Accounting and Business Economics : Insights from National Traditions [1 ed.] 9781136209017, 9780415887021

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Accounting and Business Economics

Routledge Studies in Accounting

1 A Journey into Accounting Thought Louis Goldberg Edited by Stewart Leech 2 Accounting, Accountants and Accountability Postructuralist positions Norman Belding Macintosh 3 Accounting and Emancipation Some Critical Interventions Sonja Gallhofer and Jim Haslam 4 Intellectual Capital Accounting Practices in a Developing Country Indra Abeysekera 5 Accounting in Politics Devolution and Democratic Accountability Edited by Mahmoud Ezzamel, Noel Hyndman, Åge Johnsen and Irvine Lapsley 6 Accounting for Goodwill Andrea Beretta Zanoni 7 Accounting in Networks Håkan Håkansson, Kalle Kraus, and Johnny Lind 8 Accounting and Distributive Justice John Flower

9 Law, Corporate Governance, and Accounting: European Perspectives Edited by Victoria Krivogorsky 10 Management Accounting Research in Practice Lessons Learned from an Interventionist Approach Petri Suomala and Jouni LylyYrjänäinen 11 Solvency in Financial Accounting Julie Margret 12 Accounting and Order Mahmoud Ezzamel 13 Accounting and Business Economics Insights from National Traditions Edited by Yuri Biondi and Stefano Zambon

Accounting and Business Economics Insights from National Traditions Edited by Yuri Biondi and Stefano Zambon

NEW YORK

LONDON

First published 2013 by Routledge 711 Third Avenue, New York, NY 10017 Simultaneously published in the UK by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN Routledge is an imprint of the Taylor & Francis Group, an informa business © 2013 Taylor & Francis The right of the editors to be identified as the authors of the editorial material, and of the authors for their individual chapters, has been asserted in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark Notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. Library of Congress Cataloging-in-Publication Data Accounting and business economics : insights from national traditions / edited by Yuri Biondi and Stefano Zambon. p. cm. — (Routledge studies in accounting ; 13) Includes bibliographical references and index. 1. Accounting. 2. Managerial economics. I. Biondi, Yuri. II. Zambon, Stefano. HF5636.A22 2012 338.509—dc23 2012012864 ISBN: 978-0-415-88702-1 (hbk) ISBN: 978-0-203-09472-3 (ebk) Typeset in Sabon by IBT Global.

Contents

List of Figures, Tables, and Exhibits Presentation: Accounting and Business Economics: A Conceptual Revisitation

ix xi

STEFANO ZAMBON

PART I Introduction 1

Accounting Theories of the First Half of the Twentieth Century: The Genesis of an Academic Discipline

3

RICHARD MATTESSICH

PART II At the Roots of National Traditions of Accounting and Business Economics 2

Accounting and the Business Economics Tradition in Germany

39

WALTHER BUSSE VON COLBE AND ROLF U. FÜLBIER

3

Accounting and “Economia Aziendale” in Italy, 1911 Afterward

69

ARNALDO CANZIANI

4

The Accounting and Business Economics Traditions in Japan

102

MASATOSHI KURODA AND ELLIE OKADA

5

Accounting and Business Economics in the Netherlands KEES CAMFFERMAN

131

vi Contents 6

Development of Accounting and Business Economics in Finland: From a Practical Discipline to a Scientific Subject and Field of Research 154 SALME NÄSI AND JUHA NÄSI

7

Accounting and Business Economics Traditions in Sweden: A Pragmatic View

186

STEN JÖNSSON

8

Accounting and Business Economics in Denmark

203

ANNE LOFT, JAN MOURITSEN, AND CARSTEN ROHDE

9

Accounting and Business Economics: Emergence and Consolidation as Autonomous Disciplines in Spain

226

VINCENTE MONTESINOS

10 The Three Main Schools of the French Financial Accounting Doctrine: A Historical Survey

249

JACQUES RICHARD

11 Accounting and the Absence of a Business Economics Tradition in the United Kingdom

273

CHRISTOPHER NAPIER

12 Developments in Accounting and Business Economic Thought: Evidence from the United States

306

GAREN MARKARIAN

PART III Comparative Analyses, Insights, and Implications for Accounting and Business Economics 13 Insights on German Accounting Theory

331

MICHAEL HOMMEL AND STEFANIE SCHMITZ

14 Accounting, Economics, and Law of the Enterprise Entity: A. C. Littleton and the German–American Connection YURI BIONDI

363

Contents 15 Accounting Relativism: The Unstable Relationship Between Income Measurement and Theories of the Firm

vii 387

STEFANO ZAMBON AND LUCA ZAN

16 Accounting and Business Economics Traditions in Italy

422

ENRICO VIGANÓ

17 Portuguese and Spanish Languages Traditions

443

ESTEBAN HERNANDEZ ESTEVE

18 Accounting and Business Economics: Understanding the Past to Face the Present and Prepare the Future

485

YURI BIONDI

Contributors Index

493 501

Figures, Tables, and Exhibits

FIGURES 3.1

The structure of the economic system according to Nicklisch Betriebswirtschaftslehre. 6.1 The capital circulation model of the fi rm. 6.2 The stakeholder model of the fi rm. 6.3 The research methodological alternatives.

74 168 168 173

TABLES 4.1 4.2 4.3 10.1 15.1

Main Events in the Years fom 1860s to 1919 Main Events in the Perion from 1919 to World War II Main Events in the Years after World War II Relationship between Types of Capitalist Governance and Accounting Income Calculation: Different Solutions. Summing up the Income Calculation of the Examples in the Appendix

105 107 112 254 405

EXHIBITS 15.1 Income Calculation: MEA as Proprietor 15.2 Income Calculation: MEA as Institutional Interests Bearers. The Value Added Approach by Ardemani 15.3 Income Calculation: The Proprietary View 15.4 Income Calculation: Anthony’s Entity view 15.5 Income Calculation in Workers’ Co-operatives 15.6 Income Calculation in Consumers’ Co-operatives

410 411 411 412 413 413

Presentation Accounting and Business Economics: A Conceptual Revisitation Stefano Zambon

AN OLD ISSUE? In which terms can a fi rm’s business model have an impact on accounting? What is a group and where do its boundaries end? And therefore when are minorities inside or outside the entity and how should consolidation goodwill be measured? How should a business combination under a common control be accounted for? What is the performance of a fi rm? What does measuring entity performance mean and how can this be achieved “correctly”? Why dividends are not a fi rm’s cost? What transforms a monetary outflow into a cost, and what is a cost, anyway? How to measure the new forms of company capitals (e.g. natural, social, intellectual, human) requested by integrated reporting? How can we visualise in a report the connectivity of an organisation’s elements and relationships, which is a founding block of the very integrated reporting? And how do we visualise business sustainability? The shareholders or the stakeholders are the users of accounting and reporting? All these apparently unrelated questions imply a reference to a theory, a conceptualisation of the object of the accounting system, i.e. the entity or the fi rm. The initial intuition underlying this book is linked to the idea of revisiting some fundamental—but seemingly forgotten today—features of accounting, that is its conceptual roots in the theory of the fi rm (and group) as well as its raison d’être, its rationales, its relationships with the fi rm, economics and, ultimately, society. In fact, the way in which a fi rm is seen and theorised is a critical passage in how accounting is configured, and in how transactions and their fi nancial and economic outcomes are considered and consequently treated in fi rm reports. Calculative business practices are actually based on “hidden” theoretical constructions which infuse accounting concepts and reporting procedures, and which implicitly emerge from the latter. Through this conceptual lens, accounting rediscovers its connection with wider bodies of knowledge which insist upon ways of looking at, and thinking of, fi rms in economic and societal systems. Far from being “old stuff” (Zeff, 2005)1, it appears that the debate on the conceptual underpinnings of a fi rm/group and its consequences in an

xii Presentation accounting measurement perspective (e.g. consolidation goodwill of minorities) is very much current and always present underneath the surface. The conceptual issues arising from this unexpressed and often misunderstood relationship are ever so often popping up in professional and regulators’ discussions, re-proposing themselves with regularity when a theoretical more quarrel takes place. If accounting is an instrument, the theory behind accounting has something to do with approaches to conceiving fi rms in a capitalistic society. However, it is also important to observe that accounting and its relationships with the object(s) it refers to, have been conceptualised in different ways in various national contexts and across time. In particular, differentiated have been the ways through which accounting has been linked to larger knowledge structures relating to a fi rm, its activities and its main elements, which can be amenable to the generic term of “business economics”. Therefore, the aim of this volume—which revisits and takes further the original studies published in The European Accounting Review from 1996 to 1998—is to analyse the complex and diversified issues of conceptual, practical and educational nature which revolve around this “genetic” connection between accounting and business economics in many countries and with reference to major scholars who have led the establishment and the development of such thought traditions. In the following, some of the major issues of the relationship between accounting and business economics will be presented and problematized, as well as some of the emerging perspectives for the future accounting research and practice.

THE BUSINESS ECONOMICS CONNECTION Expressions such as ‘business economics’ or ‘business administration’ are often used generically in the Anglo-Saxon scholarly world in reference to distinct national theoretical traditions relating to accounting. Though under different linguistic labels (e.g., Betriebswirtschaftslehre in Germany, bedrijfseconomie in the Netherlands, economia aziendale in Italy, företagsekonomi in Sweden, and liiketaloustiede in Finland), these business economics traditions have been known for many years in international literature. It is also widely recognized that in the above countries the relationship between accounting and business economics is a crucial element to be considered in order to understand the development of accounting thought, practice and education. In fact, with reference to those national contexts, this relationship has been, and sometimes still is, particularly close, marking not only the scientific debate about accounting, but also the latter’s practical developments. In these countries accounting is seen (or at least was seen for long) as being embedded in wider intellectual constructions, sometimes of a deductive nature and with a normative vein (but also with a pragmatic one: see Jönsson’s chapter), where the links with other

Presentation xiii disciplines dealing with fi rm activity are frequently made explicit and perceived as relevant for the very evolution of accounting. However, even if there are some studies in English addressing specifically some of these individual traditions, there are relatively few attempts to document systematically, and possibly to make a closer comparison between, these different national bodies of knowledge. With some notable exceptions (e.g. Bailey, 1984; Hopwood and Schreuder, 1984; Walton, 1986, 1993, 1995; Parker, 1989; Lee, 1990; Edwards, 1994; Zambon, 1996; Zambon and Zan, 2000 and in this volume), the prevailing literature on comparative international accounting issues seems to prefer focussing on regulations or practical aspects of the national accounting and business environments, leaving in the background some of their more profound and characterizing theoretical dimensions, such as the relationship between accounting and business studies and its evolution through time. On the other hand, there are also countries where accounting appears to show only a loose coupling, if any, with the evolution of other disciplines which deal with the fi rm and micro-economic activity. Notwithstanding that, some expressions seemingly similar to the above are frequently used as a synthetic way to refer to a collection of disciplines regarding business and fi rm operations (business studies). These expressions have often received also a degree of institutionalization in educational or theoretical terms: this is the case, for example, of ‘business administration’ in the U.S., administration des entreprises in France, and economía de la empresa in Spain (even though the Spanish case seems to be a problematic one). However, the distinction between the above two groups of countries has not to be taken in a rigid way. Beyond nominalism and nationalisms, there are interesting examples of similarities in the concept of the fi rm used and in its impact on accounting theory across the two groups. For instance, the American so-called ‘proprietary theory’ and ‘entity theory’ denote intriguing analogies with approaches proposed in the Italian literature. In particular, the proprietary theory corresponds to the approach taught in Italian accounting textbooks (and probably in accounting textbooks all over the world), whilst some features of the entity theory parallel the ideas proposed by Zappa (i.e. the founder of the Italian economia aziendale) regarding the objective of the fi rm, as being the survival of the ‘entity’ (see Viganò, 1991, 1994; Zambon, 1996; Zambon and Zan, 2000 and in this volume). As a further example of the flexible and to some extent conventional boundaries between the above two groups of countries, it can be observed from the papers which follow that in some of the national contexts, where the relationship between accounting and business economics has been for many years central in the evolution of accounting academic thought, this relationship started weakening or even disappeared in the last decades. The traditional cohesiveness and unity of these bodies of knowledge seem to have declined towards a disciplinary fragmentation in the studies dealing with the activity of the fi rm: in some of these environments the expression ‘business economics’ increasingly appears as an institutional ‘label’ with mainly

xiv Presentation an educational and socially-relevant connotation, in the name of which university courses and structures, academic careers and curricula, research and practice-oriented journals are set up, oriented and managed (e.g. the Netherlands, Germany, largely Italy). On the contrary, accounting studies in countries where that relationship has not been relevant in historical terms, have been showing diff used signs of an interest in a wider and more articulated understanding of accounting processes in institutions by referring to economic and organizational bodies of knowledge in a way which could be considered somewhat close to a business economics perspective (e.g. the UK). The international and intra-national picture in this subject area is therefore very rich and diversified. In order to investigate the variety of linkages between accounting and business economics, and to shed some light on their evolution in distinct theoretical environments, the editors of this volume decided to devote a collective study to this subject area. To this aim, a number of papers have been commissioned from specialists in various countries to illustrate the evolution and the current situation of the above relationship in their national contexts. The distinctive characteristic of this collection is that each piece concentrates on the main features of business economics theory, and their significance and impact for the development of accounting thought, education and practice within a specific country. It has been a deliberate choice to include in the project also countries where the evolution of accounting has not been characterized by the rise of a business economics approach. The presence of these countries, such as France and the UK, is conceptually justified by the importance of understanding more about the reasons why that relationship did not fully develop and spread in these environments. It has been noticed that in international accounting studies far too often Anglo-Saxon specific questions are imposed in non-Anglo-Saxon environments (Walton, 1995). The approach here utilized challenges in a sense, this tendency. Considering that the Anglo-Saxon traditions are among those where a relationship between accounting and business economics has not historically developed, the present project could then be interpreted as posing a typically non Anglo-Saxon question (also) to Anglo-Saxon countries.

REASONS AND SPECIFIC CONTENTS OF THE PROJECT The reasons underlying the decision to set up a project on accounting and business economics traditions are linked to a number of specific arguments: this perspective in conceptualizing on, and of looking at, the accounting domain appears historically to be more European in character, since the majority of countries where such a tradition of thought was developed belongs to the ‘old Continent’ (Germany, Italy, Sweden, Finland, the Netherlands), even though also the proprietary vs. entity debate in the U.S. has distinctive and influential connotations2; further, the project aims to

Presentation xv highlight the variety in the national economic understanding of accounting and of the fi rm, allowing one to delve into long established bodies of knowledge; and, last but not least, the project’s contents and its analytical angle are different from some of the mainstream views of the relationship between accounting and economics (e.g. positivistic approaches). Some of the issues addressed in the individual national studies are the following: • scientific status and general contents of accounting studies and their development in the country; • a summary of the business economics approaches in that country and of their historical evolution. Emphasis is placed on the way in which knowledge about the fi rm (and/or the micro-economic activity) is seen and conceptualized; • modes and terms of influence (or of the absence of it) of the business economics tradition on accounting thought and practice, and possible reasons for that; • general assessment of the relationships between accounting and business economics in a historical perspective, and prospects for the future. For instance, is the role of business economics expected to decline in the country (or, in case, why has it already declined) with reference to the evolution of accounting theory and practice? 3 The authors have been given considerable discretion in order to take up and/or adapt the suggestions of the above list which are consistent and meaningful with respect to their national traditions and the structuring of their contributions. The comparative approach, which is implicit in the structure of the project, should help detect some similarities and differences in the shaping of the relationship between the two bodies of knowledge in apparently distant conceptual traditions. The project reflects also the rapid expansion that has occurred in the international accounting area, and the need for a deeper knowledge and understanding in comparative terms. It does not intend, though, to be a mere history of accounting in different countries, since many contributions already exist in this direction. Its specific character is instead that of offering a particular perspective on the history of accounting in diverse national contexts, i.e. a comparative international history of accounting which focusses on the relationship (or the absence of it) between accounting and business economics and on its evolution and implications for theory, practice and education. In this respect, the project could be located within a rather innovative research segment being at the intersection between comparative international accounting (but with an intellectual/theoretical/educational orientation) and comparative accounting history (but with a focus also on future developments) (for a similar claim see Zan, 1994; Walton, 1995). The project appears then to have a quite

xvi

Presentation

distinctive characterization in the international panorama of comparative accounting and business studies.

ON THE INTERRELATIONS BETWEEN ACCOUNTING, ECONOMICS AND BUSINESS ECONOMICS As aforementioned, the coherent assembling of accounting records in the conceptual construction of the financial statements requires a theoretical frame of reference, or at least a clear awareness of which frame is being used often implicitly or unconsciously. In other words, the passage from bookkeeping to accounting implies devising a ‘framework’ aimed to provide significance and consistency to the fi nal outcome of the recording process (i.e. annual accounts). The evolution of accounting as a body of knowledge could then be largely conceived as a history of its different conceptual references. In this respect, economics has generally been considered as the primary body of knowledge for reference vis-à-vis accounting, it being perceived as able to offer sound theoretical frameworks to be ‘borrowed’ for developing accounting thought and, frequently, accounting practice (cf. Hopwood, 1992; Klamer and McCloskey, 1992). The conceptual interaction between accounting and economics has occurred in many areas (e.g. the concepts of income and wealth, the economic usefulness of accounting values, their predictive ability with respect to bankruptcies, firm growth, fi nancial market prices, and so on). In particular, the pleas by the mainstream studies for a close relationship between accounting and positive economics approaches has given rise since the end of the 1970’s to a now widely shared interpretation in the Anglo-American literature of the linkages between accounting and economics (Watts and Zimmerman, 1978, 1986). Significant claims have also been raised at times for changing accounting—especially in the Anglo-Saxon countries but also at an international level (see Hopwood, 1989)—by appealing to the economic rationality of a given set of valuation procedures or criteria (cf., for example, the ‘substance over form’ doctrine: Hopwood, 1990; and the cycles in UK standard setting as a result of contrasting economic rationales: Nobes, 1991). Accounting in turn has been frequently called upon in order to operationalize economic ideals or concepts (such as those of efficiency, economic control, rational investment decision-making, and so on). However, what is surprising is the diff use identification of economics with the neo-classical approach only, while it is a matter of fact that economics is far from being a monolithic body of knowledge: indeed its disciplinary fragmentation could be said to have increased more and more through time. Further, it seems that the theoretical relationship between accounting and economics is mostly perceived as unproblematic, where the former limits itself to receive, or in case to search for, conceptual inputs from the latter, in a sort of one-way theoretical linkage.

Presentation xvii Accordingly, it has been noted that: ‘There has been a tendency for research on the relationship between accounting and economics to accept the obviousness of their inter-connection, focusing on debating the form that this should take and its implications for one body of knowledge or the other’ (EAR Editorial, 1992: 123). Actually, the existence of business economics traditions linked up with accounting theory and education in several national contexts is an evidence of a historically different kind of understanding of the relationship between accounting and economics. That of business economics is therefore a particularly stimulating—and perhaps alternative—perspective from which to investigate this relationship. A question which naturally arises is in which sense accounting and its relationship with economics could be said to be different in a business economics theoretical context. In this respect, three distinctive and interconnected points—still of a preliminary nature—seems to emerge from the project with reference to the boundaries of the accounting domain, the conceptual understanding of accounting within organizations, and—as a specification of the latter point—the relationship between accounting and the theory of the firm. On the fi rst point, a close relationship of accounting with business economics can induce a different perception of the disciplinary boundaries of accounting. In this perspective it would appear that accounting is seen as a part of a wider discipline interested in fi rm activity, together with, say, organization, management, logistics, production, operations, and marketing studies, and so on. In this theoretical approach, the separation between these areas of inquiry tends to weaken to a mere distinction between them, and the community of knowledge producers generally shares the view that, beyond technicisms and specificities, they belong to the same scientific market and operate within the same body of knowledge. (Business) economics is then spontaneously incorporated within accounting research, and this is in turn conceived as a specialized scholarly section of the former. On the contrary, it is likely that where a business economics tradition did not historically develop, accounting is frequently seen as a self-contained discipline, which is decoupled in the main from all the others: thus, the problem of the relationship between accounting and other bodies of knowledge—especially economics—becomes immediately one of an interdisciplinary nature between two theoretically separated fields. Therefore, when accounting theory looks for a ‘borrowing’ from economics, it has to go beyond its perceived (narrow) disciplinary boundaries. Or, similarly, when it is economics which needs to make its concepts operational and viable in practical terms, it calls upon a different and apparently distant discipline (of a ‘purely technical’ nature) such as accounting, which is then perceived as other than economics.

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Also the theoretical understanding of the role and impact of accounting in organizations is probably different from that which is suggested by the reductionist view implied by standard economics. For instance, a sensitivity to the complex and multi-layered consequences of accounting in institutions could emerge as a result of the perceived closer conceptual relationship with other disciplines investigating the fi rm processes. The various significances in fi nancial and organizational terms of the accounting numbers and actions may be more easily caught in a business economics perspective. It should be pointed out, though, that accounting practice in a national environment where a business economics tradition has historically been established, is not necessarily different from that characterizing countries where this tradition never existed: what could be different are the economic understandings of, and the theorising on, accounting. On the other hand, the major cause of this different economic and organizational view of accounting could be linked to a peculiar way of looking at the fi rm and its conceptualization. In this respect, it is interesting to note that the theory of the fi rm is a part of economic thinking which has not often enough been considered in its relationship to accounting (Coase, 1990). The theory of the fi rm is in fact a stream of economics that, for its own nature, could have clear relationships with accounting practice and studies, on the basis that accounting is a quantitative representation of a fi rm activity. It is widely recognized, however, that the fi rm in the standard economic theory is conceptualized in an ambiguous and unsatisfactory way in many respects. On the one hand, some economists have treated the fi rm as a black box, where a production activity takes place according to mechanistic and unchangeable laws. On the other hand, some others have been interested in the ‘content’ of this box, but have frequently favoured the method of the ‘rational abstractification’ of the fi rm’s economic and decision-making processes (normative perspective; marginal and optimization logic; single objective of profit maximization; reductionist view of complexity; lack of recognition of fi rm’s specificities and of its organizational processes). Because of its nature, also management studies are interested in the fi rm, but it has never been able to formulate a unitary approach to this “economic phenomenon”. Only in a few approaches in the strategic management field, have strategy and theory of the fi rm been put in relation (e.g. Rumelt, 1984). Accounting studies themselves—especially in the Anglo-Saxon countries—often do not appear to consider the close relationship with the concept of the fi rm which they (implicitly or explicitly, wittingly or unwittingly) refer to. To be true, the complex and variable interactions between accounting and its fundamental theoretical reference, i.e. the notion of the fi rm and the associated business economics thought, appear to be an undervalued question in today’s accounting studies. Their emphasis on “evidence” derived essentially from fi nancial markets, tends to take these issues for granted, by removing them from attention or, better, by implicitly shifting them onto the “shoulders”

Presentation xix of investors and analysts, who make their preferences known through their market choices. Then, the theoretical background of accounting tends to disappear, thus remaining covered by the perceived users and their information needs (Young, 2006). An interesting feature arising from this analysis of the relationship between accounting and business economics in different countries is instead that an approach to the theory of the fi rm, which is different from that of standard economic theory, is utilized in some of these long-lasting traditions as a conceptual reference for accounting processes. In other words, perhaps unconsciously, these general bodies of knowledge about the fi rm could actually reveal—at a more careful analysis—an idiosyncratic concept of the fi rm itself: in fact the latter appears generally conceived not as a sort of ‘rationally optimizing point’, but as an economic, composite but integrated institution of a systemic nature, which lies outside the conventional economics equilibrium models. Hence, following along this line, one of the possible interpretative keys of traditions of thought such as Betriebswirtschaftslehre, bedrijfseconomie, economia aziendale, liiketaloustiede could be that of considering them as qualitative and incomplete forms of institutional economics, which are focussed on the fi rm activity, and in which accounting plays a major role in their origins and development. Although the relationship between accounting and business economics is complex and its role variable in the evolution of accounting thought and practice in various countries, looking at these context-specific bodies of knowledge as not fully articulated micro-economic approaches dealing with the fi rm could then be a fruitful way to take up once again these traditions and to renew the debate on some of the fundamental issues of the micro-economic activity (such as the theory of the fi rm.

ACCOUNTING AND BUSINESS ECONOMICS: AN ALTERNATIVE APPROACH TO THEORY AND PRACTICE? The question is to some extent a provocative one. The present project attempts only to bring to scholarly attention, and to address some preliminary aspects of, the subject area. At a regulatory level, a nearly forgotten link between European legislations has been rediscovered (i.e. the Napoleon’s Commercial Code: Walton, 1993). On the contrary, the fi ndings of this project appear to support the idea of an existence—beyond the strong national identities—of an implicitly shared approach to accounting theorising, which would involve— compared to some mainstream Anglo-American approaches—a richer understanding of the interconnections with other disciplines which study life, features and conditions of existence of organizations. Such an approach to accounting inquiry would be more qualitative and problematic in character, and centred upon a different mode of expressing the relationship

xx

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between accounting and economics. The economics concerned would not be of a neo-classical type, but would instead lean towards an institutional vein, where the systemic and continuous links with a (widely conceived) socio-economic context are of a primary relevance in order to understand and conceptualize accounting. And yet, most recently the need to frame accounting and company reporting in a much larger picture has been confirmed by the aforementioned business model connection, which requires to analyse the link between a typical and specific strategic and theory of the firm issue with fundamental valuation criteria (fair value) generating the year-end accounting figures and disclosures. Therefore, as pointed out earlier, the relationship between accounting and business economics, which may sound to some as a forgotten question, is still present and tends from time to time to emerge in several “concrete”, apparently only technical and professional issues. But does this mean that a business economics perspective could lead to a new approach to theory and practice? This project is not able, however, to give any defi nite answer on this, and moreover this is not its objective. At the moment only three observations could be put forward with a reasonable degree of confidence. The fi rst is that the links between accounting and business economics would appear to be an analytical perspective deserving further investigation when addressing international accounting differences and standards. The second is that accounting theory—especially in Europe—can be considered as an ‘image of the diversity and richness’, since no single dominant stream of research (and education) did or does prevail across the various countries, which have often had a quite distinct evolutionary trajectory of its own. With the full awareness of that, this project would then aim to provide some relevant materials to further highlight these national specificities. Nonetheless, it would also aim to offer an initial contribution to open up a debate on the possible existence and features of an alternative view of accounting theorising and its relations with business economics, in the spirit of emphasising similarities rather than stressing differences between national accounting traditions. The third and fi nal observation can be summarised in the following old adagio: who ignores his history does not have a future, and perhaps also present. This applies also to accounting, accountants and academics.

THE STRUCTURE OF THE BOOK The volume is articulated in three major parts. In the fi rst section, a rich and exhaustive introduction by Richard Mattessich sets the theoretical scene. In his profound scholarly contribution, we can appreciate the unfolding of the accounting theoretical thinking and issues, as well as the role of some prominent figures in some key-countries.

