and it seems reasonable to suppose that any general definition will prove an impossibility, as the work which auditors undertake must vary very widely, and depends largely upon the scope of the operations the accounts of which are to be examined.
The duties of practising accountants cover a very wide area: they act as trustees, liquidators, receivers and managers of businesses, the owners of which are in default or their affairs in liquidation, both under the direction of the courts and by appointment of creditors and others; they are Duties.largely engaged as arbitrators, umpires and referees in differences relating to matters of account or finance; they prepare the accounts of executors and trustees, and the necessary statements of affairs in cases of bankruptcy, both of firms and companies; they prepare accounts for prosecutions in cases of fraud and misconduct; and they are constantly called upon to unravel and properly state the accounts of complicated transactions. Their services are commonly required to certify the profits of businesses intended to be sold, either privately or to companies by means of a published prospectus; and, in cases of compulsory purchases of businesses by railway companies and public bodies, the statements of the profits of the businesses to be acquired are generally made by them. In a very large number of financial operations they are called upon to give advice and prepare accounts, and in few business matters requiring arithmetical calculations or involving the investigation of figures, and particularly where a considerable acquaintanceship with the principles of law is needed, are their services not utilized. One of the most important duties undertaken by accountants is the audit of accounts, and this duty has, of late years, been widely extended. Originally, auditors were appointed to examine and vouch statements of receipts and payments; but the provisions made in acts of parliament in relation to audit, and the requirements of most articles of association of limited companies,Auditors. put much graver responsibilities on auditors, who are now generally required to certify to the accuracy of balance sheets and of revenue and other accounts, the performance of which duties involves far more knowledge of accounts than was once required. The efficiency, in most cases, of audits conducted by skilled accountants has led the public to attach exceptional value to their audit certificates, and to demand extensive knowledge and ability in the conduct of the audit of the accounts of public companies. One other requirement which is generally regarded as indispensable, is that the work of audit should be very expeditiously performed; for it is easy to understand that, were the presentation of the accounts of a company and the distribution of dividends materially delayed in consequence of the audit, much inconvenience would result, while the value of the criticism of the accounts of business operations would be much deteriorated if it could not be made very shortly after the accounts were closed. In these circumstances, in the cases of large concerns with wide ramifications and numerous transactions, it is necessary that auditors should have the help of trained assistants, and thus the personal examination of details by the auditor himself is, to a large extent, rendered unnecessary and the cost of audit materially reduced. This delegation of duty by auditors is generally well understood, and is in accordance with the requirements of those concerned; but there has been a tendency of late years to enlarge the responsibilities of auditors to an extent which, if persisted in, might render it dangerous for men of reputation and means to accept the duties.
While the number of practising accountants has of late years been steadily increasing and their services are correspondingly appreciated, the necessity for controlling those exercising the profession and for improving its status has naturally become apparent. The first important steps Organization.in this direction were taken by the accountants in Scotland—the Society of Accountants in Edinburgh being incorporated by royal charter in 1854; similar societies in Glasgow and Aberdeen being also incorporated by charter in 1855 and 1867. The Institute of Accountants was formed in London in 1870, but did not receive a royal charter until the 11th May 1880, when all the then existing accountants’ societies and institutes in England were incorporated as the Institute of Chartered Accountants in England and Wales, and means were provided by which all the then practising accountants in these countries could claim membership thereof. In the year 1885 the Society of Accountants and Auditors was incorporated, but has obtained no charter; this body, while numbering among its members a considerable number of practising accountants in the United Kingdom, also includes treasurers and accountants to cities and boroughs in England, as well as clerks to chartered and other accountants. A large proportion of its members also consists of accountants practising abroad. In 1888 an Institute of Chartered Accountants was formed in Ireland, and a great many institutes and societies have been formed in the British colonies and in the United States, some of which have local charters. It is curious to note, however, that, outside the United Kingdom, it was only in the British colonies that associations of practising accountants existed, until, in 1895, an Institute of Accountants (Nederlands Instituut van Accountants) was founded in Utrecht for Dutch accountants; when, although the principles of accountancy have been well understood and practised in Holland since the 16th century, and probably earlier, it was found necessary to borrow the words “accountant” and “accountancy” from the English language to convey to the Dutch an idea of the meaning of the terms. Three others have since been formed, the Nederlandsche Academie van Accountants (1902); the Nationale Organisatie van Accountants (1903); and the Nederlandsche Bond van Accountants (1902). Sweden has a society, Svenska Revisorsamfundet, formed in 1899; Belgium, the Chambre Syndicate des Experts Comptables, founded in 1903. In South America, accountants have acquired a certain status in Argentina, Uruguay and Peru.
In the United States the organization of professional accountants is of quite recent growth. The first society formed in America was “The New York State Society of Certified Public Accountants,” and shortly afterwards (in 1896) the New York state legislature passed an act authorizing the State university to confer the degree of certified public accountant (C.P.A.) on the members of the society, while requiring all subsequent entrants to pass an examination. This degree, however, can be obtained, like other university degrees, without being a member of the society. Other states, notably Pennsylvania, Maryland, California, Illinois, Washington and New Jersey, have followed the example of New York. In 1903 the various state societies formed themselves into a federation. There is also an independent society of practising accountants, the American Association of Public Accountants, with objects similar to those of the federation, but steps have been taken to bring about an amalgamation between the two in order to form one central society to look after their common interests, without, however, interfering with the individual organization of the various state societies.