Presentation xxi In the second part, a rather long series of national studies exploring and delving into the multiple relationships between accounting and business economics, is presented, providing a very large and detailed view of the diversity of the ways of addressing the questions in point. In the third section, a number of essays will aim to analyse interactions, insights and implications within and between national theoretical and practical environments, in the perspective of tracing also subtle lines of international influence that depart from Germany, but that by no means fi nd there the only autonomous development source and propagator. University of Ferrara, November 2012 Stefano Zambon

NOTES 1. Stephen A. Zeff (2005), The Entity Theory of Recording Goodwill in Business Combinations: Old Stuff, guest editorial, The CPA Journal, October. The paper refers to the entity vs. proprietary theory of groups and consolidated accounts, and the associated different calculations of consolidation goodwill. 2. ‘Such explorations of the links between accounting and economics are particularly interesting in a European context. . . . The understanding of the different national ways of conceiving and operationalizing the interrelationship between them is therefore important in any examination of the diversity of ways in which accounting is seen in Europe’ (EAR Editorial, 1992: 123–24). 3. The following specific points have also been suggested to authors as possibly relevant for the aims pursued by the project (note that there might be some conceptual overlappings between these points): a) development of accounting and business economics thought in a country, also in connection with relevant socio-economic events; b) the concept of the ‘fi rm’ and its evolution through time; c) possible inner sub-divisions of business economics (say, for instance, accounting, marketing, fi nance, management, logistics, and so on); d) the boundaries of business economics as a body of knowledge (e.g., in addition to manufacturing firms, does business economics theory in a given national context regard also banks, insurances, the State?); e) the theoretical relationship between accounting/business economics on the one hand, and microeconomics/macroeconomics on the other hand, in a national tradition; f) knowledge/perception of business economics thinking of other countries and its influence on the development of accounting and business economics thought of a nation.

REFERENCES Bailey, D.T. (1984) ‘European accounting history’, in Holzer, H.P. (ed.) International Accounting. New York: Harper & Row, pp. 17–43. Coase, R. (1990) ‘Accounting and the theory of the fi rm’, Journal of Accounting and Economics, 12(1–3): 3–13.

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EAR Editorial (1992) ‘Exploring the relationship between accounting and economics’, European Accounting Review, 1(1), May: 123–124. Edwards, J.R. (ed.) (1994) Twentieth-Century Accounting Thinkers. London and New York: Routledge in association with the Institute of Chartered Accountants in England and Wales. Hopwood, A.G. (ed.) (1989) International Pressures for Accounting Change. Hemel Hempstead: Prentice Hall in association with the Institute of Chartered Accountants in England and Wales. Hopwood, A.G. (1990) ‘Ambiguity, knowledge and territorial claims: some observations on the doctrine of substance over form’, British Accounting Review, March. Hopwood, A.G. (1992) ‘Accounting calculation and the shifting sphere of the economic’, European Accounting Review, 1(1), May: 125–143. Hopwood, A.G. and Schreuder, H. (eds.) (1984) European Contributions to Accounting Research: The Achievements of the Last Decade. Amsterdam: VU Uitgeverij/Free University Press. Klamer, A. and McCloskey, D. (1992) ‘Accounting as the master metaphor of economics’, European Accounting Review, 1(1), May: 145–160. Lee, T.A. (1990) ‘A systematic view of the history of the world of accounting’, Accounting, Business and Financial History, 1(1): 73–108. Nobes, C.W. (1991) ‘Cycles in UK standard setting’, Accounting and Business Research, Summer: 265–274. Parker, R.H. (1989) ‘Importing and exporting accounting: the British experience’, in Hopwood, A.G. (ed.) (1989), pp. 7–29. Rumelt, R.P. (1984), “Toward a strategic theory of the firm”, in Lamb, R.B. (ed.) Competitive Strategic Management. Englewood Cliffs: Prentice Hall, pp. 556–570. Viganò, E. (1991) ‘International accounting. Nature, content, method’, Economia Aziendale, 10(2), August: 109–129. Viganò, E. (1994) ‘A comparative view of accounting and “economia aziendale”’, Economia Aziendale, 13(1), April: 1–70. Young J.J. (2006), Making up Users, Accounting, Organizations and Society, Vol. 31, 579–600 Walton, P. (1986) ‘The export of British accounting legislation to Commonwealth countries’, Accounting and Business Research, Autumn. Walton, P. (ed.) (1993) ‘Company law and accounting in nineteenth-century Europe’, European Accounting Review, 2(2), September: 285–375. Walton, P. (1995) ‘International accounting and history’, in Walton, P. (ed.) European Financial Reporting: A History. London: Academic Press, pp. 1–10. Watts, R.L. and Zimmerman, J.L. (1978) ‘Towards a positive theory of the determination of accounting standards’, Accounting Review, 53(1), January: 112–134. Watts, R.L. and Zimmerman, J.L. (1986) Positive Accounting Theory. Englewood Cliffs: Prentice Hall. Zambon, S. (1996) ‘Accounting and business economics traditions: a missing European connection?’, European Accounting Review, 5(3): 401–411. Zambon, S. (1996) Entità e proprietà nei bilanci di esercizio [Entity and Proprietary in Company and Group Accounts]. Padua. Zambon, S. and Zan, L. (2000) ‘Accounting relativism: the unstable relationship between income measurement and theories of the fi rm’, Accounting, Organizations and Society, 25(8): 799–822. Zan, L. (1994) ‘Toward a history of accounting histories: perspectives from the Italian tradition’, European Accounting Review, 3(2): 255–307.

Part I

Introduction

1

Accounting Theories of the First Half of the Twentieth Century The Genesis of an Academic Discipline 1

Richard Mattessich

INTRODUCTION The fi rst half of the twentieth century was the true beginning of accounting in the narrower ‘academic’ sense. Yet, I emphasize ‘academic’ rather than ‘scientific’ because accounting and business economics—despite enormous efforts during some 200 years or more—are still far away from any truly scientific success. Our discipline is locked in by the confi nes of a social science with all its norms, value judgments, and opinions relative to some specific point of view. Hence, its history is bound to reflect the temporal and geographical relativities incumbent on such social situations. In other words, accounting and its theories mirror human thoughts and behavior at a specific time, at a specific country, and under specific circumstances. Although this seems to be a fairly humbling admission, it rather conveys a ‘heroic’ fact. Despite all those limitations and ‘adversities’ (as a series of recent and not so recent global fi nancial crises manifested), accountants unfl inchingly continue to experiment with the creation of a cybernetic feedback and control mechanism that, in the long run, is indispensable for the survival of any economic system. Hence, the limitations I am referring to are not those of accountants as ingenious human beings, but of accounting as a very ‘brittle’ subject matter. I think it was John Maynard Keynes who emphasized that economics is a much more complicated endeavour than any hard science. Indeed, the enormous amount of variables and uncertainties that confront most economic problems creates sheer insurmountable difficulties. The only solution is to cut the Gordian knot, and that means making drastic simplifications and unrealistic assumptions, as well as specific value judgments. Even if all that is based on reason and sound judgment, the empirical status of our results is often doubtful. And this holds for accounting no less than for business economics or Betriebswirtschaftslehre. Look at the problems of valuation, or of allocating overhead costs, or even of coming to grips with the reality of money, debts, and ownership relations. Yet, all this does not negate the extremely important task of accountants and the groundwork laid by academics and practitioners during the nineteenth and early twentieth centuries (for details, see Mattessich

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2008/2011). But I shall here concentrate on the fi rst half of the twentieth century. Indeed, this is the task the editors have assigned to me. However, due to the enormity of the historical material available, on the one hand, and the tight space allocation, on the other hand, I offer merely a rough sketch of the genesis of accounting as an academic subject. I hope to catch the flavor of the major ideas defended by the various actors—although there is little space to convey the occasionally fierce controversies between them. Nor will I be able to discuss many details without which the picture is bound to remain fragmentary. For example, I could include only a limited number of publications for each author (as important as he may have been). I also had to omit references to works on the history of accounting to leave enough space for works concerned with introducing novel ideas, such as standard costing, direct costing, or disputes over valuation, charts of accounts, and so on. For a fuller picture, I refer the reader to the pertinent chapters in this volume and to Mattessich (2008/2011), both of which offer a large panorama with many of the exciting details. In attempting to write such a ‘survey,’ one has two choices. The fi rst is to offer some details about the most prestigious accounting academics of the period, such as Eugen Schmalenbach and Fritz Schmidt in Germany, Gino Zappa in Italy, and William A. Paton and Henry Rand Hatfield in the United States, but neglect the rest. The other alternative is to offer a concise sketch of different points of view of a greater number of leading accounting academics at the neglect of further details about the few ‘leading figures.’ In either case, the chapter (referring to the fi rst half of the twentieth century) had to abandon most of the subtleties, references, footnotes, and so on to obey the stringent space constraints. For several reasons, I have chosen the second alternative. First, sufficient literature already exists on Schmalenbach, Schmidt, Zappa, Paton, and Hatfield, as well as many others (see Edwards 1994 and the remaining chapters of this book). Second, the different views of a larger number of academics (even if only fleetingly sketched) convey much better the atmosphere, excitement, and tensions between competing views. Third, let us not forget that most of those ideas and controversies had their roots in opinions rather than in any absolute truth. This is evidenced by the fragility and temporality of many of those ideas. Yet, that does not make them less important historically. What would history be without the struggle for ideas? Yet, in either case, only three language areas (German, Italian, and English) could be taken into consideration in this chapter because that’s where the guiding ideas came from in this particular period. During the fi rst half of the twentieth century, German accounting literature had a strong influence in northern and Eastern Europe as well as Japan—and to some extent in France and the Unites States. Italian accounting literature of the time exercised considerable influence in Spain and Portugal as well as all over South America. The accounting literature of the English tongue dominated the Common Wealth countries as well as North America. But beyond that,

Accounting Theories of the First Half of the Twentieth Century 5 it became the basis of many innovations in the second half of the twentieth century that, in turn, exercised worldwide influence. As to ‘business economics’ (in the sense of the German Betriebswirtschaftslehre, the Italian Economia aziendale, or the Dutch Bedrijfseconomie), unlike microeconomics, it grew out of accounting. Nevertheless, it was conceived as a subject matter in its own right with the intention to unify several disciplines—among which accounting originally dominated the scene. Only in the second half of the twentieth century (with its specializing trends) did most of the other branches of business economics turn into respectable academic disciplines of their own—like marketing, finance, production and organization theory, operations research, and so on. But it was precisely this development that led to the present crisis of ‘business economics.’ Its ‘children’ gained such a degree of independence that there is little substance left for its parent. Hence, the endeavour of integrating all business subjects in a single discipline by means of a common theoretical foundation is nowadays regarded with skepticism. In contrast to this stands the Anglo-American ‘business administration,’ which was conceived from the outset as a kind of portemanteau or loose collection of related disciplines.

ACCOUNTING IN THE GERMAN LANGUAGE AREA

The Pinnacles of German Accounting Literature During the fi rst three decades of the twentieth century, German accounting literature was most influential. As mentioned above, it had a strong impact in northern and Eastern Europe, and in turn attracted scholars from abroad to publish in German. Indeed, notable contributions to German accounting literature were made during this period by ‘foreigners’: Gomberg (1908) from Russia, Ciompa (1910) from Poland, Kovero (1912) from Finland, and ter Vehn (1924, 1929) presumably from Sweden. This also influenced accounting practice in Eastern Europe, while the notion of Schmalenbach’s master chart of accounts found even interest in Soviet Russia. Indeed, charts of accounts spread to many continental European countries. This was also true for France, where German cost accounting and particularly inflation accounting exercised considerable academic and practical influence. To a lesser extent this held for Italy and least for Spain, which was influenced to a much greater degree by French and Italian accounting thoughts. The countries where German accounting had the least impact were the United Kingdom and those of the Commonwealth. German accounting thought was more favourably received in North America and Japan. The latter had traditional ties to Germany, particularly in regulation and academic disciplines such as economics and management. In the United States, the influence was either indirect or through German inflation accounting literature, expounded and given its own slant by Sweeney (e.g., 1927, 1936) or

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through several English publications of Fritz Schmidt (e.g. 1930a, 1930b), which exercised some influence in America, although mainly in the second half of the century, as precursor of Edwards and Bell (1961). Toward the end of the nineteenth century, a series of outstanding accounting scholars arose in Germany, Austria, and Switzerland. They combined a sound and practical sense of business with the gift to apply this intuition and knowledge in a logical and scientific fashion to the needs of an ever-increasing industrialization and commerce. With the exception of Schmalenbach and Schmidt, the following renowned scholars are little known in the English-language area: Beste, Le Coutre, Geldmacher, Gutenberg, Hasenack, K. Hax, Isaac, Kalveram, Kosiol, Lehmann, Leitner, Lion, Mahlberg, Mellerowicz, Münstermann, Nicklisch, Osbahr, Passow, Penndorf, Prion, Rieger, Seischab, Seÿffert, and Walb (all from Germany); Meithner, Bouffier, Hatheyer, and Illetschko (from Austria); and Calmes, Gomberg, Sganzini, Schär, and Töndury (from Switzerland; i.e., all of them either originally or ‘permanently’ teaching there). Most or all of these authors were born in the nineteenth century, but they were active in the twentieth century (some of them even in the second half of the century) and still carry considerable prestige in Continental Europe. It seems that the ‘theories of accounts’ and the consequent controversies were a predominantly Continental European or even German phenomenon. In Great Britain, scholars hardly took part in those controversies, just as they showed little interest in the modern successors of these particular theories, namely, the various charts and master charts of accounts that became so prominent during the twentieth century (from France and Germany to Scandinavia and Russia), while in England the focus was on auditing and the chartered accounting profession. Among the ‘theories of accounts’ (as schemes of categorization), the most successful seems to have been Hügli’s materialistic theory of two accounts classes (assets and equities). This was further developed by another Swiss scholar, Schär (1890, 1911, 1914), whose ‘closed accounts system’ was regarded by Scherpf (1955: 8) as the ‘fi rst’ chart of accounts in the proper sense. However, accounting practice before World War I was too liberally oriented to show much enthusiasm for uniform or even semi-obligatory charts of accounts. Many practitioners, as well as academics, held such an undertaking unrealistic—be it for certain industrial sectors or as a general national scheme. Nevertheless, individual theories of accounts and the rivalry between them flourished, and Holzer (1936) even attempted the axiomatization of theories of accounts classes—although this was hardly an anticipation of the more rigorous axiomatization and postulation attempts of the late 1950s and 1960s in American literature. But beyond ‘theory of accounts,’ the ‘proprietory theory’ and the slowly emerging ‘entity theory’ (both conceived already in the nineteenth century) have become considerably important for modern accounting theory, and not only in Continental Europe. The central feature of the proprietary theory was its emphasis on

Accounting Theories of the First Half of the Twentieth Century 7 the capital account and capital preservation, and later, on the balance sheet, which grew to assume a more dominant position. In the proprietory theory, the capital account was no longer considered to be a residual account but became fi rmly identified with the owners—just as the entire fi rm was considered their possession, not something apart from them. Hence, attention shifted from mere transactions (concentrating on the exchange of values) to making profit for the owners—a crucial step in the direction toward twentieth-century accounting theory. In Switzerland, Friedrich Hügli (1887/1923, 1900), elaborating on the work of earlier German authors, became a leading exponent of the proprietary point of view and demonstrated the accounting equilibrium by means of algebraic equations. Johann Schär (1914) also approached the proprietary theory by means of mathematical symbols and, more significantly, pioneered ethics in accounting and business economics. In the early twentieth century, the Swiss scholar Sganzini (1906, 1908) presented what he called a ‘realistic theory of accounts,’ which anticipated not only Schmalenbach’s dynamic accounting but even some of its improvements by others. In fact, the entity theory gained popularity only after the turn of the twentieth century through Nicklisch (1903, 1912) and other authors. Accordingly, the business enterprise was considered an “entity in its own” (Unternehmen an sich), as promoted by W. Rathenau ( 1918). This entity is autonomous and distinct from its stakeholders, including shareholders, and the accounting system was called to make that entity accountable to them. This view fully replaced the proprietary theory only during the second half of the twentieth century. Yet, the controversy between proprietary theory and entity theory continued until the middle of the twentieth century. The needs of modern corporations (with their numerous stockowners and minority interests, limited liability, transferability of interests, and, above all, separation between ownership and management) are much better served by the entity theory. A series of other theories also emerged. For example, several versions of the value cycle theory arose, emphasizing the constant transformation of values within the fi rm as reflected in the various accounts. Käfer (1966: 12–18) listed Gomberg (1908) among scholars publishing in German. Léon Gomberg was a Russian-Swiss scholar who taught in Geneva and later became professor in St. Gallen. He published original and significant theoretical as well as historical accounting publications in Russian, French, and German. Some scholars consider Gomberg one of the most impor tant accounting academics of his generation. Gomberg’s (1908) theory pivots on the fi rm’s economic cycle and emphasizes its cause and effect relations in such a way that budgeting, cost accounting, and fi nancial accounting worked together. Gomberg (1927) later developed another theory that used a geometric matrix form with separate classes for statistical, juridical, and economic events. Ciompa (1910), another scholar from a Slavic country, but writing in German, presented his ‘econometric’ accounting based on

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economic theory, which, however, has no affi nity with the modern notion of econometrics. It used current replacement costs or, alternatively, (discounted) sales values that enabled a separation of realized from non-realized gains. But unlike Kovero (1912), Ciompa did not separate corresponding losses in the same fashion. As far as the accounting use of “present values” in the early twentieth century is concerned, authors such as Ciompa, Kempin, Heina, and Rieger seem to have favored it.

The Dialectics Between Static and Dynamic Accounting in Germany In Germany, the controversy between a series of different Bilanztheorien (accounting theories)—often based on different views about the valuation of assets and the realization of income items as well as the priority of one fi nancial statement over the other (often with an interpretation of the balance sheet as either a collection of stocks or flow residuals)—slowly began in the nineteenth century but came into full bloom after 1920. Usually valuation was based on some version of the historical cost method, but the present value (and ultimately the kapitaltheoretische Bilanz) was used by Kempin (1910) and, in the post-World War I period, by Heina (1925) as well as by Rieger (1928). According to Schneider (2001: 211), the most prestigious German accounting scholars of the period were Eugen Schmalenbach, Fritz Schmidt, and (with some distance) Wilhelm Rieger. Many German experts might dispute the third rank and substitute for it either Wilhelm Nicklisch or some other scholar. In the following, we focus nevertheless on Eugen Schmalenbach and Fritz Schmidt as reference authors of two main schools of thought: the fi rst presenting ‘dynamic accounting,’ the second defending accounting based on ‘replacement costs’ (Wiederbeschaff ungspreise—aiming at what Edwards and Bell achieved through ‘specific price-level adjustments’). Eugen Schmalenbach (1899) initiated some important thoughts toward the end of the nineteenth century that led to his much discussed ‘dynamic accounting’ (Schmalenbach 1919). But, as pointed out, Sganzini (1908), in a way, anticipated Schmalenbach in this respect, as well as some of its improvements made later by others. Schmalenbach’s numerous and highly praised contributions to accounting and business economics may be classified into the following seven areas: (1) his renowned and quite formalistic, yet also controversial, dynamische Bilanztheorie (Schmalenbach 1919 and later versions), which incited numerous counterproposals by such eminent opponents as Nicklisch, Schmidt, and Rieger—and later by Hansen, Honko, Engels, Schneider, Seicht, and many others; (2) his various contributions to inflation accounting (e.g., Schmalenbach 1921, 1922a, 1922b); (3) his important work in cost accounting and pricing theory (e.g. Schmalenbach 1908/1909, 1948) through application of economic theory and such distinctions as ‘neutral expenses’ (those that are not costs and hence do not enter the price calculation process; e.g., irregular donations, uninsured fi re

Accounting Theories of the First Half of the Twentieth Century 9 losses, speculation losses) and ‘excess costs’ (those that are not expenses or expenditures in the pertinent period; e.g., depreciations and imputed interest on owners’ capital); (4) his contributions to the construction and spread of the Kontenpläne (charts of accounts) and a general Kontenrahmen (master chart of accounts) in Schmalenbach (1927, 1938); (5) his work in fi nance theory (Schmalenbach 1917 and later versions); (6) his contributions to auditing, the auditing profession, and the establishment of mandatory audit rules; and (7) his general influence on Betriebswirtschaftslehre—although this seem to be reflected mainly in his teaching and an apparently unpublished manuscript (cf. Potthoff and Siebert 1994: 92, note 2). The basic feature of Schmalenbach’s dynamische Bilanztheorie was a strong emphasis on profit determination, mainly for the purpose of efficiency control. Assets and equities at year-end were for him merely residuals (arising from the flow of expenses and revenues), claiming that their values did not reflect reality in any sense. This has often been misinterpreted, particularly by authors, including Rieger and Seicht, who believed that Schmalenbach preferred the income statement to the balance sheet. In fact, Schmalenbach believed that ‘correct’ income measurement was irreconcilable with ‘correct’ stock valuation. This ‘monistic’ attitude was criticized and refuted by Schmidt (1921) and other scholars who favored a ‘dualistic’ approach. As far as valuation is concerned, Schmalenbach, who was a highly pragmatic person, accepted various valuation bases for different asset categories. This multivalue approach was rooted in historical costs (originally without the lower of cost or market value principle), with the possibility of general price-level adjustments during inflationary times. Engels (1962) pointed out that ‘Schmalenbach uses current values, historical values, and fi xed values, without any visible principle.’ Yet, despite this apparently tolerant and pragmatic wisdom, he refused to accept Schmidt’s current value basis and never admitted its ability to generate a relevant valuation of assets concomitantly with correct income determination. Schmalenbach also rejected the present value method for fi nancial statement presentation (except for some depreciation purposes), but he accepted it outside the double entry scheme, mainly for the total valuation of the fi rm (Schmalenbach 1917/1918). 2 Finally, variations and extensions of the dynamische Bilanztheorie were developed by Mahlberg (1921, 1923), Geldmacher (1920, 1923), and others. The most important of these were Walb’s (1926, 1948) finanzwirtschaftliche Bilanztheorie as well as Kosiol’s (1944a) pagatorische Bilanztheorie.3 Schmalenbach’s student Ernst Walb was his first major successor who developed his dynamic theory in a consistent way. He shifted from Schmalenbach’s emphasis on the balance sheet (as the major means for determining income) to a better recognition of the profit and loss account as an alternative and equal partner. Walb no longer concentrated mainly on the performance stream (Leistungsstrom), but tended to give greater emphasis to the financial flow (Einnahmen/Ausgaben) that went in the opposite direction. One is

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almost inclined to see Walb’s (1926) work as an endeavour to turn the balance sheet into a flow of funds statement (something first developed in British and American accounting during the second half of the nineteenth century— though within a separate financial statement). Le Coutre also seems to have aspired toward something like a flow of funds statement. Another interesting aspect of Walb’s work is his consideration of the different variations of capital maintenance and their impact on the determination of income. In fi nancial accounting theory, Kosiol (1937, 1944a, 1944b, 1956) continued the tradition of Schmalenbach’s and Walb’s dynamic accounting, extending and developing his own Bilanztheorie and eliminating previous inconsistencies. Kosiol named this theory ‘pagatoric’ as it was ultimately based on payments (whether receipts or expenditures). Thus, the term ‘pagatorisch’ emphasized the cash flows of the fi rm. Initially, Kosiol insisted on the exclusive valuation at acquisition costs, though occasionally he used the principle of lower of cost or market value. He rejected any kind of silent reserves, as well as assets not founded in direct monetary transactions (e.g., goodwill). He also tried to separate the question of income determination from that of permissible or advisable income distribution, and he accepted only nominal (but not physical) capital maintenance. In the case of real-fi nancial capital maintenance, he had to take recourse to an additional reserve account (something hardly consistent with the acquisition cost principle). Engels believed that Kosiol’s theory was “the only of the great balance sheet theories that is logically closed . . . nevertheless, to us Kosiol’s accounting theory appears to be the weakest one—not only is it completely logical, it also is completely tautological” (Engels 1962: 202, translated). Schweitzer (1972: 174), a former assistant (professor) of Kosiol, rejected this accusation and believed it to be based on misunderstandings. Nevertheless, he attempted to improve or extend Kosiol’s system by reinterpreting the pagatoric meaning of acquisition costs and also by incorporating decision-logical value conceptions and other aspects of modern accounting (see Schweitzer 1972: 43–153, 201–204). The personalities of Schmalenbach and Schmidt, the two ‘giants’ of German accounting, were no less opposite than were their views on accounting theory. Schmalenbach, a most charismatic person, was eminently practical (more problem-oriented, but less of a system builder); he also was willing to consider compromise solutions. Schmidt, in contrast, had a more theoretical vision and was less amenable to compromise. While Schmalenbach was lionized during his lifetime, and his influence was felt deeply in Continental Europe during several decades, Schmidt received less accolades during his lifetime. Yet, he anticipated the theory of Edwards and Bell (1961) and thus obtained greater attention in British and American accounting—though mainly decades after his death. Schmidt tried to develop an accounting and valuation theory that is ‘organic’ from the viewpoint of connecting the individual fi rm with the national economy in general. Hence, his theory

Accounting Theories of the First Half of the Twentieth Century 11 was intended to mitigate the business cycles instead of reinforcing them through distorted accounting valuations (as, in his view, historical costs would do)—see Schmidt (1927). Other important works to be mentioned include Schmidt (1922a, 1922b, 1923, 1927, 1931) on such topics as Goldmarkbilanz, the benefit of replacement values for the entire economy, as well as on budgeting. Another essential merit of Schmidt’s (1921) theory lies in his pursuit of physical capital maintenance—though his distinctions between realized versus unrealized gains and real versus fictitious gains cannot match the more precise distinctions of Edwards and Bell (1961). Schmidt’s treatment of such distinctions was inadequate despite the fact that he may have been the fi rst modern scholar to distinguish between business profit (Umsatzgewinn) and some holding gains (Spekulationsgewinne). This distinction makes Schmidt’s perspective distinctive: “Holding gains are for Schmidt non-existent, though they do arise, they are no ‘real’ gains” (Engels 1962: 204, translated). As to holding gains from monetary assets, there were none because Schmidt did not use any general inflation adjustments, but he chose a shortcut and recommended keeping accounts receivable and accounts payable in balance, thus avoiding pertinent monetary holding gains or losses. He did not incorporate into his system general price-level adjustments, nor did he distinguish between monetary and non-monetary gains or losses. This could have created important insights (later attained in Edwards and Bell 1961—e.g., better information for investment decisions ex post). In other words, Schmidt recognized replacement values (similar to specific price-level changes), but he did not make provisions for changes in general purchasing power (i.e., general price-level changes). However, in contrast to Schmalenbach’s monism, Schmidt’s dualistic view asserted the possibility of representing ‘realistic’ values in balance sheet as well as income statement simultaneously. The outstanding work of Kovero (1912) also promoted the use of current or replacement values (and recognition of unrealized gains as well as losses, though under strict separation from realized gains or losses), thus anticipating crucial aspects of Schmidt’s (1921) organische Bilanztheorie, as well as of the Bilanztheorie of the Dutchman Theo Limperg (1917), who published most of his writings only in Dutch. Wilhelm Rieger (1928) tried to avoid the expression ‘theory’ in accounting, preferring in its place the German word ‘Versuch’ (attempt).4 For him, bookkeeping transactions reflected a constant process of money transformation. He also regarded the closing balance sheet as reflecting a kind of fictitious liquidation of the fi rm. This nominal approach considered the fi nancial statements as a purely monetary calculation (Geldrechnung). Rieger was skeptical toward all valuation methods, none of which he considered as being correct, except the case of liquidation into cash at the end of the fi rm’s life cycle. He even declared that “precise valuation is something that goes beyond human capacity” (Rieger 1928: 234, translated).

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Nicklisch’s (1912, 1929–1932) ‘Multi-Bilanztheorie’ had been called (by Sellien and Sellien 1956) a ‘closed universalistic system’. It was based on a comprehensive theory of values; hence, it constituted a multivalue approach. But this valuation may have been rooted more in his notion of Betriebswirtschaftslehre than in his Bilanztheorie. This may be why critics fi nd it difficult to classify Nicklisch’s Bilanztheorie (for a more detailed discussion of Nicklisch’s Bilanztheorie, see Le Coutre 1939). Furthermore, Nicklisch was (with Schär, Osbahr, and, to some extent, Schmalenbach) well known for his ‘normative-ethical’ orientation to business economics and accounting (cf. Mattessich 1995: 173–181). He envisaged the stakeholders of the fi rm as a cooperative community where performance (Leistung) and efficiency (Wirtschaftlichkeit), rather than profit or profitability, were the decisive operational criteria—a community where the opposition between ‘labor’ and ‘capital’ could be minimized. According to Schneider (1981b), one can fi nd in Nicklisch (1921) early endeavours of combining nominal and physical capital maintenance. Apart from all this, he distinguished between the Bestände Bilanz (a static point of view) and the Bewegungsbilanz (a dynamic viewpoint). And as to his contributions to Betriebswirtschaftslehre in general, Schneider makes the following remarks: The fi rst ‘general’ Betriebswirtschaftslehre, transcending the framework of commercial techniques, was written by. . . . Heinrich Nicklisch [1876–1946]. . . . A fi rst useful basis for dispersing this knowledge was created in the text by Nicklisch (1912) and to a lesser extent by Schär (1911). . . . The climax, from a decision logical point of view, was achieved by Eugen Schmalenbach within the new scientific community. (Schneider 1981a: 130–131, translated) At any rate, Nicklisch was one of the most prestigious figures of academic accounting, but also one of the earliest opponents of Schmalenbach’s version of the dynamic Bilanztheorie.

ACCOUNTING IN THE ITALIAN ACADEMIC LITERATURE

Zappa’s Dominance in Italy, and His Rivals Zappa overshadowed many other Italian scholars, but for this very reason, their names and major publications deserve the attention of a wider audience. Above all, it must be borne in mind that other Italian ‘giants’ of accounting, like Giuseppe Cerboni and his disciple Giovanni Rossi, as well as Zappa’s teacher, Fabio Besta, were still published during the early twentieth century.

Accounting Theories of the First Half of the Twentieth Century 13 But I should like to offer a flavor of Italian accounting studies of other scholars worth mentioning—particularly of such names as Vittorio Alfieri, Aldo Amaduzzi, Clitofonte Bellini, Ugo Caprara, Alberto Ceccherelli, Pietro D’Alvise, Francesco De Gobbis, Francesco Della Penna, Lorenzo De Minico, Teodoro D’Ippolito, Benedetto Lorusso, Vincenzo Masi, Federigo Melis, Ettore Mondini, Pietro Onida, Emanuele Pisani, and others (the melodic sounds of such names would already be an incentive to do so). Four features seem to be characteristic of Italian accounting of this period, particularly in comparison with France or even Germany. First, there has always been enormous interest in historical accounting studies deeply rooted in the Italian tradition. Indeed, the sheer volume of this kind of research is so comprehensive that I had to exclude practically all of those historical studies (as I also did in this chapter with regard to the German and English language because of space limitations). One notable exception that I mention here is Melis (1950), whose monumental work reaches from Babylonian cuneiform recording to nineteenth-century accounting—even if modern research on Sumerian and Babylonian accounting has greatly expanded our vision by surprising insights (cf. Mattessich 2000; Schmandt-Besserat 1992). Second, we encounter some interest in cost accounting, though by no means as much as in the Germany and Anglo-American accounting literature. Third, there was relatively little interest in charts and master charts of accounts—apart from the work by Onida (1947a, 1947b) and D’Ippolito (1932, 1945). The pertinent government project for Italian accounting standards goes back to 1932. Teodoro D’Ippolito was a member of the pertinent Central Commission for the Unification of Accounting, Uniconti. The original description of this project is in D’Ippolito (1932), forming the reference point for the framework of the Commission Uniconti and, apparently, for the subsequent French ‘plan comptable’ Fourth, there was an equally limited interest in inflation accounting (again compared with the German and French language areas)—even if inflation may have influenced Italian accounting more indirectly as Canziani (1994: 147) indicated with the following words: “The reality of income— particularly during inflation and with reference to fi rms—became a topic of troubled speculation in those very years, 1912–1920.” As to G. Rossi’s (1907) book, Nuovi studi di Ragioneria e battaglie critiche, its title already revealed the clash between the traditionalists and some challenging ‘modern’ thoughts. But this referred to the thoughts of his contemporary, Fabio Besta, rather than Gino Zappa, who at the time was not yet a major force in accounting theory. Besta had become prominent during the last decade of the nineteenth century. During the fi rst quarter of the twentieth century, Besta was still the leading Italian scholar, as he completed in 1916 the third volume of his three-volume magnum opus (Besta 1922). This new trend (rooted in the older version of Spencer’s

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and Comte’s positivism) related accounting to economic theory, put great emphasis on management control (be it for private or public enterprises), and emphasized the applied scientific nature of accounting. Besta also represented another ‘novel’ trend, the shift from a personalistic to a nonpersonalistic (materialistic) theory of accounts along the interpretation of the venerable Francesco Villa [1801–1884]. Finally, and for Italian accounting most decisively, Besta began to oppose the logismography of Cerboni, his predecessor. But Besta’s thoughts still moved within the framework of the proprietary theory without much consideration of the entity theory. Above all, his system still rested on the balance sheet and its valuations (see also Besta 1910). Besta’s work has been highly praised, also outside of Italy. For him, the center of accounting was a ‘fund’ consisting of active (or positive) and passive (or negative) components—in other words, assets and liabilities. One series of accounts was kept for the different real elements (assets and liabilities) and another one for the ideal parts, “derived from the variable total sum of the fund.” The changes in assets and liabilities (original or elementary changes) determined the corresponding changes in the fund (derivative changes). He defined accounting as a science of economic control, applicable to every sort of enterprise, or economic entity—family properties, the owners’ equities of fi rms or public utilities, and government entities. In this light, periodic income was a specific change of capital. Yet, his notion of economic control included the antecedent and the concomitant as well as the subsequent. Furthermore, Besta established a general business framework, outlining the organizational design as a premise for economic control. This allowed management to make rational decisions and govern the business according to economic laws. Besta had many faithful disciples who developed and refi ned his ideas: Alfieri (1912, 1928), D’Alvise (1920), Vianello (1935), De Gobbis (1915), Rigobon (1920), Ghidiglia (1909a), Armuzzi (1906), Lorusso (1922), and Ceccherelli (1915, 1947). Other scholars, such as Masi (1946/1947), Giannessi (1943), and Riparbelli (1943), can be considered as having further developed Besta’s theories. But the most notable of Besta’s disciples was Gino Zappa, who, between 1921 and 1949, held the chair of accounting in the University of Venice (where Besta had previously taught) and was professor at Bocconi University of Milan. In Zappa’s view (1920–1929, 1937), the central theme of business accounting was income determination. Just as in Schmalenbach’s dynamic accounting theory, the balance sheet was in Zappa’s scheme an instrument of income determination. Although the premise for this so-called ‘income system’ originated with Besta, Zappa’s school imparted to it a new theoretical basis that differed fundamentally from Besta’s original theory. According to Zappa’s ‘income system,’ the preeminent object of the fi nancial statement was not to determine the status of capital (as Besta did). Instead, the income stream was at the core of the accounting representation. This

Accounting Theories of the First Half of the Twentieth Century 15 income stream was the joint product of many factors. The fi rst factor was the flows of revenues and costs that arise from the managerial process of the business enterprise. The determination of all and every accounting item was seen to depend on all the others and vice versa. This reflects the interdependence of all production factors. Only in special cases, such as ‘liquidation’ or ‘merger’ of the fi rm, was the value of capital not derived from the regular income stream (the ‘system of values’), but from autonomous and unitary assessments. Generally speaking, capital determination was derived by income determination, not vice versa (as Besta did). Capital gains and capital losses were not treated as positive or negative items of income of the pertinent period. They constituted ‘adjustments’ of the estimated income realized in preceding periods, where they were regarded as anticipations of the future. Although Zappa opted for multipurpose valuation and periodic revaluation, his capital maintenance concept was considered neither a real financial (nor a physical) one but one based on the present value notion and supposed to maintain income capacity. Zappa believed that acquisition costs offered the best starting point, even if requiring adjustments in special circumstances. Zappa searched for a method of ‘maintaining capital’ by maintaining the income capacity of the firm, and he regarded a general comprehensive revaluation as justified only under favorable economic conditions of the enterprise (i.e., increased earnings capacity). Furthermore, Zappa viewed his ‘theory of quantitative determination’ as inseparable from the study of the organization and the management of an enterprise (avoiding any pure formalism). Consequently, accounting was seen as investigating the structure and economic life of the ‘azienda’ (i.e., the ‘enterprise’, or an ‘institution’ or other ‘entity’). Organization theory and management theory became inseparable from accounting theory (cf. Zappa 1927: 20). Thus, economia aziendale was conceived as consisting of interconnected subsystems that revealed the entire azienda in all its complexity. Zappa’s accounting magnum opus, La determinazione del reddito nelle imprese commerciali, I valori di conto in relazione alla formazione dei bilanci (Zappa 1920–1929), was hailed as revolutionary. It focused on valuation and the economic notion of income. All this gives rise to two open questions. First, to what extent did Schmalenbach and Zappa influence each other (or who influenced whom)? Second, why was each of them silent about the other—be it in general or in their major works? In Italy, Economia aziendale and the German Betriebswirtschaftslehre were not at all considered to be identical. The Italians argued that the former referred to a broader and more universal notion (e.g., including government entities), while the latter was claimed to have a much narrower basis. But this is an obvious misconception. Both disciplines were originally conceived as novel disciplines integrating accounting, production and organization theory, marketing, and so on—and independent whether applied to business, government, or non-profit institutions.

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This made eminent sense at the early part of the twentieth century, when the pertinent literature in many of these subareas was relatively small and when one needed a ‘united front’ to consolidate a young and struggling area of research. Today—when the immense amount of management and administrative publications can be mastered only through increasing specialization—these ‘advantages’ are doubtful and challenge the current state of such ‘overall-disciplines’ With regard to valuation, again the basic thrust was apparently the same for Zappa as for Schmalenbach. Both seemed to have had a bias in favor of the acquisition cost basis, but they were realistic enough to accept a multivalue basis when necessary. Thus, in the theories of both scholars, one encountered values other than acquisition costs (in Zappa’s theory even replacement values and present values). A major distinction between Zappa and Schmalenbach was the latter’s comprehensive treatment and important contributions to cost accounting, while Zappa’s interest in cost accounting is highly disputed. He did not deny the usefulness of cost determination or its possibility. But he emphasized that costs could not be the object of a rigorous scientific measurement (e.g., in the allocation of overhead costs). This was his major argument for not involving himself in cost accounting—even if he could not deny its usefulness or necessity from a practical point of view. Finally, Zappa as well as Schmalenbach contributed essentially to accounting practice and legislation. Apart from the greater emphasis on cost accounting and master charts by Schmalenbach, the difference between Zappa’s and Schmalenbach’s views may have looked more formidable during the fi rst half of the twentieth century than it does nowadays when style and technical details are seen to be less relevant. Needless to say, both Zappa and Schmalenbach left a decisive legacy in the form of their publications, students, assistants, and aficionados. Zappa had many disciples who distinguished themselves in accounting and economia aziendale studies: Amaduzzi (1936), Marcantonio (1942), Masini (1947), Onida (1926, 1947a, 1947b), N. Rossi (1949), and Zerbi (1948). Other experts, such as De Minico (1931, 1935), Amodeo (1938), and Salzano (1936), were not really Zappa’s disciples, but their works were in some ways extensions that occasionally went beyond Zappa’s teaching. Yet, the new trend promoted by Zappa in accounting, management, and administrative studies also aroused criticism and objections by scholars such as De Dominicis (1938), De Gobbis (1931), Della Penna (1922), Masi (1943), and Vianello (1935).

Italian Studies in Cost Accounting and Government Accounting Research by such scholars as De Minico (1935, 1946), D’Ippolito (1935, 1946), Amodeo (1941, 1945), and De Minico and Amodeo (1942) concentrated on the methodology of costing and cost allocations, and the link between costs

Accounting Theories of the First Half of the Twentieth Century 17 and prices. These were notable Italian contributions in cost accounting. Further important cost accounting studies were those by Jannaccone (1904), Argenziano (1910), Battarra (1911), Tognacci (1925), Onida (1926), Pacces (1934), Giannessi (1943), Ceccherelli (1936), Bodrito (1937/1938), Giovannini (1938–1939), Ardemani (1940), Sassi (1940), Marcantonio (1942), Riera (1949), and so on. However, Italian cost accounting during this period had to overcome a formidable hurdle, namely, the resistance of Zappa, the leading accounting authority of the time. Cinquini and Marelli (2002: 97) pointed this out by stating that, “Under this [i.e., Zappa’s] teaching, based on a systematic approach to business, the possibility of getting detailed information about management was substantially denied.” The concern with government accounting, a particularly favorite topic of Italian scholars, was taken up by Besta (1900), Pisani (1901, 1909), G. Rossi (1905, 1906, 1917), Ravenna (1903), Ghidiglia (1909b), De Brun (1911), D’Alvise (1912, 1940), Bruni (1914), Lorusso (1924), Vianello (1925, 1927), Cova (1926), Monetti (1926, 1937), Tognacci (1930), Chianale (1935), RossiPassavanti (1935), Riera (1935), Masi (1937, 1947), and Pivato (1942, 1946).

ACCOUNTING RESEARCH IN THE ENGLISH-LANGUAGE AREA

Financial Accounting The best-known names of British accounting during the early decades of the twentieth century were those of such nineteenth-century accountants as Arthur Dickinson, Laurence Dicksee, and Frederic de Paula. These scholars are well known for their work in the area of fi nancial accounting and auditing. Other Britons, like Alexander Church and J. M. Fells, acquired their reputation in cost accounting. In America, the most prominent figures of the time were (apart from Dickinson and Church, both of whom established themselves in the United States during this time, though Dickinson ultimately retired in the United Kingdom) such scholars as Charles Sprague, William Cole, Henry R. Hatfield, J. Sterret (1907—with one of the earliest treatments of professional ethics), Robert Montgomery, George O. May, Harry Bentley, and John Wildman. As to Sprague’s (1907/1908) book title Philosophy of Accounts, it might be considered a misnomer, but the book was one of the fi rst American accounting texts that went beyond rote learning, relying instead on reasoning and a deeper understanding. It combined “scholarly erudition, philosophic insight and practical experience.” It also abandoned the ‘personalistic’ theory (of identifying every account with a person) and conformed to a considerable extent to the ‘materialistic’ (or, better, ‘non-personalistic’) theory of accounts as promulgated in Europe by Fabio Besta, Friedrich Hügli, Johann Schär, and other authors (see above).

18 Richard Mattessich In the early decades, Hatfield and Gilman were considered to be the leading accountants in North America. Hatfield’s book (1909, with several editions and titles) on modern accounting is claimed by Moonitz as “the fi rst intensive and extensive discussion of accounting theory and practice in the United States.” Yet, Hatfield’s fame rests no less on two other publications. First is the often quoted co-authored work by Sanders et al. (1938) that dealt with accounting principles (based on the idea of clearly separating income from capital). It was written in response to previous (though less successful) attempts by the precursor of the American Association of University Instructors in Accounting 1936) and the precursor of the American Institute of Accountants (AICPA) to search for a ‘tentative’ statement of accounting principles. Furthermore, Hatfield (1924) wrote a delightful and witty paper, “An Historical Defence of Bookkeeping,” which encouraged future generations of accountants to study history. Although Hatfield (1909) rejected present values for balance sheet presentation, he discussed them together with the notion of current cost values. As to the topic of depreciation, it was, of course, repeatedly discussed during this period (by Paton, Fowler, Hatfield, Mason, Preinreich, etc.). As to the historical cost model and the (traditional) realization principle, these terms were generally accepted by Hatfield, Dicksee, and other prominent authors as the basis for sound and conservative accounting practice. But then the balance sheet still had priority over the income statement. Hatfield derived his theories inductively from practical experience and was counted to the ‘pre-classical school’ together with Cole, Dickinson, Esquerré, Kester, Montgomery, Sprague, and Wildman. Gilman’s (1939) book, in contrast, emphasized the notions of profit and the income statement as opposed to the balance sheet possibly influenced by Schmalenbach or Zappa. Dicksee—who, in contrast to Dickinson, remained in Great Britain— was no less a prolific writer. Among his seventeen books, the best known was his Auditing (Dicksee 1892/1902). It attained some nineteen editions in the United Kingdom and was adapted by Montgomery in America (Dicksee 1905), where it became a genuine bestseller (another early auditing text in England was written by De Paula [1914] and in the United States by Montgomery [1912]). Dicksee, a defender of the ‘going concern principle,’ was deeply concerned about valuation issues. Dicksee (1903) became renowned for criticizing inadequate depreciation procedures. Later on, Dicksee (1910, 1911) published on government auditing and advanced accounting, respectively. Some scholars contribute to Dicksee early manifestations of the dichotomy or even controversy between the ‘clean surplus’ theory (with its comprehensive income state ment and residual income valuation), on the one hand, and a ‘dirty surplus’ theory (with its operational income statement), on the other hand. While the latter has the advantage of smoothing out long-term income fluctuations for better estimating anticipated profits (pos-

Accounting Theories of the First Half of the Twentieth Century 19 sibly over a longer run), the former may offer a more ‘realistic’ momentary (or past) picture. The American author, William Cole (1908, 1910), pioneered in several of his publications the ‘where-got, where-gone’ statement (a kind of flow of funds statement) and concerned himself with the need for the entity theory as well as with auditing issues. He even began to use the notion of physical capital maintenance, despite the fact that he accepted the lower of cost or market value approach. In America, a new generation of famous accounting scholars came to the fore. The most prominent among them was William A. Paton, Sr. The rest of the galaxy comprised the following names: Roy Kester, John Canning, Thomas Sanders, A. C. Littleton, Stephen Gilman, D. R. Scott, James Bonbright, Eric Kohler, Gabriel Preinreich (originally from AustriaHungary), Carman G. Blough,, Kenneth MacNiel, Willard Graham, the Yale economist Ralph Jones, Henry Sweeney, Herbert Taggart, and Perry Mason. Further names are the renowned economist Irving Fisher (1911), who occupied himself with the problem of the purchasing power of money. Among the accountants were Roy Kester (1916), who expressed dissatisfaction with the historical cost approach, and Livingston Middleditch (1918), who recommended general price-level adjustments. Their compatriot, Seymour Walton (1918), also concerned himself with changing market prices of assets but assumed a more conservative position. Of similar attitude was J. M. Fells (1919, 1922) from Great Britain. In the United Kingdom, three notable scholars emerged later at the London School of Economics: William Baxter (1937, 1949); David Solomons (1948), who ultimately moved to the United States; and Harold Edey (1950). Independent of this ‘LSE-Trio,’ one might add F. Sewell Bray. He not only founded the journal Accounting Research (resurrected as the Accounting and Business Research after many years of suspension), but he also made his mark as an original author on social accounts (Bray 1949). There also was R. S. Edwards (1938a, 1938b) and the British-American economist (and later Nobel laureate) Coase (1937, 1938) whose highly original contributions (to the theory of the fi rm, transaction costs, etc.) has been rediscovered, though only in the late second half of the twentieth century. Speaking of British Nobel laureates, one must mention Richard Stone— and his co-authored work with J. E. Mead and Richard Stone (1941)—for his important contributions to national income accounting—after all, it is accounting. Speaking of economists, we have to add Alfred Marshall (1905a, 1905b, 1919), J. Stamp and Nelson (1924), Fowler (1934), and Rowland (1936, 1938). Among the American authors of this or the next generation were Maurice Moonitz, Carl Devine, William Vatter, and Lawrence Vance, all of whom contributed already to the fi rst half of the twentieth century but became prominent in American accounting during its second half.

20 Richard Mattessich As already pointed out, the leading American accounting theorist of the fi rst half was William A. Paton, Sr. His doctoral dissertation, published later in book form as Accounting Theory: With Special Reference to the Corporate Enterprise (Paton 1922), foreshadowed efforts of establishing a postulational system for accounting. This book, together with Montgomery’s edition of Dicksee (1905), Sprague’s (1907/1908) The Philosophy of Accounts, and Cole’s (1908) Accounts, Their Construction and Interpretation, was one of the fi rst major American contributions to accounting literature. Another widely read and influential work that Paton produced—this time with another renowned American (some might say ‘the second ranking accounting academic’ of the time)—was An Introduction to Corporate Accounting Standards (Paton and Littleton 1940). Many books followed, and among the hundred or more articles of his, the most frequently mentioned were Paton (1918, 1920a, 1920b). Henry Sweeney’s (1936) Stabilized Accounting (based on an awardwinning doctoral dissertation of 1927) was the fi rst full-fledged inflation accounting theory developed in America—though Middleditch (1918) discussed general price-level adjustments almost a decade earlier in the United States. Sweeney’s work was inspired by similar theories that arose in Germany during the 1920s, but with its own peculiarities and innovative features. Although Sweeney’s theory is based on general price-level adjustments, it does consider an additional adjustment for replacement values. Unfortunately, its publication experienced a delay of many years, and when it fi nally appeared, inflation issues were out of vogue. Thus, it took many years before this book and a series of related papers by Sweeney received due recognition. Of special practical as well as theoretical significance was the work by Sanders et al. (1938), A Statement of Accounting Principles. As one of the early attempts of formulating such principles, it contained important generalizations from accounting practice. The book even exercised influence abroad, but it was criticized for relying too much on extant practice with insufficient distinction between good and bad accounting customs. Yet, the most significant work of this genre was Paton and Littleton’s (1940) An Introduction to Corporate Accounting Standards. It reflected both the analytical thinking of Paton as well as the inductive approach of Littleton, and it may be regarded as the fi rst quasi-codification of accounting principles ‘deductively derived’—in contrast to generalizations from ‘practice.’ Similar to Schmalenbach’s theory, Paton and Littleton put income determination into the foreground and regarded the values of assets as residuals (unexpired costs). Despite initially sympathizing with replacement costs, these authors and others ultimately yielded (for practical reasons) to historical costs and the realization principle. Other eminent scholars were Kohler, Blough, and MacNeal. Eric Kohler (1935, 1938) had considerable impact on accounting thought as a scholar,

Accounting Theories of the First Half of the Twentieth Century 21 teacher, and practitioner. Another author who concerned himself for many years with problems such as accounting standards, depreciation, and others was Blough (1937, 1948). A typical example (of an author’s single work becoming a ‘landmark’) was the highly original but equally controversial book by MacNeil (1939), Truth in Accounting. He fought bitterly for the market value approach—but only for marketable securities and raw materials. Occasionally he preferred replacement costs and even suggested realizable cost savings. Apart from valuation problems, those of accounting rules, principles, and standards were central. The controversy pivoted not only on the defi nition of these terms but, above all, on the question of whether uniformity of accounting standards is necessary or even desirable. The discussions were lively and went on for years, but less in academic than in professional journals such as the Journal of Accountancy. A different kind of author was David R. Scott. He began with his Theory of Accounts (Scott 1925), based on the historical evolution of accounting as dependent on corresponding economic development. Yet, his fame rests more on his Cultural Significance of Accounts (Scott 1931), in which he applied to accounting the social ideas and ideals of the famous institutional economist Thorstein Veblen (1899). Scott envisioned accounting as helping to reshape institutions, thus facilitating the need for government regulations to overcome the social inadequacies of the free market. Another important accounting notion was the idea of flow of funds statements. Although it can be traced to the nineteenth century, Cole’s (1908) book raised the question of ‘where got, where gone?’ and utilized the ‘all resources approach’ for fi nancial statements. A related method was later pursued by Esquerré (1925). Vatter (1947) developed a different kind of fund theory—in reaction to the proprietary theory as well as the entity theory, both of which he deemed inadequate. He envisioned no less than six kinds of fund statements: a cash and bank fund, a general operating fund, an investment fund, a sinking fund for current items, another sinking fund for investments, and a capital fund. For each of these funds, he envisioned a separate balance sheet. Although these ideas were not practically realized, they may well have given impetus to the later acceptance of flow of funds and cash flow statements in practice. George O. May’s (1936) book, Financial Accounting: A Distillation of Experience, expressed best his pragmatic attitude to accounting. With regard to accounting problems of consolidation, it was Moonitz (1944), with The Entity Theory of Consolidated Statements, who presented a conceptual approach to integrate closely allied corporations as a distinct entity. Moonitz (1948) also concerned himself (already during this period) with price-level problems. Vance (1943), with a study on the history in the inventory valuation, later pioneered statistical methods in accounting and auditing (see Vance 1950).

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Cost accounting The ‘earliest known writings on standard costing’ seem to have been by Longmuir (1902) and Garry (1903). Later proponents were Bentley (1911), Charter Harrison (1918/1919, 1920), and Carman (1930). Elbourne (1914) wrote on factory administration, and Castenholz (1918) examined interest on capital as a cost component, while F. D. Brown (1927a, 1927b) wrote on centralized control and pricing policy, respectively. Such cost accounting ideas were refi ned in the United Kingdom by Hall (1904) and Nicholson (1909) as well as Strachan (1909), who emphasized the contrast to process costing. Longmuir (1902), in contrast, was particularly concerned with controlling the cost function, though he rejected job costing, and Garry (1903) dealt with varian ces of both volume and price. Arnold (1903) emphasized the task of factory managers as predicting future production costs, while Whitmore (1908) suggested that idle capacity costs ought to be charged and written off in a separate account. He also seems to have contributed to the standard costing notions of Hamilton Church (1901/1902, 1908, 1910, 1917), who advocated the use of ‘production centers.’ The American efficiency engineer Emerson’s (1908/1909) classic on standard costing employed the standard hour as the ‘real standard unit cost,’ as well as using a single overall variance between actual and standard costs. Furthermore, Sir John Mann (1904) continued to argue for separating marketing overheads from production overheads. He also advanced the idea of using machine hour rates for cost allocation (a nineteenth-century idea). Almost simultaneously with Hess (1903), Mann (1904) presented the concept of the break-even chart. Later, improvements of this important tool of cost accounting were made (among others) by Knoeppel (1920) and Rautenstrauch (1922), who christened the ‘break-even chart.’ And Hamilton Church (1901/1902) published a standard reference work on ‘cost-finding.’ Church further developed such notions as production centres and idle capacity, and he drew attention to the difference between ‘normal’ versus ‘abnormal’ costs, as well as to the ‘scientific’ machine-hour rate. This seems to have influenced the work of Whitmore (1906/1907, 1908). Furthermore, the contributions to cost accounting by Gantt (1915, 1916) and McHenry (1914, 1916), as well as those to budgeting by McKinsey (1922), deserve to be listed. Finally, the American economist J. M. Clark (1923)—with his motto ‘different costs for different purposes’—must not be forgotten

CONCLUSION We have seen that accounting as an academic discipline gained its momentum during the fi rst half of the twentieth century. Although many countries

Accounting Theories of the First Half of the Twentieth Century 23 produced eminent accounting scholars, the greatest influence during this period came from the literature of three language areas: German, Italian, and English. But each of these branches contributed in a different fashion. The German accounting literature emphasized ‘theories of accounts’ and charts of accounts, as well as Bilanztheorien (where valuation issues as well as the rivalry between balance sheet and income statements took priority). Other important contributions of the German literature were in cost accounting, such as allocation methods, a strict methodological separation between fi nancial accounting and cost accounting, as well as the relation between costing and pricing issues. The hegemony of the German accounting literature was mainly Northern and Eastern Europe, as well as Japan. It extended (in a more limited way) also to France and the United States—in both of these countries, mainly due to issues of inflation accounting. The influence of Italian accounting literature, in contrast, manifested itself mainly in Spain, Portugal, and many parts of South America—and to some extent in France. This influence stemmed mainly from Zappa’s accounting theory, although such precursors as Rossi and Besta also played a considerable role. To some extent, other Italians, even a rival of Zappa, had noticeable impact in South America. To give an example, a Street in Sað Paulo (Brazil) is supposed to be named in honor of the Italian accounting professor Vincenzo Masi. English and American accounting literature obviously dominated during this period the entire English-speaking world. But beyond that, its influence was limited at the time. Yet, in the second half of the twentieth century, this influence became worldwide and, in a way, carried its past with it. Apart from that, the special strength of the ‘Anglo-American’ literature was in auditing and public accounting, in the search for accounting principles or axioms, and last but not least in cost accounting. Indeed, the practical use of such features as direct or marginal costing, standard costing, business budgeting, and break-even charts can all be traced to this literature.

NOTES * Financial support for this project from Social Sciences and Research Council (of Canada) is gratefully acknowledged. I also acknowledge substantial advice to this Section 1 by Professor Hans-Ulrich Küpper of the University of Munich. I, furthermore, acknowledge substantial advice to this Section 2 by Professor Giuseppe Galassi of the University of Parma. 1. For English publications about the dynamische Bilanz, see de Motte Green (1937) and Forrester (1987). 2. While Kosiol’s pagatoric theory had its origin in the late 1930s, it had its major impact after World War II. 3. Instead of Betriebswirtschaftslehre, he spoke of Privatwirtschaftlehre, as did Schmalenbach originally, thus emphasizing the ‘private’ (i.e., the profit and business) character of his endeavour.

24

Richard Mattessich 4. Coase (1990) provides some autobiographic sketch of his period at LSE and contact with Edwards and Fowler,

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28 Richard Mattessich Ghidiglia, C. 1909a. Compendio di ragioneria generale (Compendium of general accounting). Leghorn: Giusti. Ghidiglia, C. 1909b. La contabilità di Stato nei suoi fi ni e nei suoi rapporti con le altre discipline (Government accounting, its aims and its relations with other disciplines). Padua: Crescini. Giannessi, E. 1943. Costi e prezzi-tipo nelle aziende industriali (Standard costs and prices of industrial fi rms). Milan: A. Giuff rè. Gilman, S. 1939. Accounting concepts of profits. New York: Ronald Press. Giovannini, P. 1938–1939. Costi, prezzi, politica corporativa e indagini aziendali (Costs, prices, corporate politics and business investigations). Annuario di studi e ricerche della Facoltà di Economia e Commercio dell’Università degli Studi di Genova, anno IV, No. 4. Genova: Società Editrice Dante Alighieri. Gomberg, L. 1908. Grundlegung der Verrechnungswissenschaft (Foundations of Accounting Science). Leipzig: Duncker & Humblot. (Japanese translation, Kaikegaku hohoron, Tokyo: Ganshodoshoten, 1944.) Gomberg, L. 1927. Eine geometrische Darstellung der Buchhaltungsmethoden (A geometrical presentation of bookkeeping methods). Berlin: L. Weiß. Hall, H. L. C. 1904. Manufacturing costs. Detroit, MI: The Bookkeeper Publishing Company. Harrison, G. C. 1918/1919. “Cost Accounting to Aid Production.” Industrial Management (October/June). Harrison, G. C. 1920. “Scientific Basis for Cost Accounting.” Industrial Management (March): 237–242. Hatfield, H. R. 1909. Modern accounting: its principles and some of its problems. New York: Appelton. (Revised ed., Accounting: its principles and problems. New York: Appelton, 1927; reprinted in K. A Laurence, New York: Scholars Book Co., 1971; New York: Arno Press, 1976.) Hatfield, H. R. 1924. “An Historical Defence of Bookkeeping.” Journal of Accountancy (April): 241–253. (Originally presented on December 29, 1923, at the American Association of University Instructors in Accounting, the later AAA.) Heina, F. 1925. “Die Bewertung der Anlagen in Bergbaubilanzen einschließlich der steuerlichen Behandlung der Substanzverringerung” (Valuation in the balance sheets of the mining industry, including the taxation of diminishing capital). Zeitschrift für handelswissen schaftliche Forschung 19: 97–138. Hess, H. 1903. “Manufacturing, Capital, Costs, Profits and Dividends.” Engineering Magazine (December): 367–. Holzer, H. 1936. Zur Axiomatik der Buchführungs—und Bilanztheorie (To the axiomatic of bookkeeping). Stuttgart: Kohlhammer. Hügli, F. 1887/1923. Die Buchhaltungs—Systeme und Buchhaltungs-Formen (Bookkeeping systems and forms of bookkeeping), 3rd ed. Berne, Germany: K. J. Wyss (reprint ed., Osaka: Nihon Shoseki, 1977). Hügli, F. 1900. Buchhaltungsstudien (Bookkeeping studies). Berne: K. J. Wyss. Jannaccone, P. 1904. Il costo di produzione (Production costing). Biblioteca dell’economista, serie IV, Vol. IV, parte II. Turin: Utet (reprint ed., Turin: Utet, 1956). Käfer, K. 1966. Theory of accounts in double-entry bookkeeping. Urbana, IL: Center for International Education and Research in Accounting, University of Illinois. Kempin, W. 1910. Entwicklung der Bilanzlehre und der Abschlußtechnik (Development of the balance sheet and closing technique). Düsseldorf: Dobler Peltzer. Kester, R. B. 1916. A study in valuation of the commercial balance sheet. Unpublished doctoral dissertation, Columbia University, New York.

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Riera, A. 1935. Lineamenti di contabilità di Stato (Outline of government accounting). Siracusa: Istituto di Ragioneria “F. Besta.” Riera, A. 1949. I costi industriali (Manufacturing cosys), 2nd ed. Catania, Italy (1st ed., 1946). Rigobon, P. 1920. Tecnica dei commerci (Commercial techniques). Padua: La Litotipo. Riparbelli, A. 1943. Aspetti tecnico-contabili delle disposizioni del nuovo Codice civile in materia di bilanci di società per azioni (Technical-accounting aspects of the regulations of the new civil code for fi nancial statements of stock companies). Florence: Coppini. Rossi, G. 1905. Le scritture metodiche della Ragioneria Generale dello Stato. Memoria (Methodical recordings of the General State Accounting Office. A Memoir). Reggio Emilia: Stab. Cromo–tip. S. Cuore di Gesù Cristo. Rossi, G. 1906. Nuove osservazioni sul rendiconto patrimoniale dello Stato (New remarks on the fi nancial statements of the State’s treasury). Modena: Tip. della Società Tipografica. Rossi, G. 1907. Nuovi studi di Ragioneria e battaglie critiche (New accounting studies and critical controversies). Reggio Emilia: Società Tipografica–Editrice S. Ferraboschi Rossi, G. 1917. Studi e lavori sui maggiori problemi tecnici della Ragioneria Superiore di Stato (Studies and works on major technical problems of the Superior State Accounting Office). Macerata: Tipografia Economica. Rossi, N. 1949. Scritture doppie in imprese mercantili, bancarie ed industriali (Double entries in mercantile, banking and industrial enterprises). Milan: A. Giuffrè. Rossi-Passavanti, E. 1935. La contabilità di Stato o l’economia di Stato nella storia (Government accounting or government economics in history). Turin: G. Giappichelli. Rowland, S. W. 1936. “Some modern difficulties in the measurement of profit.” In Some modern business problems, ed. A. Plant. London: Longmans. Rowland, S. W. 1938. “The Nature and Measurement of Income: A Rejoinder— II.” The Accountant 15 (October): 519–522. Salzano, A. 1936. Lineamenti della partita doppia applicata al sistema del reddito (Outline of double-entry accounting applied to income determination). Naples: Iodice. Sanders, T. H., Hatfield, H. R., and Moore, U. 1938. A statement of accounting principles. New York: American Accounting Association. Sassi, S. 1940. Il systema dei rischi d’impresa (Risk analysis in business). Milan: Villardi. Schär, J. F. 1890. Versuch einer wissenschaftlichen behandlung der Betriebswirtschaftslehre (Attempt of a scientif approach to business economics). Basel. Schär, J. F. 1911. Allgemeine Handelsbetriebslehre, Part I (General commercial economics, Part 1). Leipzig: G. A. Gloeckner. Schär, J. F. 1914. Buchhaltung und Bilanz (Bookkeeping and balance sheet), 2nd ed. Berlin: Springer Verlag. Scherpf, P. 1955. Der Kontenrahmen (The chart of accounts). Munich: Max Huber Verlag. Schmalenbach, E. 1899. “Buchführung und Kalkulation im Fabrikgeschäft” (Bookkeeping and calculation in manufactoring). Deutsche Metallindustriezeitung. Schmalenbach, E. 1908/1909. “Über Verrechnungspreise” (On transfer prices). Zeitschrift für handelswissenschaftliche Forschung 3: 165–185. Schmalenbach, E. 1917. Finanzierungen (Methods of fi nancing). Leipzig: G. A. Gloeckner (2nd ed., 1919; 6th ed., 1937).

Accounting Theories of the First Half of the Twentieth Century 33 Schmalenbach, E. 1917/1918. “Die Werte von Anlagen und Unternehmungen in der Schätzungstechnik” (The values of fi xed assets and fi rms in the valuation technique). Zeitschrift für handelswissenschaftliche Forschung 12: 1–20. Schmalenbach, E. 1919. “Grundlagen der dynamischen Bilanztheorie” (Foundations of dynamic accounting). Zeitschrift für handelswissenschaftliche Forschung 13: 1–60, 65–101. Schmalenbach, E. 1921. “Geldwertausgleich in der bilanzmäßigen Erfolgsrechnung” (Monetary adjustment in the balance-based income calculation). Zeitschrift für handelswissenschaftliche Forschung 15: 401–417. (Translated into English as: “Monetary stabilization in profit- and loss-accounting.” In Schmalenbach’s dynamic accounting and price-level adjustment, ed. O. F. Graves, G. E. Dean, and F. L. Clarke. New York: Garland Publishing, pp. 3–20.) Schmalenbach, E. 1922a. “Die steuerliche Behandlung der Scheingewinne” (Tax treatment of fictitious gains). Mitteilungen der Gesellschaft für wirtschaftliche Ausbildung 1. Schmalenbach, E. 1922b. Goldmarkbilanz (Goldmark balance sheet—taken over into the 3rd and 4th editions of his Dynamische Bilanz). Berlin: Springer Verlag. (Translated into English as: “Gold-mark accounting.” In Schmalenbach’s dynamic accounting and price-level adjustment, ed. O.F. Graves, G.E. Dean and F.L. Clarke, eds., New York: Garland Publishing, pp. 23–80.) Schmalenbach, E. 1927. Der Kontenrahmen (The master chart of accounts). Leipzig: G. A. Gloeckner. Schmalenbach, E. 1938. Kontenpläne und Kontentabellen (Master charts and tables of accounts). Leipzig: G. A. Gloeckner. Schmalenbach, E. 1948. Pretiale Wirtschaftslenkung (Internal pricing in companies), 2 vols. Bremen-Horn: Industrie und Handelsverlag Walter Dorn. Schmandt-Besserat, D. 1992. Before writing (Volume I of From counting to cuneiform). Austin, TX: University of Texas Press. Schmidt, F. 1921. Die organische Bilanz im Rahmen der Wirtschaft (The organic balance sheet in an economic setting), 1st ed. Leipzig: G. A. Gloeckner Verlagsbuchhandlung Schmidt, F. 1922a. “Gewinn und Scheingewinn der Unternehmung” (Profits and Nominal Gains in Business). Zeitschrift für das gesamte Aktienwesen 32: 50–56. Schmidt, F. 1922b. “Bilanzberichtigung durch Indexziffern” (Goldmarkbilanz) (Accounting adjustment through indexing: Goldmark balance sheet). Zeitschrift für das gesamte Aktienwesen 32: 484–492. Schmidt, F. 1923. Der Wiederbeschaff ungspreis des Umsatztages in Kalkulation und Volkswirtschaft (The current replacement value in cost accounting and the national economy). Berlin: Spaeth & Linde. Schmidt, F. 1927. “Die Industriekonjunktur—ein Rechenfehler” (The business cycles—a calculation error). Zeitschrift für Betriebswirtschaft 4: 1–29, 87–114, 165–199. Schmidt, F. 1930a. “The Basis of Depreciation Charges.” The Harvard Business Review (April): 257–264. Schmidt, F. 1930b. “The Importance of Replacement Value.” The Accounting Review (September): 235–242. (Reprinted in S. A. Zeff, ed. Asset Appreciation, Business Income and Price Level Accounting 1918–1955. New York: Arno Press, 1976.) Schmidt, F. 1931. “Budgeting Simplified by Separating Fixed and Variable Costs.” The American Accounting Review 16 (February): 40–45. Schneider, D. 1981a. Geschichte betriebswirtschaftlicher Theorie (History of business-economics theory). Munich: Oldenbourg Verlag (3rd ed., 1987).

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Schneider, D. 1981b. “Geschichte der Buchhaltung und Bilanzierung” (History of bookkeeping and accounting). In Handwörterbuch des Rechnungswesens, 2nd rev. ed. (Lexicon of accounting), ed. E. Kosiol, K. Chmielewicz, and M. Schweitzer. Stuttgart: C. E. Poeschel Verlag, cols. 616–630. Schneider, D. 2001. Betriebswirtschaftslehre: Vol. 4. Geschichte und Methoden der Wirtschaftswissenschaften (History and methods of the econmic sciences). Munich: Oldenburg Verlag. Schweitzer, M. 1972. Struktur und Funktion der Bilanz (Structure and function of fi nancial statements). Berlin: Duncker & Humblot. Scott, D. R. 1925. Theory of accounts. New York: Henry Holton & Co. Scott, D. R. 1931. The cultural signifi cance of accounts. New York: Henry Holton & Co. Sganzini, C. 1906. “Die realistische Theorie der doppelten Buchhaltung” (Foundation of the realistic theory of bookkeeping). Zeitschrift für Buchhaltung 15. Sganzini, C. 1908. Zur Grundlegung der realistischen Theorie der Doppelten Buchhaltung (On the foundations of the realistic theory of double-entry). St. Gallen, Switzerland: Städtische Handelsakademie St. Gallen. Solomons, D. 1948. “Income—True and False.” The Accountants Journal (October): 366–370. Sprague, C. E. 1907/1908.) “The Philosophy of Accounts.” Journal of Accounting (January). (Reprinted as The philosophy of accounts, 4th ed. New York: Ronald Press, 1918, 1920; reprint ed., Houston, TX: Accounting Classics Series, Scholars Book Co., 1972.) Stamp, J., & Nelson, C. H. 1924. Business statistics and fi nancial statements. London: Modern Business Institute. Sterret, J. 1907. “Professional Ethics.” AAPA Year Book 1907: 108–133. (Reprinted in Journal of Accountancy [October]: 407–431.) Strachan, W. 1909. Cost accounting. London: Steven & Haynes. Sweeney, H. W. 1927. “Effects of Inflation on German Accounting.” Journal of Accountancy (March): 178–191. Sweeney, H. W. 1936. Stabilized accounting. New York: Harper & Brothers. ter Vehn, A. 1924. “Gewinnbegriff der Betriebswirtschaft” (Profit notion of business economics). Zeitschrift für Betriebswirtschaft 1: 361–375. ter Vehn, A. 1929. Entwicklung der Bilanzauffassung bis zum AHGB (Development of accounting theory up to the general commercial codex). Berlin. Tognacci, G. 1925. La contabilità del costo di produzione (Manufacturing cost accounting). Monograph No. 68 of the Library of Applied Accounting “Rota.” Turin: Utet. Tognacci, G. 1930. La contabilità dello Stato (Government accounting). Monograph No. 1, Part III of the Library of Applied Accounting “Rota.” Turin: Utet. Vance, L. L. 1943. “The Authority of History in the Inventory Valuation.” The Accounting Review 18 (July): 219–227. Vance, L. L. 1950. Scientific methods of auditing. Berkeley, CA: University of California Press. Vatter, W. J. 1947. The fund theory of accounting and its implications for fi nancial reports. Chicago: University of Chicago Press. Veblen, T. 1899. Theory of the leisure class: an economic study of the evolution of institutions (re-edited by Stuart Chase, New York: The Modern Library, 1934). Vianello, V. 1925. L’amministrazione economica e la contabilità di Stato (Economic administration and government accounting). Turin: Utet.

Accounting Theories of the First Half of the Twentieth Century 35 Vianello, V. 1927. “Deficit patrimoniale ed ‘Avanzi’ di bilancio nello Stato italiano” (Government deficit and balance sheet “surplus” of the Italian State). Rivista Italiana di Ragioneria 20 (4): 149–155. Vianello, V. 1935. Istituzioni di ragioneria generale, 9th ed. (Institutions of general accounting). Rome: Società Editrice Dante Alighieri. Walb, E. 1926. Die Erfolgsrechnung privater und öffentlicher Betriebe (Income accounts of private and public enterprise). Berlin: Spaeth & Linde. Walb, E. 1948. Die Finanzwirtschaftliche Bilanz (The fi nancial balance sheet), 2nd ed. Duisburg: Visser. Walton, S. 1918. “Student’s Department: ‘Increase in market price of fi xed assets.’” The Journal of Accountancy (November): 393–.

Part II

At the Roots of National Traditions of Accounting and Business Economics

2

Accounting and the Business Economics Tradition in Germany Walther Busse von Colbe and Rolf U. Fülbier

INTRODUCTION Accounting (Rechnungswesen) has been an integral part of German business economics (Betriebswirtschaftslehre). Erich Gutenberg (1897–1984), one of the major protagonists of German business economics in the twentieth century, even claims that accounting research has helped German business economics to establish itself as a science (Gutenberg 1957). Unsurprisingly, one of the oldest and most important associations for business administration in Germany, the Schmalenbach Society, bears the name of Eugen Schmalenbach (1873–1955), an accounting researcher and another major protagonist of German business economics in its early era. In order to understand the development of accounting and business economics tradition in Germany, it is necessary to identify the impact of the social, economic, and legal environment. The socioeconomic and regulatory framework determines the structure, development, country-specific properties, and peculiarities of business economics and accounting (e.g., Busse von Colbe 1984a; Gray 1988; Heidhues and Patel 2011). Against this background, our review of the accounting and business economic tradition in Germany combines both the historical development in accounting and business economic thought with their influencing factors in each period. The latter comprise, in particular, macro- and microeconomic developments, developments in the university system, and, last but not least, the regulatory development. However, our review remains selective and subjective. We choose to put a strong emphasis on fi nancial accounting and discuss major trends in business economics especially with regard to its impact on accounting. In Germany, the term “financial accounting” (externes Rechnungswesen, Rechnungslegung) covers the practices and regulations of bookkeeping, of single and consolidated financial statements for external contract partners and the disclosure process. It is governed mainly by German corporate and commercial law (Aktiengesetz [AktG] and Handelsgesetzbuch [HGB]), generally accepted accounting principles in Germany (Grundsätze ordnungsmäßiger Buchführung [GoB]), and, in the last years, European

40 Walther Busse von Colbe and Rolf U. Füelbier regulations and international standards. Management accounting covers cost accounting and questions of management control including capital budgeting, which is, in Anglo-American understanding, a part of finance. Since the end of the 1960s, the term “controlling” has been increasingly used to address the specific German approach to management accounting and its peculiarities in corporate practice and research (Messner et al. 2008). The reference to Germany or to specific German characteristics excludes the ideas and practices in former East Germany (DDR) between 1945 and reunification in 1990. Business economics and accounting in the DDR was shaped by a completely different political and economic system, which is not reflected here (see Young 1999 for more information about DDR accounting). However, some aspects and developments in Germany are also representative of German-speaking countries (Germany, Austria, and Switzerland). This chapter is structured as follows. We review the evolution of accounting and business economics tradition in Germany in three chronological sections. First, we focus on the fi rst half of the twentieth century, then on the second half, and, fi nally, on the current situation. All three sections are subdivided into analyses of selected aspects and developments that we think characterize all or part of the specific era.

EVOLUTION IN THE FIRST HALF OF THE TWENTIETH CENTURY

Birth of Business Economics in Germany Business economics (or, more pragmatic, business administration) arose as an academic discipline in the German-speaking countries at the beginning of the twentieth century (Busse von Colbe 1996; for the history of business administration in Germany, see Albach 1990; Wassmuth 1997; Schneider 2001; Brockhoff 2010; for the history of bookkeeping, see Schneider 1993b, 2001; for German fi nancial accounting in the nineteenth century, see Schröer 1993; Schneider 1995, 1996; for the history of German accounting regulation and thought see Busse von Colbe 1996; Küpper and Mattessich 2005; Ballwieser 2010). Birthplaces were business schools (Handelshochschulen). As a result of the private initiative of business fi rms and chambers of commerce, six business schools were founded in Germany, Austria, and Switzerland within three years: Leipzig, Aachen, St. Gallen, and Vienna in 1898; and Frankfurt and Cologne in 1901. Others followed in Berlin (1906), Mannheim (1908), and Munich (1910) within the fi rst decade of the twentieth century (Busse von Colbe 1962; Albach 1990). The concept of the Handelshochschulen has been picked up in other countries, especially in Scandinavia. The fi rst one was founded in Stockholm in 1909, and the fi rst professors came from Germany (Norström 1995; Jönsson 1996; Artsberg 2010). At that time or even earlier, similar business schools

Accounting and the Business Economics Tradition in Germany

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were founded in France (ESCP 1819, HEC 1881), the United States (Wharton 1881, Chicago 1898, Berkeley 1898, Harvard 1908), Italy (Venice 1868, Bari 1882, Genoa and Florence 1886), and Belgium (Antwerp 1853). The foundation of these business schools was triggered by the Industrial Revolution. The problems of the growing industrial enterprises were not properly analyzed and discussed from a management perspective at the university level. Since economics was exclusively taught at universities, a growing gap between the industry’s demand for higher management education and its supply arose. Therefore, the training of middle management was the original purpose of the early business schools. Two-year courses were offered comprising bookkeeping and accounting, commercial law, general economics, and foreign languages as the main teaching subjects (e.g., Raydt 1897; Schär 1911). Soon business research evolved and produced new and— also for later periods—fundamental scientific progress and insights into the emerging discipline (e.g., Gutenberg 1957). Among the fi rst generation of business economists, some distinguished scholars can be identified as pioneers in their respective fields (see Albach 1990; Potthoff 1993). Johann Friedrich Schär (1846–1924), Leon Gomberg (1866–1935), Joseph Hellauer (1871–1956), Eugen Schmalenbach (1873– 1955), Friedrich Leitner (1874–1945), Heinrich Nicklisch (1876–1946), Wilhelm Rieger (1878–1971), Fritz Schmidt (1882–1950), and Walter Le Coutre (1885–1965) published seminal books on various fields, especially fi nancial accounting, cost accounting, commercial, and private sector business (Handelsbetriebslehre, Privatwirtschaftslehre). Quite common at the early stage of a new discipline, they concentrated on systematic descriptions and analyses of the main objects of management education. Schär, a professor in Zürich (1903–1906) and Berlin (1906–1919), developed the fi rst theory of bookkeeping. Leitner, a professor in Berlin (1906–1938), created a cost accounting system and extended bookkeeping into a more sophisticated instrument for business analysis and control. Hellauer, a professor in Vienna (1898–1912), Berlin (1912–1921), and Frankfurt (1921– 1936), tried to provide the fi rst systematic framework for the new discipline beyond a mere description of commercial techniques. Schmalenbach, a professor in Cologne (1906–1933, 1945–1950); Nicklisch, a professor in Mannheim (1910–1921) and Berlin (1921–1945), and Schmidt, a professor in Frankfurt (1914–1950), developed more sophisticated accounting theories, which gave reason to a long-lasting dispute about purpose and content of fi nancial statements. Le Coutre, a professor in Königsberg (1920–1923) and Mannheim (1924–1933, 1946–1956), Rieger, a professor in Nürnberg (1919–1928) and Tübingen (1929–1947), and Leitner were also involved in this dispute and turned against Schmalenbach and his novel view on “dynamic accounting.” The analysis of accounting problems and the development of accounting systems and theories by the fi rst generation of academics at the Handelshochschulen during the fi rst quarter of the twentieth century marked

42

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the beginning of business economics as a science in Germany. Accounting as an academic subdiscipline emerged from the basic need of the growing industrial plants in an increasingly more complex technological and socioeconomic environment. Firms had to compute systematically the production costs and prepare the annual accounts on more reliable grounds. Later, after World War I, the attempts to eliminate the inflation problem in cost and fi nancial accounting and the approach to shape and advance appropriate instruments for management and control strengthened the academic foundations of accounting and gave further rise to the scientific status of business economics in general (Gutenberg 1957; Albach 1990; Busse von Colbe 1992; Schneider 2001). Moreover, these attempts received considerable international attention (e.g., Mattessich 1986, 1995; Clarke and Dean 1986; Graves et al. 1989). This applies also for the early U.S. research community due to some published papers in the U.S. of (and about) Schmalenbach (1933; also Quire 1937, 1965) and Schmidt (1930, 1931) and due to an “awareness” of German research by Hatfield, Littleton, Sweeney and others (Zeff 1976; Zeff 2000; Biondi 2012). Some authors even claim that German accounting research took the “leadership in accounting thought” in the fi rst half of the twentieth century (Küpper and Mattessich 2005). However, despite the endeavors to integrate all business subjects in a single academic discipline and to refer to economic theory, it was not possible to construct a common theoretical framework. In the fi rst years of the new discipline, private enterprises in trade and industry had been the object of the scholars’ interest. Later, the research object changed into a broader, not sharply defi ned subject: the Betrieb. Any type of economic entity organized as a permanent business institution was subsumed, regardless of whether privately or state-owned, profitoriented or not, and organized as a group or a single legal entity or even as a single production plant. Consequently, the new discipline changed its name from Handelswissenschaft (theory of trade and commerce) or Privatwirtschaftslehre (private sector business economics; Rieger 1928) to Betriebswirtschaftslehre (business administration/business economics).

Rise of Early German Accounting Theories Eugen Schmalenbach (1873–1955) was probably the best-known representative of the new discipline, with a broad field of research interests (Kruk et al. 1984). He taught business administration in Cologne from 1906 to 1950 (enforced early retirement between 1933 and 1945), first at the Handelshochschule and later, after the conversion of almost all private business schools into university faculties following World War I, at the University of Cologne. During his years in Cologne, the business faculty became the first center of business administration in Germany. Schmalenbach endeavored to develop theoretical foundations to cost and financial accounting. He established a system of cost accounting and cost theory with respect to the dependency

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of cost on production volume. He published his first article on this topic in 1899 (Schmalenbach 1899). He particularly emphasized the problem of activity level-independent fi xed cost. Moreover, he developed the concept of imputed costs (kalkulatorische Kosten), especially imputed interest on equity and inspired modern value added theories utilizing costs of capital considerations. His concept of imputed costs and the resulting distinction between costs (Kosten) and expenses (Aufwand) gave rise to the German-specific gap between cost and financial accounting—also driven by the different purposes especially with regard to the traditional focus of codified German financial accounting on tax calculation and profit distribution. Schmalenbach’s and other scholars’ main attention, however, was directed toward a theory of fi nancial accounting and, therefore, toward the fundamental questions of purpose and content of fi nancial statements. Although not exclusively engaged in “dynamic accounting” (see Küpper and Mattessich 2005 for precursors and followers), Schmalenbach is regarded as the dominant advocate of this accounting theory. With a strong emphasis on profit determination, he developed an income statement oriented form of accrual accounting, published and advanced in a series of papers, and fi nally summarized in the fi rst edition of his book “Grundlagen dynamischer Bilanzlehre” (1920, later “Dynamische Bilanz”; translated 1959, for more details, see Forrester 1978; Kruk et al. 1984; Graves et al. 1989). His publications stimulated a controversial debate about the purpose of accounting in Germany during the 1920s and 1930s. Schmalenbach confronted his “dynamic” interpretation of fi nancial statements with the “static” approach. According to the “static” perspective, the balance sheet as a major fi nancial statement reflects the net asset position, in particular the power of the fi rm to meet its obligations timely (Schuldendeckungspotential). Therefore, resources shall be recognized only if they can be sold separately (Einzelveräußerbarkeit). The profit or loss calculation, derived from the net asset difference of the period, is of minor importance. Early representatives of the “static” theory were Herman Veit Simon (1856–1914) with his seminal book about corporate financial statements (Simon 1886), as well as Schär, Leitner, and later, especially in dispute with Schmalenbach, Le Coutre, Nicklisch, and Rieger (see Schneider 2001; Küpper and Mattessich 2005 for reviews). Both theory approaches, static and dynamic, have influenced the current German accounting regulation and practice. Moreover, the distinction between “dynamic” and “static” theory, the contrast of profit flow versus net asset determination, corresponds to the more current and more Anglo-American dispute between revenue and expense approach, on the one hand, and asset-liability approach, on the other. Although engaged in theoretical reasoning, Schmalenbach was a pragmatic scholar with an excellent understanding of practical accounting problems. It is important to note that Schmalenbach was deeply convinced of business administration as an applied and a prescriptive science. Reproached by opponents such as Rieger that pure science is value-free,

44

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he ironically proclaimed business administration as an art (Kunstlehre; see Schmalenbach 1911/1912; Kruk et al. 1984). Here, he referred to the epistemological is-ought or positive-normative distinction, later transmuted into a science-art distinction under which only fact-based descriptive proceedings are accepted as “pure” science. Especially in Germany, the epistemological question about the role of value judgments was fiercely discussed at the beginning of the twentieth century in the Werturteilsstreit (M. Weber 1913; see review by Nau 1996; Schneider 2001) and has been an open and a controversial issue ever since in German business economics and accounting research (e.g., Gaugler and Köhler 2002; Fülbier and Weller 2009). Schär, Nicklisch, and Schmalenbach as early representatives of accounting thought were especially considered “ethically normative” in nature. Schmalenbach later lost his ethical orientation but still emphasized the prescriptive character of business and accounting research (Kruk et al. 1984; Schneider 2001; Küpper and Mattessich 2005).

DEBATE ON INFLATION ACCOUNTING A great challenge to accounting was the hyperinflation in Germany at the beginning of the 1920s. Historical cost accounting lost its ability to measure the value of (net) assets as well as the annual profit. In later decades, the analyses and proposed solutions of accounting scholars were considered the fi nal breakthrough for the entire business discipline (Gutenberg 1957; Schneider 1993b, 2001). Schmalenbach (1921) developed a concept of real capital maintenance based on price-level adjustments. At the same time, Fritz Schmidt (1882–1950) advocated the maintenance of “real” and “true” net assets (wirkliches und wahres Vermögen) measured by current replacement prices (Tagesbeschaff ungswerte). His current value approach had a wider scope than just solving inflationary problems. Schmidt proposed the universal application of his approach to detect the “real” return of investment. His “organic” accounting approach (Schmidt 1921) was considered another major accounting theory. In the “organic” theory, the current replacement values of all single (net) assets add up to the Reproduktionswert of the fi rm, which equals, under certain conditions, the “normal” net present value of the invested capital (Schmidt 1921; see also Moxter 1974; Clarke and Dean 1986; Mattessich 1986). Despite the strong entry value perspective and despite the attempt to concentrate on productive business performance (Umsatzerfolg) excluding holding/speculative gains and losses (Scheinerfolg), some parallels exist to the conceptual basis of capital market-oriented accounting systems such as International Financial Reporting Standards (IFRS) or U.S.-Generally Accepted Accounting Principles (U.S.GAAP). These parallels comprise inter alia the focus on fi rm valuation and the belief that total fi rm values can be calculated by accumulated single current values. According to Schmidt, the Reproduktionswert is a (supply)

Accounting and the Business Economics Tradition in Germany

45

market-based net present value. Moreover, the preference for mark-to-market values, the minor importance of reliability, and, fi nally, the attempt to distinguish revaluation and speculation effects from the operating performance are further examples. Other scholars such as Ernst Walb (1921), Walter Mahlberg (1921), Willi Prion (1921), and Erwin Geldmacher (1923) participated in the controversy over inflation accounting. After the currency reform in 1923 and the end of the hyperinflation, the demand for inflation accounting decreased. However, inflation accounting remained an academic issue in the following decades (e.g., Hax 1957; Holzer and Schönfeld 1963; Seicht 1968; Sieben and Schildbach 1973; Wagner 1978; Schildbach 1979; Pohlmann 1981) and received again attention when higher inflation rates occurred (Schildbach 1990). In contrast, the codified German accounting rules have been strictly based on historical costs since the second currency reform after World War II in 1948. Methods of inflation accounting or revaluation have been prohibited in fi nancial as well as tax accounting. It is argued that the accounting system shall not provide a gateway for inflation. Instead, price stability has been the main task of the German Bundesbank and, later, the European Central Bank. The people in Germany have been extremely sensitive with the inflation problem due to their complete losses of monetary assets suffered in two hyperinflations within a short period of time.

ECONOMIC CRISIS OF THE 1930S The interference of accounting and business economics with the economic development reached another climax in the 1930s. The world economic crisis hit Germany hard and provoked regulatory action on the accounting field. The auditing requirement for annual fi nancial statements of stock corporations (Aktiengesellschaften [AG]) was introduced, motivated by the accounting fraud-based collapse of some large companies. Schmalenbach was one of the important promoters of the inclusion of auditing into the corporation law in 1931 and the establishment of the auditing profession (Kruk et al. 1984). It seems interesting to note that other countries also responded with regulations to the crisis of the 1930s. For example, in contrast to the New Deal politics in the United States, the German regulator did not concentrate on the increase of capital market efficiency by introducing a strong securities commission (the SEC), a wide disclosure regime, and an investor-oriented fi nancial accounting system (U.S.-GAAP). Due to a less important equity market and a more relevant debt fi nancing system with close bilateral relations between industry fi rms and commercial banks, accounting regulation in Germany was more focused on creditor protection by nominal capital maintenance especially through determination of a conservative and distributable profit figure (Moxter 1987). The reform of the stock corporate law 1937 (AktG 1937) was another

46

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regulatory consequence. Rules of capital maintenance were introduced by historical cost accounting, conservatism, and a strict realization principle focusing on “realized” sale transactions. However, the notion of conservatism was much older and characterized for centuries the understanding of good merchant behavior in Germany and Continental Europe (Savary 1675 is a prominent early example). This time period was also under the impression of the state-planning system and ideology of the national socialistic dictatorship. The AktG 1937 imposed, for example, the leader principle (Führerprinzip) on stock corporations by strengthening the board. The state planning system led to the promotion of an industrial cost accounting system, in particular, the uniform calculation of prices on a full cost basis, including depreciation on replacement cost basis and interest on assets. The idea of an integrated (industrial) chart of fi nancial and cost accounts can be traced back to Schmalenbach (1929). It also attracted other countries, such as France or Spain, and was further advanced after World War II in the Gemeinschaftskontenrahmen 1951 and Industriekontenrahmen 1971. Last but not least, business and accounting thought stagnated between 1933 and 1945. Academic scholars such as Le Coutre, Rieger, and Schmalenbach suffered due to emigration, ban, or other occupational obstructions (Schneider 2001; Mantel 2009).

EVOLUTION IN THE SECOND HALF OF THE TWENTIETH CENTURY

Microeconomic Influence After World War II and the currency reform of 1948, (West) Germany developed the social market economy (soziale Marktwirtschaft). Markets opened and became more international. Accounting and accounting research lost its dominant position in business administration. Other parts of business economics, in particular marketing, finance, taxation, organization, and general management, gained a more important role in Germany during that time. Moreover, the lead in accounting research was taken over by the AngloAmerican accounting literature, although numerous publications of highly original character had been published (Küpper and Mattessich 2005). Erich Gutenberg (1897–1984), a professor in Clausthal (1938–1940), Jena (1941–1947), Frankfurt (1948–1951, successor of Schmidt), and especially Cologne (1951–1966, successor of Schmalenbach), detached business economics from the accounting predominance. He tried to work out a comprehensive system of fi rm processes by bridging the gap between business administration and neoclassical microeconomic theory. In contrast to the fragmented, often pragmatic, and qualitative endeavors before, he introduced a more consistent, mathematical, quantitative approach heavily based on theory of the fi rm considerations (Albach 1986; Ellinger 1988; Wassmuth

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1997). His starting point was his early book on the enterprise as the object of business economic theory (Gutenberg 1929). Gutenberg’s three-volume work on the foundations of business economics (production [1951], distribution [1955], and fi nance [1969], see Gutenberg 1951/1955/1969) especially shaped the thinking of a generation of academics within the entire discipline. His cost theory, derived from production theory, provided the basis for standard and marginal cost accounting systems, established by his former research assistant, Wolfgang Kilger (1961). On the field of price policy, his development of a twice-kinked demand curve in polypolistic and oligopolistic markets achieved attention. He was also the fi rst to develop the doctrine of the marketing mix as the optimal combination of price, product, promotion, and distribution (for more details about the “system” of Gutenberg, see Albach 1986, 1990). Gutenberg’s counterpart in terms of economic theory was Erich Schneider (1900–1970), a professor at Kiel University and president of the Kiel Institute for the World Economy (see E. Schneider 1947/1948). Both scholars were receptive to microeconomic theories, partly developed in Anglo-American countries. Moreover, in contrast to Schmalenbach and the practical normative tradition of the discipline so far, Gutenberg proposed a positive descriptive approach to business economics. The old methodological and epistemological dispute (Methodenstreit) blazed up again, this time in particular between Gutenberg and Konrad Mellerowicz (1891–1984) (e.g., Mellerowicz 1952; Gutenberg 1953). During the next decades, the pioneering Anglo-American research in neoinstitutional microeconomics influenced German business economics and accounting as well. Transaction costs, agency relationships, property rights, and information economic considerations have influenced German business economics and accounting especially since the 1980s (e.g., Ballwieser 1982; R. Schmidt 1982; Hartmann-Wendels 1986; Ewert 1986, 1990; Ordelheide 1988; Schildbach 1986; Wagenhofer 1990a, 1990b). However, the discussion of the relationship between owners and their employed managers or creditors has a long tradition in German accounting theory (Schneider 1993a). The analytical formalization is especially connected to the works of Ralf Ewert (born 1957, professor in Frankfurt [1994–2008] and Graz [since 2008]) and Alfred Wagenhofer (born 1959, professor in Graz [since 1991]) and their respective research (see their two major books about management and fi nancial accounting as distinct examples: Ewert and Wagenhofer 1993, Wagenhofer and Ewert 2003). The idea of microeconomic efficiency was also implemented in the explanation, interpretation, and normative assessment of accounting and reporting regulations (e.g., Schörner 1991; Ewert and Wagenhofer 1992; Feldhoff 1992; Schneider 1993c; Wagner 1993; Ballwieser 1996; Leuz 1996). In the tradition of the early attempts to provide a common theoretical base for the entire discipline, more comprehensive analyses of business economics on microeconomic grounds were published in the 1990s. One distinctive example is the series

48 Walther Busse von Colbe and Rolf U. Füelbier of books by Dieter Schneider (born 1935), a professor in Münster, Frankfurt, and especially Bochum (1973–2000) (Schneider 1993a/1994/1997; another example is Neus 1998).

LEGALISTIC ORIENTATION AND DEDUCTIVENORMATIVE APPROACH IN FINANCIAL ACCOUNTING

Legalistic German Accounting Research Orientation Economic structure, legislation, culture, tradition, and other socioeconomic factors affect accounting and, beyond doubt, accounting research. Differences between German fi nancial accounting research and the Anglo-American-dominated “mainstream” (Chua, 1986) have been obvious especially since the rise of positive and empirical approaches in the United States in the 1960s and 1970s. As a specific German attribute, a more jurisprudential methodology emerged after World War II when accounting researchers focused more on the interpretation of indefi nite details in the vague accounting legislation instead of developing (new) accounting theories or conducting empirical research. In contrast, for example, to the U.S. “normative deductivists” (AAA 1977, with regard to researchers such as Chambers or Sterling), the German deductivism was held in higher esteem at least until the late 1990s. Academic researchers endeavored to derive answers to open accounting questions from superior accounting objectives. The deductive approach was enlarged to a more hermeneutical approach with a much broader base for law interpretation due to the additional consideration of other relevant factors, for example, contextual factors, the documented or assumed intention of the legislator or related constitutional regulations (e.g., Baetge and Apelt 1992). In this particular field, accounting academics have influenced strongly the relevant—and in code law countries renowned— commentaries (e.g., “Adler/Düring/Schmaltz,” “Beckscher Bilanzkommentar,” “Küting/Weber”) where legal academics were barely detectible. Moreover, academics have participated in the legislative process through publications and contributions to the hearings of government and parliament. Academic accountants took part, for instance, in the implementation of the European Union (EU) directives into the German commercial law 1985 (Busse von Colbe 1992), although other groups, especially preparers and auditors, were more influential (McLeay et al. 2000). It is an open question why the legalistic research tradition has been dominant in Germany. Several explanations seem possible: the code law tradition in Continental Europe and the principles-based regulation as well as the fact that legal consequences such as taxation, profit distribution, and insolvency have been directly linked to fi nancial accounting. Moreover, data supply was not sufficient due to a long-time non-existing disclosure philosophy offside the capital markets (until 2007 when the electronic

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business register was introduced) and the broader focus of HGB accounting, which did and still does not exclusively focus on capital markets. Especially the latter may justify the rise of empirical capital market-oriented research when international accounting has been introduced in Germany in the 1990s (see Perrey et al. 2010; Fülbier and Weller 2011, with a bibliometric overview about German fi nancial accounting research after World War II). Differences between the university systems provide another explanation (e.g., the higher teaching obligation of German professors, the non-existent or, at the most, weak department structures, and the monographic and less standardized form of academic qualification). All these factors may motivate to realize synergies between research and rules-oriented teaching and may explain a certain distance to econometrical methods, to higher specialization, and to the “publish or perish” game. Last, but not least, the strong legal and prescriptive roots of the entire business discipline are also important. When business economics was taught at the Handelshochschulen at the beginning of the twentieth century, there was a notable cameralistic tradition and the business schools belief that legalistic training of civil servants should also be the model for training “fi rm’s civil servants” (Albach 1990). Moreover, the fi rst generation established a normative business economics tradition for decades. Although the early “ethical normative” approach changed toward more “pragmatic-normative theories” (Mattessich 1995; Schneider 2001), the prescriptive nature remained.

Legal Background In the second half of the twentieth century, the German accounting legislation changed after the AktG 1937 only a few times materially. These big regulatory steps preoccupied a large part of the research community for a long time with deductive reasoning, ex ante and ex post. The fi rst step was the reform of the stock corporation law (AktG) 1965. Here, the preparation of group accounts was codified for the fi rst time. Although the consolidated process was restricted to domestic entities, consolidated fi nancial statements became a main subject of accounting literature. Especially Walther Busse von Colbe (born 1928), a professor in Bochum (1965– 1993), and his former research assistant, Dieter Ordelheide (1939–2000), a professor in Frankfurt (1978–2000), have concentrated on this specific subject and published in 1969 the first edition of their comprehensive book about consolidated fi nancial statements (Busse von Colbe and Ordelheide 1969). Another seminal book fi rst published at that time with a long lasting impact and a more general focus on fi nancial accounting regulation and fi nancial statement analysis was written by Adolf G. Coenenberg (born 1938), a professor in Augsburg (1970–2007) (Coenenberg 1974). Another change of the German legal system occurred in 1969, when the Disclosure Law (Publizitätsgesetz) was enacted. This law required very large unincorporated fi rms and groups to prepare and disclose their single

50 Walther Busse von Colbe and Rolf U. Füelbier and consolidated fi nancial statements, irrespective of their legal form. This legislation was primarily motivated by a crisis concerning the Krupp group, which suffered heavy losses in 1966. This crisis had negative effects on many suppliers, customers, and employees of Krupp, most of them uninformed about the problematic situation due to the non-incorporated character of Krupp at that time. Even today, when fi nancial accounting in Germany is codified in the commercial law (HGB), the legalistic concept is still driven by the legal form and size of companies and not by capital market activities as in U.S.-GAAP. More regulation has been imposed, especially on corporations, because accounting information is regarded as a correlate for limited liability (Buschmeyer 1993), expressing again the creditor-oriented focus of German accounting. The inclusion of very large unincorporated fi rms by Publizitätsgesetz and several HGB simplifications for smaller corporations documents again the size orientation and the belief that larger enterprises produce a higher public interest. Since 1985, when the fourth, seventh, and eighth EU directives were transformed into national commercial law (Bilanzrichtliniengesetz), the German HGB accounting system has been influenced by an international, especially European, impact. Although the German accounting tradition largely remained due to liberal member state options, the consolidated statements experienced an extensive adoption of common Anglo-American rules and procedures (e.g., Busse von Colbe 1987). This impact increased when in 1998 two more acts modified the HGB: The Kapitalaufnahmeerleichterungsgesetz and the Gesetz zur Kontrolle und Transparenz im Unternehmensbereich. The former deregulated consolidated fi nancial statements by introducing an option for German fi rms with cross-border listings to choose among HGB, U.S.-GAAP, and IFRS (at that time IAS). The latter allowed for a private standard setting body, the Accounting Standards Committee of Germany (Deutsches Rechnungslegungs Standards Committee [DRSC]), which still has the purpose of supporting German legislature in accounting issues, to develop German-specific recommendations, and to represent Germany in the international standard setting arena. All these steps were intensively mirrored by the academic sphere, for example, with a vast number of regulation-oriented papers or extensive HGB commentaries before and after 1985 (e.g., Küting and Weber 1985, 1986, 1989, as distinct examples for the 1985 reform; Karlheinz Küting [born 1944] was a professor in Saarbrücken [1983–2009]) or with the appearance of the fi rst comprehensive books about international accounting in the 1990s (e.g., Wagenhofer 1996; Pellens 1997).

Revival of Accounting Theory Aside from extensions of Schmalenbach’s dynamic accounting especially by Walb (1943) and Kosiol (1976; see also the overview in Hommel and Schmitz 2012), accounting theories, the original starting point of German

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accounting research, hibernated until the 1960s (Schneider 2001). Ulrich Leffson (1911–1989, a professor in Münster [1964–1979]) advanced the understanding of the basic principles of financial accounting (GoB; Leffson 1964; with Baetge 1970 as one application). Moreover, legal and business scholars such as Georg Döllerer (1921–1993), Heinrich Beisse (born 1927), and especially Adolf Moxter (born 1929, a professor in Frankfurt [1965–1997]) turned away from the classical prewar accounting theories and the pure business economic tradition of accounting. They developed the legal doctrine of accounting (Bilanz im Rechtssinne). Due to the close link between financial and tax accounting in Germany (Haller 1992), supreme tax court (Bundesfinanzhof [BFH]) decisions were analyzed in order to establish a more positive and jurisprudential grounded accounting theory (Döllerer 1959; Beisse 1978/1979; Moxter 1974, 1982). Hereafter, HGB accounting has the main purpose to determine distributable profits under consideration of creditor protection, on the one hand, and taxation consequences, on the other (also Working Group on Financial Reporting of the Schmalenbach Society 1995; for more detail, see Hommel and Schmitz 2012). Another theory complex emerged in Germany after World War II: The mark-to-model valuation of fi rms has been regarded as an important part of accounting theory due to the high relevance of private fi rms in Germany offside the organized capital markets. From Schmalenbach’s time until today, books and articles have been published on this complex capital budgeting problem (e.g., Busse von Colbe and Coenenberg 1992). This strand of literature increased in the 1950s and 1960s when the academic discourse was concerned with the transition from objective to subjective valuation and later to the functional valuation concept. The latter was especially connected to the University of Cologne and researchers such as Hans Münstermann (1899–1986), Walther Busse von Colbe, Günter Sieben (born 1933), and Manfred J. Matschke (born 1943) (Kölner Schule). More modern elements such as the free cash flow concept and the shareholder value discussion can be partly traced back to this literature (e.g., Busse von Colbe 1957; Sieben 1961). The valuation topic has been discussed until today with more and more technical issues and with specific German aspects, for example, the effect of different legal forms and the high emphasis on tax considerations (e.g., Moxter 1976; Kruschwitz 1978; Drukarczyk 1996).

DEVELOPMENT OF MANAGEMENT ACCOUNTING AND “CONTROLLING“ The long-lasting impact of the early academic generations around Schmalenbach and, later, Gutenberg on cost theory and management accounting has been virtual even today. However, considerable progress on various fields occurred in the second half of the twentieth century. The 1960s were characterized by a lively discussion concerning the methods of direct and

52 Walther Busse von Colbe and Rolf U. Füelbier marginal costing, particularly the different systems of standard marginal costing that were developed, partly based on Gutenberg’s concepts, into practicable procedures. Contributing pioneers include especially Wolfgang Kilger (1927–1986) and Hans-Georg Plaut (1918–1992) with their publications about Grenzplankostenrechnung (Kilger 1961; Plaut 1953; see also Kloock and Schiller 1997) and Paul Riebel (1918–2001) and his insights into Relative Einzelkostenrechnung (Riebel 1972; see also Weber and Weißenberger 1997). In contrast, at that time, a noticeable gap could be observed between academic theory and practice. The full cost methods, which had been developed, standardized, and applied in Germany during the 1930s, also influenced corporate practice in the future decades (e.g., Männel 1988; with an explanation by Pfaff 1993). Despite the slow-going practical penetration and under additional consideration of German specific activity-based costing (Prozesskostenrechnung) in the 1990s, German cost theory and corporate practice have been considered to be more sophisticated than their U.S. counterparts, although German research was less successful in exporting their ideas (Wagenhofer 2006b; see also Coenenberg and Schoenfeld 1990 for a historical review). Theory advanced further, among others, in capital budgeting and investment planning. Gutenberg, but also Erich Schneider, adopted existing Anglo-American literature in their publications about “ Wirtschaftlichkeitsrechnung ” (E. Schneider 1951; Gutenberg 1952). Further contributions were provided, among others, by Albach (1962) with a one-period model concerning the simultaneous planning of the investment and the fi nancing program, Hax (1964) with a variation of Weingartner (1963) suggesting a multiperiod model for the simultaneous planning of the capital and fi nancing program, and Jacob (1964) with another multiperiod simultaneous investment and production planning model. However, the practical impact of such models was rather low and did not inspire further developments. A more modern and still persisting development in management accounting touches questions of convergence and integration. On the one hand, there have been endeavors to integrate accounting information into capital budgeting and business planning activities comprising an operational as well as a strategic focus (e.g., Coenenberg and Baum 1987; Coenenberg 1992; Küpper 1985; Ewert and Wagenhofer 1993) and single as well as group perspectives. Moreover, cost accounting developed over time into a more comprehensive cost management approach (e.g., Franz and Kajüter 1997). On the other hand, the long-time German-specific separation between management and fi nancial accounting has eroded since the early 1990s. In this regard, the question of convergence is primarily linked to the question of whether both accounting “worlds” could refer to basically one set of accounts and accounting figures. Especially publicly traded corporations promoted the convergence due to the rise of international (fi nancial) accounting and the stronger focus on value-based management in that

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period (e.g., Ziegler 1994 for the Siemens group; see also Weißenberger 2004; Wagenhofer 2006a). In the last decades, there has been an increasing demand for a modification of traditional management accounting techniques into more efficient and more management-oriented instruments of “controlling” (Küpper 1985). The rise of “controlling” started in Germany in the 1970s when an often cited McKinsey study revealed a high rate of companies with controller positions (Henzler 1974) and when Péter Horváth (born 1937) started in 1973 as professor of a newly created chair of controlling at Darmstadt Technical University (later professor in Stuttgart 1980–2005). Only three decades later, controlling was widely accepted as part of the corporate organization (e.g., Weber and Kosmider 1991) and an established academic discipline at the German universities (in 2004 about 72 controlling chairs in contrast to only 17 in 1989; Binder and Schäffer 2005). In contrast to the terminological roots in the English language and the Anglo-American “controller” tradition, the notion of “controlling” specifies a unique German approach to management accounting and beyond (Messner et al. 2008). Controlling itself is seen as a special management function, comprising information supply, results-oriented control, coordination, and, fi nally, the general assurance of management rationality. However, there is still no common controlling concept. Major protagonists of controlling thought such as Horváth, Hans-Ulrich Küpper (born 1945, a professor especially in Munich since 1990), and Jürgen Weber (born 1953, a professor at WHU Vallendar since 1986) are linked with different concepts (e.g., coordination concept formed by Horváth 1978; Küpper 1987; rationality assurance developed by Weber and his former assistant Schäffer; Weber and Schäffer 2000; see the overview in Küpper 2008). Controlling research is still predominantly occupied with the identity discourse, with questions of scope and defi nitions (e.g., Messner et al. 2008). One enabling condition behind this identity discourse is probably again the normative tradition in German business economics (Wagenhofer 2006b; Küpper and Mattessich 2005).

INTERNATIONALIZATION OF GERMAN ACCOUNTING The increasing internationalization of corporate practice after World War II, for example, documented by the rise of foreign direct investments of German fi rms especially since the 1970s and 1980s (e.g., foreign direct investments 1960 were only 6.5% of the respective figure in 1986), had an impact on accounting as well. Although the AktG 1965 requirement to prepare consolidated fi nancial statements was restricted to domestic entities, some German multinational groups voluntarily began to prepare and disclose international consolidated fi nancial statements with all foreign entities—long before the respective requirement was codified in the seventh EU directive and, fi nally, in the HGB 1985. Thus, a considerable part

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of accounting research focused on accounting for business combinations, for example, the different methods of elimination of intergroup transactions or the treatment of goodwill (e.g., Küting 1984; Ordelheide 1984, 1987; Weber and Zündorf 1989). The inclusion of foreign subsidiaries, especially the problem of foreign currency translation, became another object of accounting research. The temporal principle of translation was suggested in the United States and Germany in 1972 (for Germany, Busse von Colbe 1972). Moreover, additional reporting instruments were introduced. Already discussed in the 1920s (Bauer 1926), cash flow statements (Kapitalfl ussrechnungen) attracted attention again in the 1960s (Busse von Colbe 1966; Käfer 1967) when large corporations voluntarily introduced funds and cash flow statements. Encouraged by the ongoing academic debate (e.g., Dellmann and Kalinski 1986; Chmielewicz and Caspari 1985; Busse von Colbe 1990), several attempts of standardization followed (e.g., HFA-IDW 1978; HFA-IDW and Schmalenbach-Society 1995). Finally, in 1998, consolidated cash flow statements were legally required for publicly traded corporations and since 2004 for all parent companies according to HGB. In the mid-1970s, the problem of the EU-wide harmonization of accounting rules was taken up in German accounting literature. Its consequences for future German accounting were especially discussed after the enactment of the fourth and seventh directive in 1978 and 1983 and its implementation into HGB 1985 (e.g., Busse von Colbe 1984b). Although the interpretation of the new accounting rules remained a major field of accounting research, the intrusion of non-German accounting thoughts and the requirement to consolidate all subsidiaries all over the world led to a growing interest in international comparisons (e.g., Lück 1970; Schoenfeld 1981) and more comprehensive analyses of foreign accounting systems. The PhD thesis of Axel Haller (born 1961, a professor especially in Regensburg [since 2004]) about U.S.-GAAP in history, concepts, and rules is a well-known example for the latter (Haller 1988). Other European initiatives (e.g., on corporate structure, interim reports, accounting for specific industries, risk management, and proposed tax accounting harmonization) influenced additionally the academic debate in the 1980s and 1990s. This also applies for the reunification of the two German states in 1990, especially for the fresh start in East German accounting with new rules and currency (DM-Eröff nungsbilanz). Since the early 1990s, the rise of international accounting, especially International Accounting Standards (IAS), later IFRS, and U.S.-GAAP, occupied corporate practice and academic research in Germany. This development was triggered in 1993 by the fi rst listing of a German corporation at the New York Stock Exchange (NYSE). Daimler Benz AG was required to reconcile the group’s net income and equity in accordance with SEC form 20-F. Astonishing differences between HGB and U.S.-GAAP figures

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occurred and confused the academic as well as capital market community (e.g., Radebaugh et al. 1995). Several other German companies followed (e.g., Deutsche Telekom in 1996; SAP in 1998; Siemens and Deutsche Bank in 2001) and prepared consolidated fi nancial statements according to both HGB and U.S.-GAAP. However, a larger group of companies abstained from an NYSE listing and chose IAS and IFRS instead. Moreover, in 1997, the German securities exchange, the Deutsche Börse, introduced IFRS or U.S.GAAP group accounting requirements for a newly introduced new market segment. The legal requirement to prepare two sets of group accounts was fi nally abolished in 1998, when listed IFRS and U.S.-GAAP preparers were released from the HGB adoption. While internationalization in German codification and accounting practice was and still is restricted to the group accounts, single fi nancial statements remained unaffected due to their material legal consequences especially with respect to dividend distribution and tax accounting. The fi nancial accounting world separated into two subsets: the valuation and disclosure-based accounting on the group level, for publicly traded companies primarily based on IFRS and U.S.-GAAP, and the more contracting (i.e., tax, distribution, and debt covenants-oriented HGB accounting) on the legal entity level. This distinction even applies for the research community, which increasingly disaggregates due to the necessary specialization in both areas. The fi rst academic chairs of international accounting were founded in the mid-1990s at the universities in Frankfurt by Dieter Ordelheide and in Münster by Bernhard Pellens (born 1955, later a professor in Bochum [since 1997]). The fi rst scholar generation who dealt with non-German accounting systems tried to make these new complex systems and their conceptual basis accessible to the public. Comprehensive system descriptions, analyses, and comparisons were published (e.g., Gräfer 1992; Ballwieser 1995; Ordelheide and KPMG 1995; Glaum and Mandler 1996; Wagenhofer 1996; Auer 1997; Pellens 1997). Driven by the traditional deductive orientation of German research, the frameworks and basic principles were also intensively analyzed, and, quite frequently, inconsistencies between rules and principles were identified. Even the traditional German concept of commentaries—huge and detailed interpretations that are necessary in a principles-based system—has been applied in the context of IFRS, although IFRS are more casuistic and inductive in character and, from the German point of view, much more rules-based (Baetge et al. 1997 as a prominent example).

RISE OF EMPIRICAL “MAINSTREAM” RESEARCH The U.S.-driven positive-empirical turn in the 1960s and 1970s had only a modest impact on the research agenda in Germany. Empirical research

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came into existence at that time albeit sporadic, less focused on capital markets, with a smaller amount of data due to poor data supply and less statistically sophisticated. Early research focused especially on annual reports, for example, about the use of forecasting information (Busse von Colbe 1968) or methods of consolidation (von Wysocki 1969). Empirical research increased moderately during the 1970s (Albach 1971) and especially the 1980s. Also the statistical orientation and the variety of topics increased. Such topics covered, for example, the usefulness of accounting data for predicting the growth of fi rms (Perlitz 1973), the usefulness of accounting data for predicting bankruptcy (Beermann 1976; relating to discriminant analyses and neuronal networks later Niehaus 1987; Baetge 1989; Baetge et al. 1994), the predictive value of accounting data after AktG 1965 (Gebhardt 1980), and the occurrence of income smoothing behavior (Schmidt 1979; Halbinger 1980; Coenenberg et al. 1983). First steps toward capital market-oriented empirical archival research can be identified in the 1980s (e.g., about the information value of consolidated fi nancial statements [Pellens 1989] or the relationship between balance sheet ratios and shareholders’ securities risks [Möller 1986; for a literature review, see Coenenberg and Haller 1993]). This strand of literature has grown especially since the 1990s and since the rise of international accounting in Germany (documented by Fülbier and Weller 2011). Again, the idea of system comparison emerged, this time to a lesser extent concentrated on rules and more focused on the capital market perception and, for the most part, on the value relevance of the different accounting systems, including HGB (Harris et al. 1994; Leuz et al. 1998; Leuz and Verrecchia 2000; Leuz 2003; Glaum and Street 2003). Capital marketoriented research has more focused on international journals due to the greater acceptance by the international “mainstream.” In contrast, the legalistic and more deductive normative research has remained a pure domestic matter. The long-time dominance of non-empirical research methods also applies to management accounting. Normative, conceptual, and analytical methods have dominated the relevant publications, whereas empirical research accounts for only a minor portion—however, with an upward trend. Most of the empirical research comprises case and field studies, whereas large-sample and archival studies have been scarcely conducted (Wagenhofer 2006b; also Schäffer and Binder 2008, with a bibliometric overview). Interesting to note, that researchers from German speaking countries play currently a significant role in the international domain of analytical management accounting research (e.g., Robert F. Göx (born 1962, professor in Fribourg [since 2001]), Christian Hofmann (born 1968, professor in München [since 2011]), Ulf Schiller (born 1962, professor in Basel [since 2012]), Alfred Wagenhofer or Stefan Wielenberg (born 1967, professor in Hannover [since 2007]).

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CURRENT SITUATION

Continuing Internationalization The process of internationalization has continued. The German linkage to European and international markets has been further intensified, the globalization of capital markets has deepened, and German accounting regulation and practice reflect international rules and thoughts more than ever. The current situation in German fi nancial accounting is characterized by the EU regulation 1606/2002 and the requirement for publicly traded companies to adopt IFRS for consolidated fi nancial statements (for economic consequences of mandatory IFRS adoption, see Daske et al. 2008). Due to the member state option for other companies and the respective conversion into HGB in 2004, no German parent company has been required to prepare group accounts according to HGB. Here, private parent companies can choose between HGB and IFRS. Especially larger, more internationaloriented groups have changed voluntarily to IFRS in the last years. However, the overwhelming part of the small and medium-sized entities (SMEs) still adopts HGB. Also HGB accounting has been influenced by the international accounting thought. In 2009, the Bilanzrechtsmodernisierungsgesetz changed substantial parts of the HGB. Turning toward internationally accepted accounting principles was one explicit purpose. Therefore, some IFRS elements penetrated HGB recognition and measurement rules and diluted long-time crucial accounting principles and conceptual foundations, such as conservatism or realization (no “unrealized profits”)—admittedly almost without affecting tax calculation and profit distribution due to legal distribution constraints and largely unchanged tax regulations. The more legalistic-oriented branch of German accounting research accompanied this development with numerous in-depth analyses. Moreover, an increasing unease with international rules and procedures has been identified. Examples comprise the theoretical foundations of IFRS in general (e.g., Schneider 2000; Streim et al. 2001) or in the context of specific accounting problems (e.g., Wüstemann and Kierzek 2005), the rules versus principles debate (e.g., Wüstemann and Wüstemann, 2010), the high complexity of IFRS (FREP 2010), the role of stewardship especially with regard to the common framework project of IASB and FASB (e.g., Gassen 2008), the fair value measurement (e.g., Ballwieser et al. 2004; Zimmermann and Werner 2006; Hitz 2007; Gassen and Schwedler 2010), the arguable assumption that accounting choice is necessarily negative (e.g., Ewert and Wagenhofer 2005), the privately organized standard setting (e.g., Schmidt 2002; Königsgruber 2010), and, last but not least, the possible IFRS for SMEs application in the EU (e.g., Eierle and Haller 2009, 2010; Fülbier and Gassen 2010). Furthermore, the fi nancial and economic crisis in 2008 and 2009 raised the question of IFRS responsibility with regard

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to the fair value measurement in contractual settings (e.g., Laux and Leuz 2009, 2010; Schmidt 2009; Pellens et al. 2009) and also questioned the strict shareholder value orientation of corporate management in general.

CHALLENGE TO ACCOUNTING RESEARCH In 1991, a group of U.S. academics claimed the growing gap between U.S. academic research and corporate accounting practice (Demski et al. 1991). Interestingly, there was no such diagnosis in Germany at that time. But this may have changed in the last years. The German university system is currently facing a fundamental debate about its efficiency and international reputation. Connected with dramatically decreasing financial funds for academic activities, the question occurs whether the specific German accounting research tradition still has a justification. The discrepancy between domestic and international research becomes more and more obvious since the German research community increasingly evaluates its output on an international level. Consequently, especially younger and internationally oriented accounting researchers have been forced into the “publish or perish” game. Thus, they tend to avoid normative approaches, since research published in renowned international journals suggests that deductive-normative research has fallen out of favor. Instead, empirical “mainstream” studies using large data sets and sophisticated statistical procedures appear to be viewed as the only scientific method. Incidentally, the parallel to the dogmatic attitude of the Rochester School of positive accounting research (Watts and Zimmermann, 1986) and the U.S.-driven “tendency for accounting researchers to use methodology as a surrogate for quality and to become more enamored of their research methods and methodologies than of the fi ndings and their potential contribution to knowledge” (Zeff 1989) is obvious (Fülbier and Weller 2009). However, German accounting and business scholars increasingly penetrate the international community, their congresses, and journals on the mainstream level (see also, for example, the increasing German attendance at EAA annual congresses in the last years). Furthermore, the growing pressure of internationalization is attended by a growing interest in other, internationally approved research fields and methods aside the mainstream, for example, on behavioral accounting and controlling aspects, critical and epistemological approaches, and accounting history.

SUMMARY AND CONCLUSIONS We have provided some insights into the German traditions of accounting and business economic thought. The development spans over more than one century, starting from the beginnings in the twentieth century, when

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accounting and accounting theory helped business economics to establish itself as a science, to the growing relevance of other business economic disciplines, to the still enduring attempt to shape a common theoretical foundation for the entire discipline, to the rise of controlling, and to the more current challenge of internationalization of corporate practice and research. With a strong focus on accounting, we have identified major protagonists, selected academic contributions, and triggering socioeconomic events. Finally, we have documented the specific prescriptive research tradition in business economics in general with its legalistic and deductive-normative specification in fi nancial accounting. In this regard, we have discussed the current developments in the discipline, especially the implications of the current turn to empirical archival “mainstream” research. German accounting research is currently challenged by the attempt to conduct sophisticated and internationally renowned research, still keeping in mind that accounting research is an applied science and not an end in itself.

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66 Walther Busse von Colbe and Rolf U. Füelbier Raydt, H. 1897. Zur Begründung einer Handelshochschule in Leipzig, Denkschrift im Auftrag der Handelskammer Leipzig. Leipzig: Gloeckner. Riebel, P. 1972. Einzelkosten- und Deckungsbeitragsrechnung. Opladen: Westdeutscher Verlag. Rieger, W. 1928. Einführung in die Privatwirtschaftslehre. Erlangen: Palm & Enke. Savary, J. 1675. Le perfait négociant ou instruction générale pour ce qui regarde le commerce de toute sorte de Merchandises, tant de France, que des Pays Estrangers. Paris: Louis Billaine. Schäffer, U., and Binder, C. 2008. “Controlling as an Academic Discipline—The Development of Management Accounting and Management Control Research in German-Speaking Countries between 1970 and 2003.” Accounting History 13: 33–74. Schär, J. F. 1911. Allgemeine Handelsbetriebslehre, Vol. 1. Leipzig: Gloeckner. Schildbach, T. 1979. Geldentwertung und Bilanz. Düsseldorf: IDW. Schildbach, T. 1986. Jahresabschluß und Markt. Berlin: Springer. Schildbach, T. 1990. “Inflation Accounting.” In Handbook of German Business Management, Vol. 1, ed. E. Grochla et al. New York: Poeschel/Springer. Schmalenbach, E. 1899. Buchführung und Kalkulation im Fabrikgeschäft. Deutsche Metall-Industrie-Zeitung 15: 98-172. Schmalenbach, E. 1911/1912. “Die Privatwirtschaftslehre als Kunstlehre.” Zeitschrift für handelswissenschaftliche Forschung 6: 304–316. Schmalenbach, E. 1920. Grundlagen dynamischer Bilanzlehre. Leipzig: Gloeckner. Schmalenbach, E. 1921. “Geldwertausgleich in der bilanzmäßigen Erfolgsrechnung.” Zeitschrift für handelswissenschaftliche Forschung 15: 401–417. Schmalenbach, E. 1929. Der Kontenrahmen. Leipzig: Gloeckner. Schmalenbach, E. 1933. “Business economics and changes in German business conditions.” Harvard Business Review 11: 490–497. Schmalenbach, E. 1959. Dynamic accounting. Translation from the 12th edition of ‘Dynamische Bilanz’ by G. W. Murphy and K. S. Most. London: Gee and Company.Schmidt, F. 1921. Die organische Bilanz im Rahmen der Wirtschaft. Leipzig: Gloeckner. Schmidt, F. 1930. “The importance of replacement value.” Accounting Review 5: 235–242. Schmidt, F. 1931. “Is appreciation profit?” Accounting Review 6: 289–298. Schmidt, F. 1979. Bilanzpolitik deutscher Aktiengesellschaften. Wiesbaden: Gabler. Schmidt, M. 2002. “On the Legitimacy of Accounting Standard Setting by Privately Organised Institutions in Germany and Europe.” Schmalenbach Business Review 54: 171–193. Schmidt, M. 2009. “Fair Value: Your Value or Mine? An Observation on the Ambiguity of the Fair Value Notion Illustrated by the Credit Crunch.” Accounting in Europe 6: 271–282. Schmidt, R. H. 1982. “Rechnungslegung als Informationsproduktion auf nahezu effi zienten Kapitalmärkten.” Zeitschrift für betriebswirtschaftliche Forschung 34: 728–748. Schneider, D. 1993a/1994/1997. Betriebswirtschaftslehre. Vol. 1: Grundlagen. Vol. 2: Rechnungswesen. Vol. 3: Theorie der Unternehmung. München: Oldenbourg. Schneider, D. 1993b. “Geschichte der Buchhaltung und Bilanzierung.” In Handwörterbuch des Rechnungswesens, 3rd ed., ed. K. Chmielewicz et al. Stuttgart: Schäffer-Poeschel. Schneider, D. 1993c. “Wider Insiderhandelsverbot und die Informationseffi zienz des Kapitalmarkts.” Der Betrieb 46: 1429–1435.

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Schneider, D. (1995. “The history of fi nancial reporting in Germany.” In European fi nancial reporting: A history, ed. P. Walton. London: Academic Press. Schneider, D. 1996. “Germany.” In The history of accounting, ed. M. Chatfield et al. New York: Garland. Schneider, D. 2000. “Fördern internationale Rechnungslegungsstandards Wettbewerb als Verwertung von Wissen?” In Wettbewerb und Unternehmensrechnung, ed. T. Schildbach et al. ZfbF, special issue No. 45/00. Schneider, D. 2001. Betriebswirtschaftslehre, Vol. 4: Geschichte und Methoden der Wirtschaftswissenschaft. München/Wien: Oldenbourg. Schneider, E. 1947/1948. Einführung in die Wirtschaftstheorie, 2 vols. Tübingen: Mohr. Schneider, E. 1951. Wirtschaftlichkeitsrechnung. Tübingen: Mohr. Schoenfeld, H.-M. 1981. “Grundsätze der Rechnungslegung in den USA.” Zeitschrift für Betriebswirtschaft 51: 290–311. Schörner, P. 1991. Gesetzliches Insiderhandelsverbot: Eine ordnungspolitische Analyse. Wiesbaden: Gabler. Schröer, T. 1993. “Company Law and Accounting in 19th-century Europe—Germany.” European Accounting Review 2: 335–345. Seicht, G. 1968. “Scheingewinnbesteuerung und Substanzerhaltung: Die Grenze der Gewinnbesteuerung.” Der Österreichische Betriebswirt 18: 73–79. Sieben, G. 1961. Der Substanzwert. Wiesbaden: Gabler. Sieben, G., and Schildbach, T. 1973. “Substanzerhaltung und anteilige Fremdfinanzierung.” Betriebswirtschaftliche Forschung und Praxis 25: 577–592. Simon, H. V. 1886. Die Bilanzen der Aktiengesellschaften und der Kommanditgesellschaften auf Aktien. Berlin/Leipzig: Guttentag. Streim, H., Bieker, M., and Leippe, B. 2001. “Anmerkungen zur theoretischen Fundierung der Rechnungslegung nach IAS.” In Wolfgang Stützel—Moderne Konzepte für Finanzmärkte, Beschäftigung und Wirtschaftsverfassung, H. Schmidt et al. Tübingen: Mohr Siebeck. von Wysocki, K. 1969. Konzernrechnungslegung in Deutschland. Düsseldorf: IDW. Wagenhofer, A. 1990a. Informationspolitik im Jahresabschluß—Freiwillige Informationen und strategische Bilanzanalyse. Heidelberg: Physica. Wagenhofer, A. 1990b. “Voluntary Disclosure with a Strategic Opponent.” Journal of Accounting and Economics 12: 341–363. Wagenhofer, A. 1996. International Accounting Standards. Wien: Ueberreuther. Wagenhofer, A., ed. 2006a. Controlling und IFRS-Rechnungslegung. Berlin: Erich Schmidt. Wagenhofer, A. 2006b. “Management Accounting Research in German-Speaking Countries.” Journal of Management Accounting Research 18: 1–19. Wagenhofer, A., and Ewert, R. 2003. Externe Unternehmensrechnung. Berlin: Springer. Wagner, F. W. 1978. Kapitalerhaltung, Geldentwertung und Gewinnbesteuerung. Berlin: Springer. Wagner, F. W., ed. 1993. Ökonomische Analyse des Bilanzrechts: Entwicklungslinien und Perspektiven. ZfbF, special issue No. 32/93. Walb, E. 1921. Das Problem der Scheingewinne. Freiburg: Momber. Walb, E. 1943. Finanzwirtschaftliche Bilanz. Leipzig: Gloeckner. Wassmuth, B. 1997. Entwicklungslinien der Betriebswirtschaftslehre. Marburg: Tectum. Watts, R. L., and Zimmerman, J. L. 1986. Positive accounting theory. Englewood Cliffs, NJ: Prentice-Hall. Weber, C.-P., and Zündorf, H. 1989. “Der Posten Geschäfts- oder Firmenwert im Konzernabschluß.” Der Betrieb 42: 333–340.

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Weber, J., and Weißenberger, B. E. 1997. “Relative Einzelkosten und Deckungsbeitragsrechnung: A Critical Evaluation of Riebel’s Approach.” Management Accounting Review 8: 277–298. Weber, J., and Kosmider, A. 1991. “Controlling-Entwicklung in der Bundesrepublik Deutschland im Spiegel von Stellenanzeigen.” In Controlling: Selbstverständnis—Instrumente—Perspektiven, ed. H. Albach et al. ZfB, special issue No. 3/91. Weber, J., and Schäffer, U. 2000. “Controlling als Koordinationsfunktion?” Kostenrechnungspraxis 44: 109–118. Weber, M. 1913. Gutachten zur Werturteilsdiskussion im Ausschuß des Vereins für Socialpolitik. Weingartner, H. M. 1963. Mathematical Programming and the Analysis of Capital Budgeting Problems. Englewood Cliffs: Prentice-Hall. Weißenberger, B. E., ed. 2004. “IFRS und Controlling.” Zeitschrift für Controlling & Management 48 (special issue No. 2). Working Group on Financial Reporting of the Schmalenbach-Society. 1995. “German Accounting Principles: An Institutional Framework.” Accounting Horizons 9(3): 92–99. Wüstemann, J., and Kierzek, S. 2005. “Revenue Recognition Under IFRS Revisited: Conceptual Models, Current Proposals and Practical Consequences.” Accounting in Europe 2: 69–106. Wüstemann, J., and Wüstemann, S. 2010. “Why Consistency of Accounting Standards Matters: A Contribution to the Rules-Versus-Principles Debate in Financial Reporting.” Abacus 46: 1–27. Young, S. D. 1999. “From Plan to Market: Financial Statements and Economic Transition in the East German Enterprise.” European Accounting Review 8: 157–189. Zeff, S. A. 1976. “Introduction.” In Asset Appreciation, Business Income and Price-Level Accounting: 1918–1935, ed. S. A. Zeff. New York: Arno Press. Zeff, S. A. 1989. “Recent Trends in Accounting Education and Research in the USA; Some Implications for UK Academics.” British Accounting Review 21: 159–176. Zeff, S. A. 2000. Henry Rand Hatfi eld: Humanist, scholar, and accounting educator. Stamford, Conn: JAI Press. Ziegler, H. 1994. “Neuorientierung des internen Rechnungswesens für das Unternehmens-Controlling im Hause Siemens.” Zeitschrift für betriebswirtschaftliche Forschung 46: 175–188. Zimmermann, J., and Werner, J. R. 2006. “Fair Value Accounting under IAS/ IFRS: Concepts, Reasons, Criticisms.” In International Accounting: Standards, Regulation, Financial Reporting, ed. G. N. Gregoriou et al. London: Elsevier.

3

Accounting and “Economia Aziendale” in Italy, 1911 Afterward Arnaldo Canziani

1. THE EVOLUTION OF ACCOUNTING AND BUSINESS RESEARCH IN ITALY IN THE SECOND HALF OF THE 19TH CENTURY As we all know, after early Middle-age Italy faced a peculiar, impressive economic development, mainly based on the maritime and land trade of Pisa, Genua, Milan, Florence, Venice and so on. The same was, slightly later, for both accounting and business techniques, built on those business practices: the former one dated back to Luca Pacioli (15th century), the latter ones to the plenty of technical studies in the field of commerce and banking after 16th century, and were symbolized by Peri and others in the middle of 1600. Given this heritage, once the turmoil of Napoleon and local revolutions was overcome, Italian business scholars tried—especially after national unification, grosso modo 1860–1900—to radically reform Accounting with aims of purely scientific a nature, both grounding it on established methodological bases and transforming its teaching from training to education (Canziani 1996, 2006). That trial was due to two scholars who, although serving on two opposite fronts and belonging to opposite mental frameworks and constructs, anyway involuntarily cooperated each other to the dramatic developments of the Italian accounting in the 20th century: a. Giuseppe Cerboni (1827–1917, Paymaster General after 1876), who proposed in his Ragioneria scientifica (1882) i) to unify accounting and governance, ii) to apply his new model to every economic unit, from families to fi rms to the State; b. Fabio Besta (1845–1922), who proposed on the contrary—in his La Ragioneria (1880 ff.)—to treat accounting as the overall science of fi rms, encompassing with accounting, organization and control. Giuseppe Cerboni reformed the double-entry system proposing its renewed version called Logismografi a, based on the principal-agent

70 Arnaldo Canziani juxtaposition to account for every economic exchange. Its complexity, anyhow, grew along with the dimensions of organizations, this way along the near infi nite growth of those juxtapositions: applied by law to public accounts also due to the official role of Cerboni, Logismografia was to be abandoned later on due to its technical intricacies. Cerboni anyway did not limit his researches to Accounting: he proposed later to treat accounting as the on the basis of the following principles (Cerboni, 1894): a. accounting is composed by four branches, i.e. calculus, theory of double entry, accounting and organisation, the study of managerial functions; b. accounting is the science of business administration; c. in every economic entity, from the family to the State, there is a general similitude of administrative functions, i.e. of the starting, managing, and concluding phases and processes (from profitability forecasting to accounts audit and presentation to income distribution, and so on). While these proposals were practically neglected along with the sunset of Logismografi a, a more consistent scientific revolution was due to Fabio Besta, who gave accounting new theoretical bases building on philosophical premises as well as historical researches masterly conducted. Joining the historical method of analysis (as regards book-keeping and administration) with Spencerian epistemology (as regards the object, methods and contents of both accounting and auditing), Besta proposed to give accounting its own place within the general system of sciences, close to those sciences like Law, Economics and Mathematics studying the same object, the wealth (Besta, 1880, 1922). He distinguished the pure science and its practical side (the art) underlining—along with John Stuart Mill—their strict connection, the science being descriptive (indicative) and the art being at its turn imperative, a system of pieces of knowledge—if ranked and interwoven each other—, anyway oriented to practice. This way the field of Accounting, although built on book-keeping, became the control of whole firms’ wealth: according to Besta, control is achieved by both accounting and management, the former one measuring and orientating the latter one. The model Besta refers to can be summarised as follows (Besta, 1922, vol. I, 3–35): • even if the ultimate goal of working activity is the satisfaction of human needs and the improvement of people, men are motivated to work by the search for “subjective” goals (Aristotle): for this reason, common things become economic goods once they serve those subjective goals;

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• increasing wealth is the most important part of economic activity and, furthermore, the very result of the working activity (the whole production of wealth of Cossa), where wealth is represented by the exchangeable goods; • the saved share of wealth becomes later in time, through the investment process, “working wealth” (Ferrara, Say), or “intermediate utility” (Schaeffle) to produce new wealth once more; • due to the complexity of production, peoples cannot obtain by themselves the largest part of the goods they need: that is why they give life to society as “gathering of reciprocal utilities” (Vico), nowadays meaning also production, exchange, consumption and so on. The economic activities allowed and implied by the gathering of people in the human society need the administration or “wise governance” as a basic element to attain economic goals. This means personal actions—to guide, manage, and govern for the utility of any subject—attributable to: i) the owners and their authority, ii) the managers, i.e. the group of persons having the duty of governing every administrative activity according to owners’ directives, iii) the organisation, which includes the attitudes and strengths related to administrative work in general. The object of administration is anyway the azienda, which is no physical nor juridical a subject, but the sum of facts, relations and affairs concerning a given set of capital goods belonging to a person, a family or to any other subject, from the single (limited) company to the State. Administration obviously differs from azienda to azienda but, as it makes always use of goods and wealth, it reveals in all cases some similarities of functions and processes allowing the identification of its three common elements: a. governance, seeking to orientate every action within the fi rm at pursuing goals in the most effective way; b. management, i.e. the general actions aiming at orientating and regulating every specific, technical action through specialization and coordination (Spencer); c. control, i.e. audit, accounting and control of economic effects and results i) to realize-restate pre-defi ned goals, ii) to improve both governance and management by an increased awareness. The global advances induced by Cerboni and largerly by Besta (and by their disciples as well), turned the attention to fi rms and their administration on one side, to public management on the other. Not by a chance, in fact, this revitalization of business studies was taking place along to a late industrial revolution on one side—a burst one as a fact—, along to the institutions of Upper Schools of Commerce on the other. These ones, established in Italy 1870 onwards (in Genua, Naples, Bari, Venice), were

72 Arnaldo Canziani especially devoted to the high formation at University and post-graduate level in the fields of business, ranging from Accounting to International Trade to Political Economy to Law. The same happened—both similarly and largerly—in Germany, where a parallel, so much more relevant industrial revolution was taking place in those very years. So, such factors as i) the influence of Fabio Besta (a leader also in German-speaking countries), Penndorf, Gomberg and others, ii) the fast economic development after 1870, iii) the new upper education in the fields of business, assigned to Handelshochschulen (Upper Schools of Commerce, based on the aforementio-ned Italian model1), stimulated so many distinguished German professors to undertake a scientific revolution of fields, contents, and methods as well, as far as fi rms and administrations were concerned. In this search, one more factor was represented by the state of the art of the political economy of that time, where fi rms’ interpretation stated their maximizing behavior, interacting with walrasian markets to magically produce equilibria. So, (un)fortunately, no help could be derived from it; a reaction, on the contrary, as that interpretation had been largely unsatisfactory for scholars from the business field since its fi rst appearance, and still was. On one side, in fact, those narrated fi rm’s behaviour according to some (generally false) a priori, on the other many of these imprints were peculiar of the mathematical approach, as far from reality as dogmatic in conclusions (the astronomy of Walras, the engineering of Pareto, the chemistry of Edgeworth, the mathematics of Marshall as well as their general, mechanical deductivism). The dissatisfaction towards conventional wisdom attacked—particularly in Germany and Italy—both those fancy entrepreneurs intended as perfectly neutral, informed and maximizing single-agents and other hypotheses, false ones from the descriptive point of view as well as deceiptive from the prescriptive one.

2. THE REVOLUTION OF INCOME AND THE SCHISM OF BETRIEBSWIRTSCHAFTLEHE AND ECONOMIA AZIENDALE Business scholars started this way, just in those decades (1890–1920 broadly speaking) the difficult process of re-building a whole system of thought to produce realistic interpretations and workable constructs as far as the fi rm was concerned (so, both idiographical and nomothetical ones in Windelband’s words, i.e. descriptive and prescriptive at the same time). The process was fostered in addition by: i) the debate on the inner nature of capital and income—Cannan (1897), Fetter (1900), Walsh (1901), Ricci (1910, 1914), Prato (1912) and others—, ii) innovative contributions referred to special problems of the fi rm, the industry or the market (J.B.Clark, 1899;

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F.W.Taylor, 1911; H.J.Davenport, 1913; A.Marshall, 1911, and others from Gomberg to Paton), iii) very turning points of economic thought or the completion of some of its pillars (from J.A. Schumpeter’s Die Theorie des Wirtschaftliche Entwicklung, 1912 to E. v. Böhm-Bawerk, Positive Theorie des Kapitals, 1909–12III; and last not least Veblen’s Theory of the leisure class, 1899, Irving Fisher’s stimulating works of 1906 and 1911, Pantaleoni’s essays, edited later on, 1925 and 1936–38). The overall Zeitgeist influenced the reflections of such seminal innovators in the field of economics as Nicklisch, Schmalenbach, Zappa, each of them anyway belonging to different epistemic streams (Canziani, Rondo Brovetto, 1992), these ones ranging from a) empiricism (to react to false a priori) to b) renewed a priori, anyway built on the careful knowledge of economic reality and the notion of , to end with c) critical positivism tending to transform empirical fi ndings into more general guidelines. a. The pure reaction to marginalism meant emphasizing the role of facts, the absolute focus on empirical research, till the refuse in some cases of any a priori framework. As scholars following this approach were convinced, especially in the field of business studies, to possess no other methodology but facts, that approach really belonged to paninductivism. According to this, in the field of business studies the different disciplines were considered to be nothing else but techniques, arts according to Renaissance semantics. Eugen Schmalenbach, the founder of Privatwirschaftslehre belonged to this stream: he wrote in 1912 Die Privatwirtschaftslehre als Kunstlehre (The Theory of private economies as an applied Art). Opposing himself to Nicklisch Betriebswirtschaftslehre, a “philosophical” science, Schmalenbach proposed on the contrary to study Privatwirtschaftslehre, a practical and applied one, limited to private enterprises, having empiricism as its foundation and obedient to praxis. Its goal (and task) should have been the defi nition of optimal behaviors and rules, taken from best practices. Prices being the expression of the economic performance of human activity, exchange must be the starting point of theories, where accounting is not intended to measure capital or wealth, but on the contrary the long-term profitability of fi rms. Further, once this profitability represents the inner nature of the business enterprise, income becomes the very economic value giving sense to any economic activitiy, deserving to be measured directly (see 3.2.). b. The opposition to blunty positivism was carried out in a number of ways, in any case keeping the a priori principles (schemes) as a premise, and the role of the subject in building theories and choosing scientific facts as well. The scholars of this stream connected themselves with Hegel (the neo-hegelism of Bradley in Britain, Royce in

74 Arnaldo Canziani the United States, Croce in Italy), Kant (the neo-criticism of Renouvier and others in France, of Cohen, Natorp, Rickert, Windelband in Germany). In the field of business studies, Heinrich Nicklisch, the founder of Betriebswirtschaftslehre (BWL), belonged to this stream, as he had been methodologically inspired by both Kant and Hegel. Building on i) the idea of ‘system’, ii) a systemic approach to study economic units, he culminated in istitutionalism under normative an approach, stating that BWL is a unified theory of economic agents: families, entreprises, households once analyzed from the individual point of view. His own fi ndings are summarized in Figure 3.1 (Nicklisch 1932, abridged from pp. 38–173), representing the economic system like a never-ending regeneration of labour, goods, income and wealth. c. After decades of positivism and the duly attention to facts, in some countries of continental Europe, namely France, Germany and Italy, a short-living “critical positivism” flourished, 1900–1925 broadly

Figure 3.1 The structure of the economic system according to Nicklisch Betriebswirtschaftslehre.

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speaking. This approach tended to obey to reality but, maybe influenced by reappearing idealism, tried at the same time to turn it into more general schemes of thought (the schematism of Boutroux, were scientific laws, unable to grasp the reality, hold no objective value but only a reference one; the conventionalism of H. Poincaré, were both facts and their relational structure are transformed into science by the scientific research imposing its own laws on facts; the critical empiricism of Mach, were facts are as important as the relations existing among them). Gino Zappa, the founder of Economia Aziendale, belonged to this stream, where induction and deduction are mixed in the so-called synthetic method, recalling so many previous authors from John Stuart Mill to Croce and others (see § 3.)

3. THE ITALIAN SCHISMA: AN OVERVIEW. ECONOMIA AZIENDALE AS THE SYNTHESIS BETWEEN I) DEDUCTIVISM AND INDUCTIVISM, II) NICKLISCH AND SCHMALENBACH, III) ACCOUNTING, ORGANIZATION AND MANAGEMENT

3.1. Zappa’s Revolution Gino Zappa studied in Milan under professor Bellini, a cerbonian at large, who later on introduced him to Fabio Besta. Anyway, disappointed by the same positivism he had believed in, and stimulated in the meanwhile by the inflamed epistemic debate of those very years (Cerboni v. Besta included), he started after 1911 a troubled decade of methodological reflections on Accounting. Reflections on such problems as capital and income, the value of money, production and distribution of wealth were induced among others by i) the still unsolved problem of value in business and economics, stemming from Ricardo (and before) and going down—evident or hidden like a torrent—along the whole 19th (and 20th) centuries, ii) the innovations proposed by Irving Fisher (1906 onwards), iii) the German advances in the field, iv) the economic consequences of the 1st World War, among them the hyperinflation 1916–1920 (Canziani, 1994). These decennial reflections mysteriously melt in his pot—magic in some cases to the author himself—resulting in the adoption of ‘critical positivism’, i.e. the simultaneous inductive-deductive or synthetic method, according to which scientific facts (i.e. representative nor casual ones, belonging to classes and series in space and time) are selected by general hypotheses which shall be checked, corrected and specified by the facts themselves. This critical positivism went back to Bacon and Descartes and joined empiricism and rationalism up to Kant and beyond. It

76 Arnaldo Canziani recalled the last contributions by John Stuart Mill (On the defi nition of economic policy) on the mixed a priori method of ‘induction reasoning’ and Ricardo as well, and concluded with the active role of the scholar in launching, testing (and in case imposing) his own hypotheses according to Spencer, Mach, Poincaré, LeRoy and others. By applying his renewed methodology to the study of both accounting and the fi rm, Zappa stated that i) income is the most important phenomenon in fi rms’ economy, ii) whatever the notion of capital is, it has to be related back in some way to income. In addition, fi rm’s income cannot be measured without a deep knowledge—a scientific one on its turn—of its economy, i.e. of its structure, organization, functioning, dynamics and composition. This renewed method of accounting has to be based on a parallel renewed conception of the fi rm, better, on a new overall science concerning the fi rm as a whole (Economia Aziendale). This way, the fi rm was no longer interpreted as a set of assets and liabilities, nor as a nexus of contracts among the factors of production, neither as a bilateral principal-agent relationship according to Cerboni, but as a set of contracted prices turning themselves—respectively—into costs and revenues. Within the fi rm’s overall life, in fact, costs and revenues follow and cross each other in a never-ending dynamic: global income is at the same time the result of this interlacing and the goal the fi rm has to achieve. Income in fact—no matter if we refer to the global one, or periodic—has no meaning outside the fi rm in which it is realized. In addition, it is at the same time its goal and a measure of its efficiency as well as the critical moment of its dynamics. That is why—to study the formation of income— we need a deep knowledge of both the economic processes of fi rms as well as the effects brought by their dynamics into present and future costs and revenues. We need, in a word, a new science called Economia Aziendale (EA from now on). This renewed paradigm of the fi rm, now defi ned as a “going economic concern” (1926), produced this way a new general theory of the fi rm, intending to study with renewed methods the laws of equilibrium and development of every kind of fi rm (banks and insurances et al. included). EA was in fact sketched in 1926 at Venice University (Tendenze nuove negli studi di Ragioneria, 1927); Zappa’s main work, Il reddito (The income), appeared between 1920 and 1929 (2 volumes). Resulting in the “synthesis of accounting, organisation science and management”, Economia Aziendale has the goal to defi ne “the dynamic conditions of life” of the azienda, this being its field of analysis. In short, a summary of the steps which brought Zappa from critical positivism and the revolution of income to EA can be presented as follows: a. sciences—building on groups and series of scientific facts—go from heterogeneity to homogeneity, to systems of facts useful in that truth is a quality of the whole rather than of its individual parts;

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b. in applied sciences, the study of both general schemes and specific situations is needed; as the fi rm is a complex organic unit, accounting systems must represent the whole structure of the connected and interactive economic phenomena, their own relationships included; c. income—the most important fact in the life of the fi rm—has to be represented in accordance with every other phenomenon of the firm in systemic a way; d. anyway, not every administrative fact being an accounting one, and every non-monetary fact getting lost in accounting, accounting measurements have to be integrated with the statistical ones; e. to build a sound integrated system of accounting and statistical information we need a new scientific approach and—as method and content cannot be separated—a whole new scientific branch, the aforementioned self-contained scientific branch, EA; f. as a conclusion, the task of accounting consists in i) separating the elements of the organic and unitary life of the fi rm, ii) defi ning values, iii) rebuilding the fi rm-system according to both wealth and organization (that is why accounting, management and organization enlighten each other and represent the synthesis of fi rm dynamics). This being true for methodology and Accounting, Zappa innovated also from the point of view of EA, adhering first to the proposals of Schmalenbach—the EA as a branch largely (exclusively?) related to fi rms—and turning later in time to the hypotheses of Nicklisch, i.e. EA in its larger boundaries encompassing households, enterprises, and in addition the State (its partitions included). Methodological premisses in fact, and the synthetic approach accounting-organization-government as well, could have been applied to economic agents of whatsoever a kind. From this point of view, to conclude, Zappa’s EA resulted to be a triple synthesis: i) of inferential v. deductive approaches from ancient times to his own; ii) of accounting-organization-governance, turned out into a new economic theory, as unitary as fi rms’ economic phenomena are; iii) of both Schmalenbach and Nicklisch, taking the income from the former, the global perimeter for EA from the latter, and crossing the latter by the former in radically new approaches, and consequences.

3.2. The Income (1920–1929), or income first of all During turbulent, inflationary periods both income and wealth are moving. Variations in prices alter dramatically fi rms’ equilibrium, as they did in fact after 1914 in Europe (or after 1941 in the U.S.A.); moreover, they separate the economic theory from the accounting one although indefi nitely in a way (Boulding, 1962). As a consequence, in two countries of Europe, Germany and Italy namely, innovative (and somehow controversial) accounting theories were developed, which tried to cope with the new theoretical and

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practical problems which inflation (and renewed epistemologies) had given rise to: the standard Authors in the field were Eugen Schmalenbach for Germany (Dynamische Bilanz, 1923) and Gino Zappa for Italy (Il Reddito, 1920–29)(Canziani, 1982). They realized the renewed nature of economic and accounting problems, and coped with that to solve two major problems: 1. how to be able to measure annual income, as its bases were now moving? 2. how to be able to attribute to assets a value whatsoever, provided that 2.1. prices were changing—in some cases dramatically—with no interruption? 2.2. the new economic dynamics, and the renewed junction of costs and revenues were originating annual results variable in sign and size? Schmalenbach and Zappa moved from a double matter of fact: i) within the fi rm, the whole combination of assets driven by administrative choices produces income, ii) during inflation, the income-production process is not modified in its logical paths, as assets transform inputs into outputs and costs into revenues. This given, they realized anyway that some major changes arise as far as measurement processes are concerned: a. the original entry value of assets looses validity towards their current values, even if the original (historic) cost keeps anyway its the original fi nancial influence; b. the income-stream volatility increases, in case giving origin to alternate net profit or losses stemming from the very same assets and liabilities; c. the whole rentability of the fi rm gets upset, defi nitively proving that capital value (and asset values as well) totally depend on future income-flows. As a consequence, after abandoning the triteness of income as “the difference in fi nancial situation between two subsequent measurements” as it lost defi nitively its presumed validity, they inverted—from the logical standpoint—the capital → income link, to turn to a new one, i.e. the income → capital one. Once inverted that causal link, the idea was presented of the value of capital (and assets) being dependent on the amount of income it was able to produce in time. To be practically obeied, anyway, this concept would have requested to become operational, the direct measurement of income being the only way to achieve this goal. As a consequence, the process of value-attribution centred upon the fl ow values (income) instead of stock ones (assets).

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From both the operational and informational point of view, the attention paid to income underlined the importance of the income-statement, as the true statement by which: i) to understand the sign, amount and composition of income, ii) to give a proper valuation to assets and liabilities once they both, once expressed in ‘historical’ values, were considered as multi-annual costs to be transformed into revenues (the assets) as well as into fi nancial revenues to be repaid (the liabilities).

3.3. Tendenze Nuove (1926): Economia Aziendale as a new, self-contained economics Due to its new paradigms, EA succeeded in individuating and enlightening a plenty of new scientific problems. The goal was given in fact, to this synthesis of accounting, organisation science and management, of interpretating fi rms’ dynamics, working out both descriptive and prescriptive theories as far as the whole cluster was now regarded. This implied the analytical study of the technical specificity of their single economies (from agriculture to manufacture to banking and insurance to shipping to every other), anyway unifiable under some major common features: a. capital- and revenue-values as expressed by money; b. general tendency of fi rms to economic equilibrium as a result of managerial actions displayed into markets and through competition; c. strategic, organizational and managerial processes ; d. general, cross-industry interpretative categories like d)1) «incomeproducing combinations», i.e. the whole structure of operations and processes; d)2) «profitability coordinations», i.e. the interplay between (groups and sets of) costs and revenues; d)3) «monetary correlations», or cash-flows dynamics. The synthetic approach (i.e. the aforementioned inductive-deductive method of § 2.) joined the study of sectoral-, industrial-, and firm-peculiarities with the comprehensiveness of the common interpretative categories i) to turn specificities into general rules of growing universality, ii) to individuate and coordinate these same rules, giving them practical forms as well. As a consequence, synthetic studies of the EA-type proved along time the pre-existing scholars’ intuitions: • fi rms differ each other: they change along time, grow (or not), front success, stability or failure, according to the interaction between markets, industries, and managerial choices; • markets result from the mutable interplay of fi rms on one side, of demand-agents on the other (the latter being families, fi rms, or the State and its partitions);

80 Arnaldo Canziani • competition is both a price- and non-price one; fronting competitors, and facing the demand-agents (or influencing them as well), the fi rm turns to be a price-giver (price-proposer), or a price-taker according to the structure and functioning of competition (dominant fi rms and cartels included). Zappa’s further fi ndings as regards the economy of the fi rm as a system of economic transformation are rapidly abridged here just to conclude (Canziani, 2007, 2009): I. the fi rm is negotiating “in simultaneity and succcession” cost-prices and revenue-prices and mobilizing fi xed assets along time; II. its actions are subject to measurement by Accounting, which omogenizes the multiple sub-systems of costs and revenues, dispersed both in nature and contractual standpoint, and in space-time as well; III. planning its “productive combinations” and nevertheless actuating and endlessly changing them, the fi rm always modifies also its related “profibility coordinations” in space-time, in its endless trial—provided it is wisely managed—of maximizing its own rentability and results in the long-term (this anyway meaning, as Machlup clearly stated, to maximize i) ex ante, ii) in subjective ways, partially ignoring data and within different risk-propensities; iii) within different time-span, duration of the core-group, stability of the shareholders majority, organizational equilibria, market power et al.).

4. GINO ZAPPA AND HIS SCHOOL: FIELD ADVANCES ALONG YEARS Getting near to the end of his life, Zappa tried anyway—maybe due to the crisis of economics as well as some heritage from Cerboni, Besta, the French sociologists of the Thirties, and Commons as well—to make EA inquiring the economic system as a whole, through the analysis of all its components (families, enterprises, public administration) and the interrelationships among them. The processes of production and consumption were this way interpreted as special ones in fi rms, but similar in all entities, be they families or public authorities. In this last evolution, proposed by Zappa in his unfi nished, four-volumes treaty Le produzioni (1955–57), EA is consequently seen as a global economic science, an integration—or almost a substitution—of economics. It took years to make Zappa’s revolution largely (or totally) accepted in Italy; a substantial role in this was represented by Zappa’s disciples.

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A basic step in the march of scientific revolutions—extensions and applications apart—is represented by its institutionalisation in academic forms, didactically viable and more easily accessible to the public. The role Hicks and Hansen covered as J. M. Keynes and his General Theory were regarded was represented—for Zappa, and Italy—, by Pietro Onida, his fi rst disciple (professor at Bocconi, Turin and Rome Universities) by the treatise Economia d’ azienda, 1971II. Later on, other treatises contributed to complete—according to personal choices—the overall contents of EA, mainly C. Masini, Lavoro e risparmio, 1980II and E. Ardemani, L’impresa (The fi rm), 3 volumes, 1982–1984. A plenty of relevant contributions regarded balance-sheets in general, and annual accounts in particular, tending to i) develop theories, ii) orientate practice, iii) specify and integrate Civil Code general principles. This in a period—and a world—were general standards were of near no diff usion (the trial to unificate accounts under a general national scheme, UNICONTI as the Plan Comptable in France, was abandoned in early 1940ies, and generally refused). The highlight in this field was once more P. Onida, Il bilancio (1945, 1974). The problem of accounting for inflation, so relevant a topic in the forming phase of Zappa’s revolution, was resumed later on, and masterly treated, by C. Masini La dinamica dei sistemi di valori d’azienda. Valutazioni e rivalutazioni (1963) where, according to changes in values as well as in profitability expectations, a general restatement of plants, machinery, stocks values was suggested (and of depreciation and reserves in parallel), summarised within liabilities by provisions and a special integration of equity. A section relatively set apart was cost (and managerial) accounting, as the accent had been posed on income, that is to say on external operations (exchanges, hence cost and revenues) more than on costs as secondary measures. Furthermore, due to economic communion and manufacturing conjunctions, the calculation of costs was carefully to be made, paying special attention to its hyper-convenctionalism (Zappa, Le produzioni). These caveats against purely mechanical or un-reflected ways for cost calculation didn’t impede later on the studies on costing, due to Teodoro d’Ippolito, anyway always linking costs to selling prices and vice-versa (I costi di produzione, 1935; Costi e prezzi nelle aziende industriali, 1946); N. Rossi, Rilevazioni d’impresa in condizioni economiche perturbate (1957), L. Guatri (Il costo di produzione, 1955) and others, among which later on I. Marchini, Costi standard e controllo dei costi di produzione, 1961, A. Spranzi, Introduzione allo studio della variabilità dei costi di produzione, 1964. Public accounting—a branch not so easy to be theorized from the economic point of view in those very years, due to its large juridical imprint—was treated by Marcantonio, L’azienda dello Stato, 1950, and Zappa-Marcantonio, Ragioneria pubblica, 1954. The same was for historical studies, rather neglected at that time, with contributions mainly by Zerbi who reconstructed for Lombardy the origins

82 Arnaldo Canziani of double entry and the operating of medieval banking as well with his La banca nell’ordinamento finanziario visconteo, 1949, Il Mastro a partita doppia in un’azienda mercantile del Trecento, 1950, Le origini della partita doppia, 1952. Also the extension to different fields of analysis (and action as well) registered contributions and developed on its turn new branches of EA, obviously accordingly to Zappa mood. a. As far as the inner economic life of the industrial fi rm, we must mention G. Pivato, Le imprese di servizi pubblici (with special reference to electric utilities), 1939; Azzini, Investimenti e produttività nelle aziende industriali, 1949; Masini, Economia delle imprese industriali, 1949; Guatri, I rendimenti, La produzione e il mercato (both 1951); lastly, by an old pupil of Zappa, P. Saraceno, La produzione industriale (1980VII). b. The economy of deposit-banks, was treated by T. Bianchi, Costi ricavi e prezzi nelle banche di deposito (1967), who interpreted them as “systems of prices” which have to be represented by their annual accounts (where the P&L juxtaposes whole blocks of active and passive capitalizations). The same field was masterly analyzed by Aldo Amaduzzi’s La banca (1949); P. Saraceno La banca di credito ordinario, 1949; and G. Dell’Amore, Economia delle aziende di credito, 3 volumes, 1965–1977, the very founder of a “banking school” later on dominating in Italy. In addition to the above ones, a blueprint was represented by the work of U. Caprara (La banca, 1948), suggesting the active role of banks in raising funds and granting credits to clients interwoven each other, with the aim of making its own banking-money circulate while keeping stable (or even unchanged) its deposits. c. The study of markets and industries, a special industrial economics intending to investigate the cross-relations between markets and fi rms, and the multiple ways by which they got reciprocally influenced, was represented by studies by the same Caprara (wheat markets), Dell’Amore (agricultural products; wools), Borroni on the cotton industry (1930), Zunino on olive oil (1939), Marcantonio on woods and forestry (1939), Lorusso on cotton spinning (1940). In the field we must mention in addition Guatri on market researches (La produzione e il mercato nelle ricerche e nelle rilevazioni d’impresa, 1940, Ricerche di mercato, 2 volumes, 1956), price differentiation (La diversificazione dei prezzi. Fondamenti economici, 1951), the economics of cotton fi rms (L’economia delle imprese cotoniere, 1952), Lorusso on international trade (2 volumes, 1954), Rossi on clothes trade (1955). Relevant, large and systematic contributions were owed in addition in following years to i) G. Ferrero (one among the disciples of Onida, University

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of Turin), and his Turin School, ii) one among the disciples of Masini, Ferdinando Superti Furga (University of Pavia). Giovanni Ferrero wrote extensively in the fields of both accounting and business administration, as he carefully treated accounting, equity valuations, fi rms management: Le determinazioni economico-quantitative d’azienda (1965), La valutazione economica del capitale d’impresa (1988II), Impresa e management (1987 II), La valutazione del capitale di bilancio, 1995II, concluding by the treaty Istituzioni di economia d’azienda (1968, 1974II). Superti Furga, on his turn, wrote deep, original and always clear-cut books on different accounting and managerial problems like short-term fluctuations, fi nancial management, assets evaluation: Le fluttuazioni di breve periodo nell’economia delle imprese (1965), Il fabbisogno fi nanziario nelle imprese industriali (1974), Le valutazioni di bilancio (1979), Reddito e capitale nel bilancio d’esercizio (1991), Il bilancio d’esercizio italiano secondo la normativa europea (1997 III).

5. SCHOOLS OTHERS THAN ZAPPA’S

5.1. Zappa’s Contemporaries Spite of his inexaust activity, and his disciples’ as well, Zappa didn’t obviously exhaust the panorama of business studies of his era: substantial roles were played by his contemporary colleagues and rivals, spite of the fact that they all were marked by his basic innovative statements. So, we will just mention here the relevant schools—and authors—which contributed in fact to the progress of business studies in Italy after Cerboni and Besta, and whose teachings remained—hidden or not—along generations, incorporating themselves into Italian business culture and practice. Zappa opponents. Near no scientific revolution meets immediate and total success, especially within the academic field. For some decades in fact, both scholars belonging to Zappa’s generation or older, not to mention the (in)direct disciples of Fabio Besta, taught in various Italian universities Accounting as the science of wealth and its measurement. Among them Alfieri (Ragioneria generale, 1921IV); Della Penna, a gentleman (I fondamenti della ragioneria, 1931, 1958VIII); Vincenzo Masi, for many years editor of “Rivista Italiana di Ragioneria” (Ragioneria generale, Bologna, Cappelli, 1926; La Ragioneria come scienza del patrimonio, id., 1928; Battaglie e conquiste in economia aziendale, 1935). The last of them—Ubaldo De’ Dominicis (Lezioni di ragioneria generale, 5 volumes, Azzoguidi, Cuneo)— retired late 1980ies, after having taught in Bologna, Genua, Trieste, leaving his scientific message to his disciples M. Fanni, and L. Cossar (Il metodo

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contabile, 2002). Their opinions were later on relaunched, and could be now revalued after the present coming in power—in Accounting—of Anglo-Saxon culture and methods, largely based on assets and wealth. Bari School. Garrone—one of the Masters of Bari University—wrote The science of trade (La scienza del commercio) in 1913, 1922–25II, 1942III, subdivided as such: trade organization and its pre-requisites (among them money, capital, communications) / trade institutions (among them law, credit, insurance) / trade structure (from monopoly to distributed competition, from large trade to retail) / trade fi rms and their techiques (including banks and their accomodation bills as well as call loans). Garrone, after working in the fields of banking and marketing, concluded his activity writing two relevant books on long-term fi nance (Istituti speciali di credito, 1942), money and banking in the U.S.A. (Circolazione e credito negli Stati Uniti d’America, 1947). The most important disciples of Garrone were Nicola Tridente e Antonio Renzi, at the end of their career both ones teaching in Rome University. Tridente wrote about international trade, on the cement industry, then on banking concentration (La concentrazione bancaria, 1936, 1948II) as motivated also by non-economic and personal reasons, specifying that banks are established to: i) gather and distribute saving, ii) distribute credit; iii) exercise purely monetary functions. Renzi wrote on credit and banking after the banking reform of 1936 (La difesa del risparmio e l’esercizio del credito in regime corporativo, 1938), to end with three main works: on companies’ management (Lineamenti di tecnica amministrativa industriale, 1941, where he applies to Italy the theory of Berle and Means, 1932, stating that companies’ management encompasses production, marketing and fi nance to orientate the fi rm within its markets), marketing (Tecnica mercantile, 1954), foreign trade and exchanges (Lezioni di tecnica del commercio estero, (1954). Naples School. Naple’s school is a relevant one since the 1920ies, and still is. It get started with the seminal works by L. De Minico—annual accounts apart—on the dynamics of assets within manufacturing fi rms and their renewal, Rinnovamento e liquidità nel capitale delle imprese industriali, 1931, as well as the economics of costs, Elasticità e relazioni dinamiche dei costi, 1935; in addition with Saggi di economia delle aziende (1942, with D. Amodeo) to conclude by Lezioni di ragioneria (1945). To these works one must add a pioneering work by S. Sassi on risks for (and within) fi rms, Il sistema dei rischi d’impresa, Milano, 1940, and some contributions by A. Salzano (University of Perugia), meaningful ones in order to appreciate fi rms’ future income-streams: L’assegnazione di valore al capitale in relazione al reddito futuro, 1938; Metodologia contabile e determinazione del reddito, 1961.

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Florence school. One of the most important Italian school in the field of business—with Zappa’s, Naples, and Garrone—, was Florence, and Tuscany in general, starting with Gaetano Corsani. He moved from accounting to shift, after 1925, to banking, fi rms’ management, marketing. After Import and Export (Le importazioni e le esportazioni, 1925), and the studies on the industry of wool (La lana, 1927), he wrote on the management of industrial and commercial fi rms (La gestione delle imprese mercantili e industriali, 1939II , 1949III) and banking as well (Banche ordinarie, 1946, 1953II). His most important contribution regarded anyway convenience and profitability calculations within industrial and commercial fi rms (Le determinazioni di convenienza economica nelle imprese mercantili e manifatturiere. Il fondamento economico della gestione, 1930), where he said introductively ”the profit-seeking fi rm endlessly transforms goods and values in space-time to reach its ideal equilibrium within unstopped external constraints—our study will regard uniformities referring to similar conditions and/or similar groups of fi rms”. Corsani raised two relevant followers: Carlo Fabrizi e Roberto Fazzi. Fabrizi wrote on banking and international trade in 1935–1941 and 1942–51 (also due to the problems induced by the 2nd World War), on price theory, price-control, free-exchanges, Italian unenployment, changes in trade distribution, to conclude in 1953 with his treaty on the management of fi rms (Lezioni di tecnica commerciale e industriale). One more among his monographs holds anyway a never-ending value, on commercial banking v. joint-stock banking (Separazione del credito commerciale dal credito mobiliare, 1935), where he stated his opinion as such: ”under changing environment, it is better not to cancel joint-stock banking, but to separate it from commercial banking as Italy did in 1936, leaving long-term credit to specialized banking fi rms.”. Fazzi wrote a plenty of contributions, but remains in the history of Italian business thought especially due to some pioneering works, among them his monographs on i) insurance as risk-tranferring (Trasferimento dei rischi e l’assicurazione, 1942), ii) marketing and trade (Contenuto e metodo della tecnica commerciale, 1951), iii) corporate governance (Governo d’impresa, 1951), iv) mass production (Produzione di massa, 1954). From the accounting point of view, in those very years the Florence school was represented by Alberto Ceccherelli, who raised some doubts against the (apparently) infi nite boundaries attributed by Zappa to Economia Aziendale, claiming that i) Zappa’s EA had undervalued and impoverished

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accounting, this being not a merely double-entry system but a self-contained field, ii) accounting-management-organization had to be adequately merged and synthetized within EA, in order to avoid an unfruitful, easy-tobe-made atomism (L’indirizzo teorico negli studi di Ragioneria, 1922; La Ragioneria nel sistema delle discipline economiche e commerciali, 1934). While his seminal work is represented by Il linguaggio dei bilanci, 1939 on annual accounts interpretation, he wrote also on EA and management (Economia Aziendale e amministrazione delle imprese, 1948) as well as the principles of accounting (Istituzioni di ragioneria, 1955VIII). His role within accounting and EA was later on assumed by Egidio Giannessi and the Pisa School (cfr. below) with extentions of that school to Siena and other Italian universities. Special branches. Some contributions were in addition especially referred to i) banking, ii) industrial management, by authors as important ones at that moment as nearly neglected today. In the field of banking, the standard treatise was for decades D’Angelo (1917, D’Angelo-Mazzantini after 1924 till the ‘60ies), which imprinted the study and the teaching of banking, and nevertheless bank management from Rome to Sicily till early ‘70ies. His studies on banking were notable ones especially from the purely technical point of view updated with no interruption, to the relevance of which can be attributed its long-lasting influence. In the field of fi rms’ management, maybe due to the industrial relevance of Genua as well as Turin, we cannot forget Broglia, a professor at Turin University (as well as a general manager of FIAT, and later on a banker) with his monograph L’azienda industriale, 1925II (Manufacturing fi rms) were—anticipating Donaldson 1959 about the mobilizing of fi xed capitals—he said among other concepts: ”working capital gets transformed at every production completion . . . the value of (raw) materials enters into the value of fi nal products, while fi xed capital gives origin to multiple productions during which, evidently, it contributes in the form of consume, or depreciation: as a consequence its value enters only partially and pro quota in the production costs of the single product”. That work will be later on integrated by a substantial treatise on firms’ management, L’aziendaria (1935) by Ferrer Pacces, and so to say completed by Garrani’s Tecnica amministrativa societaria (1936)(The administration of companies), still relevant as far as fi nance in particular is concerned. Along years, anyway, some dramatic changes were produced in the public regulation of business studies at university level in Italy. Those ones were in fact still reputed to be more training than education: that’s why they were taught—in the 19th century, and later—mainly in the abovementioned Upper Schools of Commerce. Anyway, along the 1920ies and

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1930ies, whole degrees in economics were created, which included business studies too. Unfortunately, these ones were secluded in two courses only: i) accounting, ii) administrative techniques, including the economy of production, trade, banking et al.; this junction explained the contemporary activity of scholars in so many different research fields. It was on the contrary along the 1960ies, and later on with the impressive change since eraly 1970ies, that business studies splitted again and again. Accounting get multiplied to include cost accounting, planning and control, advanced accounting, and so on to business policy and other topics. At the same time, administrative techniques were splitted into two parts fi rst (production and marketing, banking) and in four-five (and even more) later on, following a widespread specialization process. As a consequence accounting, the basic original subject, on one side specialized, on the other lost whole fields, now authonomous ones. This way, scholars from the accounting field in some cases went on there, in some others turned to different specializations; the analyses which follow regard mainly scholars who remained in the field of accounting giving it seminal contributions.

5.2. After Gino Zappa The story of Zappa’s consequences in the field of Italian business studies has still to be narrated in comprehensive, objective a way. But the reader can easily imagine—e.g. along T.S. Kuhn, The Structure of Scientific Revolutions—, the mixing of actions, reactions, frictions and oppositions his proposals originated within Italian business studies 1925–1980 (broadly speaking). Once given the outline of both followers and disciples—which tended anyway along years to evolve as usual in their own opinions, to accept other or foreign or diverse contributions, to mix them all into new personal views—, one cannot obviously forget the schools other than Zappa’s, mainly outside the Veneto and Lombardy regions. In particular, the evolutions regarding Accounting, EA and Management could be rapidly summarized as follows, gathering the most important scholars of the last decades in two main groups: a. scholars accepting Zappa’s lessons anyway with reserves or exceptions; b. followers limiting the contents of EA only to fi rms. A) Some scholars—to remember here just the most important ones— expressed a two-fold attitude and behavior towards Zappa revolution, taking or refusing some of his main proposals. 1. Aldo Amaduzzi (teaching some fi fty years fi rst at Bari, than at Genua, later at Rome Universities) tried to join income and wealth. Contrary in particular to fi rst Zappa period—a so radically income-based-one

88

Arnaldo Canziani as to imagine to shadow A&L in favour of a P&L statement, where also assets could enter as costs of the period to outflow as profits at their net value at the end of the same—, Amaduzzi proposed a special, mixed system matching income&wealth (, i.e. wealth and results). Later in time he generally accepted EA, anyway underlining that—like every synthetic science—it would have requested high-talented brains able to synthetize it (his treaty was L’azienda nel suo sistema e nell’ordine delle sue rilevazioni, 1961, 1969III). Among the plenty of his special contributions, we quote here his blueprint Conflitto ed equilibrio d’interessi nel bilancio dell’impresa, 1949, regarding the merging (and juxtaposing) of shareholders’ and stakeholders’ interests within annual accounts. 2. Domenico Amodeo, the master of the Neapolis school where he taught for decades, although accepting the Schmalenbach-Zappa lesson of income as the driver of both the economy of fi rms and the very core of Accounting (his treaty was Ragioneria generale delle imprese, 1964), refused anyway to accept Economia Aziendale as an overall science. He claimed in fact that i) its boundaries were so extended as to prevent it to be a comprehensive one, ii) costs, budgeting and control were all the time a substantial part of Accounting, iii) enlarging it further could mix up management, organization and so on, in case mistaking them. His studies included also I costi comuni nell’aspetto funzionale (1941) on overheads, Le gestioni industriali produttrici di beni (1956) on industrial companies management, but he was as upto-date as to inspire later on the collective work on La certificazione professionale dei bilanci, 1973, on certified public audit. 3. D’Ippolito, teaching—after Bocconi—at Bologna, Florence, and Palermo Universities, tried to re-direct the absolute prevalence given to income by Zappa’s fi rst period, and wrote such relevant books (the above on pricing apart) on accountability as Contabilità e bilancio, 1949, La contabilità analitica d’esercizio, 1961; in addition two books on business studies, Le discipline amministrative aziendali, 1957 III, and accounting history, Documenti per lo studio storico della ragioneria, 1967. In Palermo his pupil N. Colletti wrote Il tempo in economia aziendale, 1955, on the role of time within economy, economics and fi rms, treating in addition business decisions and planning in Programmazioni e scelte in economia aziendale (1964). 4. The same was in a sense for P.E. Cassandro, the master of the Bari school where he taught for decades, from his Incidenza dei fattori produttivi a lungo termine sul risultato economico di periodo delle imprese (1950)(regarding the relevance of fi xed factors for equilibrium and results of fi rms) to various works on industrial groups, planning, cost accounting (I gruppi aziendali, 1954; La pianificazione aziendale, 1962; Contabilità dei costi, 1980), to end by his treaty Trattato di ragioneria. L’economia delle aziende e il suo controllo (1982).

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B) The lesson by Zappa was accepted by contemporary Tuscany schools—Pisa University in particular—anyway limiting themselves to the “narrower” contents of EA, i.e. only to fi rms, although belonging to industries whatsoever from agriculture to manufacturing to banking and so on. Egidio Giannessi being the very founder and master of those above, his imprint was represented on one side by his 5-volumes, unfinished treatise Corso di economia aziendale (with particular an accent on forerunners on one side, on agricultural fi rms on the other), on the other by chains totalling today more than one-hundred monographs. In addition, he wrote some seminal works on fi nancial equilibria of industrial companies (L’equazione del fabbisogno di finanziamento, 1955), on fi rms’ profitability (Il Kreislauf fra costi e prezzi, 1958), on the historical methodology within business studies (Considerazioni introduttive sul metodo storico, 1974). Among the plenty of scholars who grew at his school, one must mention at least Caramiello, highlighting such problems as the basic role and functions of azienda, business planning, the dynamics of capital and income, annual account evolutive rules (1965–1994); Corticelli on machinery obsolescence (1967) as well as fi rms’ growth (1986); Bertini on the nature and management of risks (1967), on the fi rm as a system (1990); Padroni on the relationships between profitability and organization (1987) as well as the management of complexity (2005).

6. THE PRESENT SITUATION: ACCOUNTING FROM INCOME TO IFRS, ECONOMIA AZIENDALE FROM GENERAL THEORIES TO MANAGEMENT After the adoption of EU 4th and 7th Directives, and later on the influence of IAS, accounting studies in Italy tended to settle down into i) the comment of new norms, ii) the problems coming from the adoption of international uses, iii) lastly, statistical analyses regarding some differences in values stemming from the application of new standards v. traditional, codified norms. This meant a change, in some cases a radical one, with respect to previous analitycal methods, fields and contents of Accounting. As a matter of fact, the vulgata from the Ninetenth century to 1980ies, spite of its contrasts and differencies, was an unanimous one as regards the economic nature of the fi rm as well as the rules—accounting ones—to dress annual balancesheets. As a consequence, the law was interpreted according to those ones, and the suggestion was made that Codes could comply to the same, as they did in 1942. As a result, mainly after some reforms of the 1960ies and early 1970ies, both the quality of average public information was comparable with international standards, and the appreciation of alternatives (or grey areas) permitted by laws and regulations was a purely economic one. As a consequence, the initial attention to GAAP was a largely critical one, e.g. G. Mazza (Catholic University of the Sacred Hearth, a disciple of Onida)

90 Arnaldo Canziani underlining their nature of merely codified uses nor principles (Problemi di assiologia aziendale, 1997 IV), D. Amodeo connecting them to the general move towards a larger informative content of annual accounts (Alcune considerazioni sugli standard contabili generalmente accettati, 1981), C. Polonelli examining them critically (Una introduzione ai principi contabili, 1981). The result of some thirty years of contributions and debates is now the technical attention paid to the adoption of IAS and their evolution as well: among so many, we can quote here A. Provasoli and A. Viganò (two among the disciples of Masini), I principi contabili in Italia Francia Regno Unito Germania, 1995; G. Ceriani and B. Frazza, L’implementazione dei principi contabili IAS/IFRS, 2006; VV.AA. (Naple’s University), Il bilancio secondo i principi contabili internazionali IAS/IFRS, 2010. Anyway, to cope with the abovementioned internal and international changes, since the 1970ies near every Italian scholar wrote a textbook on accounting and annual accounts. Among dozens (with various accents in some cases), let’s quote Provasoli, Il bilancio d’esercizio destinato a pubblicazione, 1974; Mazza, Problemi di valutazione per il bilancio di esercizio, 1984II; Ranalli, Sulla capacità informativa delle strutture di bilancio, 1984; Amaduzzi-Paolone, I bilanci di esercizio delle imprese, 1986IV; Pini, Politiche di bilancio e direzione aziendale, 1991; Catturi, La redazione del bilancio d’esercizio, 1992; Caramiello, Il bilancio d’esercio ieri e oggi, 1994; Terzani, Introduzione al bilancio d’esercizio, 1995V; Capaldo, Reddito, capitale e bilancio d’esercizio, 1998; Consorti, L’evoluzione della funzione informativa del bilancio d’esercizio, 2001; Ferrero-Dezzani-Pisoni-Puddu, Contabilità e bilancio d’esercizio, 2004; to them all we must also add Paolone-D’AmicoConsorti, La revisione aziendale (Auditing), 2000. Public accounting, for years a rather neglected field—also due to the fact that its contents were defi ned by law as a matter of fact, and largely developed by scholars of juridical an imprint—, gained in recent years a renewed interest by Anselmi-Del Bene-Donato-Giovanelli-Marinò-Zuccardi Merli, Il controllo di gestione nelle amministrazioni pubbliche, 1997; D’alessio, Il budget nel sistema del bilancio dello Stato, 2002; Puddu, Ragioneria pubblica, 2004, Camodeca, Il bilancio dello Stato nel sistema della ragioneria pubblica, 2005, and moreover M. Mulazzani (University of Florence), Economia delle aziende e delle amministrazioni pubbliche, 2 volumes, 2006 II. Methodological studies were—and remained—one of the specialties of the Pisa School, mainly represented by R. Franceschi with her contributions established both on the international thought (the German one in particular) and Giannessi teachings, among others L’indagine metodologica in economia aziendale, 1978, Il percorso scientifico dell’economia aziendale. Saggi di analisi storica e dottrinale, 1994, Problemi attuali dell’economia aziendale in prospettiva metodologica, 1998. With special reference to accounting methodology we must mention one book by Galassi, a pupil of Masini, who rote—in addition to the realization principle, the theory of income, and income smoothing—, a relevant book on axiomatic accounting

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theory (1974); and one by Lipari, a D’Ippolito pupil, Fondamenti di ragioneria teoretica, 2003. Historical studies were cultivated mainly in Pisa and Turin, following the suggestion of both Giannessi and Ferrero, according to which every scholar should devote them one work at least, from the point of view of authors or schools. The result was a quantity of monographs on the most important Italian accountig scholars, beginning from T. Antoni, Fabio Besta, 1970. The modern side of planning and control—after the seminal works by two followers of Guatri, A. Spranzi, Piani aziendali di breve e di lungo periodo (1970) and S. Podestà, Introduzione alla pianificazione nell’impresa (1971) as well as one further pupil of Onida, Capaldo, La programmazione aziendale, con particolare riferimento alla programmazione pluriennale (1965)—is today represented by i) G. Bruni (University of Verona), a pupil of Ardemani, lastly with Analisi del valore. Il contributo dell’ (1994) and Contabilità per l’alta direzione (topmanagement accounting, 1999), ii) M. Bergamin (University of Venice, originally a pupil of T. Bianchi), unifying the Italian tradition with the most important international advances in the field in her book Programmazione e controllo in un’ottica strategica (1991), a blueprint. Studies on strategic planning moved from the seminal contribution by Isa Marchini, an impressive lady now Emeritus professor of the University of Urbino, forging general and special contents in the melting pot of Italian tradition and US experiences as well, La pianifi cazione strategica a lungo termine nell’impresa industriale, 1965. Before this work, special contributions in the field had been Azzini on fi rm’s investments, productivity and dynamics (Investimenti e produttività nelle imprese industriali, 1954, Le situazioni d’impresa investigate nella dinamica economica delle produzioni, 1957); R. Fazzi, on risk and entrepreneurship, Il contributo della teoria delle funzioni e dei rischi allo studio dei comportamenti imprenditoriali, 1957; and others on forecasting, plants localizing and renewing, environmental analysis: R. Argenziano, Il rinnovo degli impianti, 1963; N. Rossi, L’economia d’azienda e i suoi strumenti d’indagine, 1964 G. Caprara, Previsioni e programmazioni in un’impresa industriale, 1965; C. Caramiello, L’indagine prospettiva nel campo aziendale, 1965; C. Masini, Le politiche e le programmazioni d’impresa, 1965. Later on N. Rossi, Organizzazione aziendale e decisioni imprenditoriali, 1968; R. Ferrara, La localizzazione degli impianti nelle imprese industriali, 1969. Galassi joined special accounting profi les to managerial (and strategic) decisions in Misurazioni differenziali, misurazioni globali e decisioni d’azienda, 1983. The present author wrote a book on corporate strategy (La strategia aziendale 1984), and the topic was recently advanced by R. Franceschi, Processi evolutivi dei sistemi di supporto al governo d’impresa, 2000 as well as by E. Cavalieri on contents and risks of contemporary strategic behavior of fi rms (2008), on fi rms’ reconomic equilibria in today high-complexity world (2010).

92

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EA as an overall, comprehensive system, trying to substitute itself to economics is today loosing positions, maybe due to its eccess of contents, the complexity of the field, the lack of faith and intepretative tools, last but not least the unending growth of special contributions. Among others, one of the last treateses (originally building on both Aldo Amaduzzi and Egidio Giannessi), is the two-volumes work by E. Cavalieri—R. Franceschi, Economia Aziendale, 2008III. Lastly, a special mention regarding once more Naples, and Amodeo. Amodeo in fact, together with other bright chaps of Naples University, gave life to a high-quality school, still on battle stations in our days in Naples at large, with contributions which deserve to be mentioned as they range from every aspect of accounting (auditing, consolidated balancesheets, comparative accounting) to public-owned companies, group economics, health economics, corporate governance, joint-ventures, family fi rms. One should remember here, among others—at least—, the works by E. Viganò on fi rms’ evaluation and their value-determination through negociations (1967), on the contents and goals of annual accounts as general conventions (2007); by L. Potito on fi nancial reporting, 1980, special balance-sheet, 1993; mergers, 2006; amalgamations et al., 2009; L. D’Oriano (1984), on the mutual influences between balance-sheeet and the equilibria of fi rms; W. Di Meo, with his general accounting theory for both private and public accounts (2004–2005, three volumes).

7. CONCLUSIONS: FROM THE TRADITIONS OF CONTINENTAL EUROPE TO ANGLO-SAXON INFLUENCES We owe to German and Italian scholars in the field of business, since early 19th century, the ideation of a comprehensive theory of the fi rm which included its organizational and managerial profi les, stating that fi rms try— by committe decisions, this way “optimally imperfect” ones—to satisfy the constraint of economic equilibrium, this to be dinamically reached through development and growth. This put the traditions of Continental Europe in that era far—and further on—with respect to many Anglo-Saxon paradigms or conventions in the field, largely based on stilized entreprises (and entrepreneurs) v. the economic nature of the fi rm as such. Those advances started in the 1920ies, in parallel with the “marshallian” fi rm in Great Britain, as well as in the 1930ies, when J.M. Keynes framed the behavior of fi rms in fancy a way, purely targeted to the building of his macro-economic equations (GT, ch. 6 and 11, where in particular the is the discount rate that equalizes the profitability of a capital-good and its present production cost). In those very years, European scholars were already perfectly aware of the reality of fi rms being just the opposite, as i) profitability comes from the firm as a whole, not being connected with a single plant, equipment or machinery;

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ii) it has a very larger variance indeed, but it can be (easily) modified by management through administrative decisions in general, alliances and collusions (and cartels) included; iii) in parallel, it can be increased by scale economies and market power; iv) fi rms make economic evaluations futureto-future, and not only present-to-future. Those advances—built on the synthetic method to join relevant practice with consisting theories—went on along and after the 1940ies, driving Italian business economists to such conclusions as the following ones: a. fi rms are dynamic economic systems; b. they join persons and wealth to (re)produce new wealth while satisfying human needs and getting profits; c. profit-seeking represents at the same time their material goal and their survivance-constraint; d. the distribution of profit is influenced in time by entrepreneurial choices on one side, on the relevance given (by institutions, culture and law) to shareholders v. stakeholders on the other; e. those systems are also complex price-systems, whose functioning is optimally represented by income. This way, after the 2nd World War, Italian schools found themselves ready to cope with the relevant contributions by Machlup (Marginal analysis, 1946, 1947), Baumol (Oligopoly, 1958, Expansion, 1962), Penrose (Growth of the firm, 1959) and others like Simon, Cohen, Cyert and March, Ansoff (and Shubik and others) broadly speaking 1947–1968, realistic ones indeed and—maybe due to this—neglected or still marginal ones in today Anglo-Saxon economics. In parallel, the same epistemic foundation as well as practical fi ndings of EA—empirically-based but aiming to buid general theories—made Italian scholars to neglect the partial or mechanical proposals by Jensen and Meckling, Fama, Williamson, Hart and others, as well as—right or wrong—the re-launching by O.E. Williamson of The nature of the firm by R. Coase, as the role and functions of the fi rm are absolutely larger (and more complex ones) than . In addition, the treatment of EA according to its larger contents—from families to fi rms to the State—tried to realize the substitution to classical economics, resolving at a stroke both the dycotomy micro- macro-economics and their mismatchings. While this evolution explains the remoteness from the Anglo-Saxon vulgata concerning (not only) the fi rm, one must anyhow admit that after the big treatises of the 1970ies-1980ies, Italian EA as overall a science is now facing a phase of relative stalemate, most probably due either to its bending on accounting or on its enlarging its fields without supporting this operation with adequate theoretical instruments (be they AngloSaxon or not).

94 Arnaldo Canziani In the meanwhile, a lot of young scholars, not so much interested in longitudinal analyses as they live in an era forged both on the “eternal present” and the loss of any core reference (Verlust der Mitte), tend moreover to look to Anglo-Saxon functional as well as specialized studies, probably influenced by that cultural pressure, maybe to feel themseves à la mode, last but not least parochially prey to anglomania (Buruma, 1998). As a result, Italian business studies present today a quantity of different approaches, stratified through generations, anyway tending in these very days to analysis more than synthesis, to Anglo-saxon frames of reference instead of classical or continental ones, at the end devoted to specialized contents (moreover at firm level) rather than global, overall, synthetic approaches.

NOTES 1. Leipzig, 1898; Haachen, Wien, 1900; Köln, Frankfurt am Main, 1901; Berlin, 1906; Mannheim, 1907; Munich, 1910, Königsberg, 1915; Nuremberg, 1919

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Azzini L., I processi produttivi e i rischi di andamento dei prezzi nel tempo, Milano, Giuff ré, 1964 Baumol W.J., On the theory of oligopoly, “Economica”, Aug. 1958, pp. 187–198 Baumol W.J., On the Theory of Expansion of the Firm, “American Economic Review”, Dec. 1962, pp. 1079–1087 Baxter, W.T. and Davidson, S. (eds.), Studies in Accounting Theory, London, Sweet and Maxwell, 1962 Bellini C., Trattato elementare teorico-pratico di Ragioneria Generale, Milano, Hoepli, 1918VIII Bellini C., Trattato di ragioneria applicata alle aziende private con una appendice sulle funzioni speciali del ragioniere, Milano, Hoepli, 1918 Bergamin M., Programmazione e controllo in un’ottica strategica, Torino, UTET, 1991 Bertini U., Introduzione allo studio dei rischi nell’economia aziendale, Milano, Giuff ré, 1968 Bertini U., Il sistema d azienda, Pisa, Servizio Editoriale Universitario, 1987; Il sistema d’azienda schema d’analisi, Torino, Giappichelli, 1990 Besta F., La Ragioneria, Venezia, 1880; Milano, Vallardi, 3 volumes, 1922 Bianchi T., Costi ricavi e prezzi nelle banche di deposito, Milano, Giuff ré, 1967 Biondi Y., Canziani A., Kirat T. (Eds.), The fi rm as an entity and its economy, London, Routledge, 2007, 2009II, pp. 107–130 Böhm-Bawerk, Positive Theorie des Kapitals, Innsbruck, Wagner, 1902II, 1909– 12III, 2 volumes; Jena, Fisher, 1921IV, 2 volumes Borroni U., Il commercio del cotone. I cotoni americani, Milano, Giuff ré, 1936 Boulding K., Economics and Accounting: the Uncongenial Twins, in Baxter, W.T. and Davidson, S. (Eds.), (1962), pp. 44–55 Broglia G., L’azienda industriale, Torino, Schioppo, 1925II Bruni G., Analisi del valore. Il contributo dell’, Torino, Giappichelli, 1994 Bruni G., Contabilità del valore per aree strategiche d’affari, Torino, Giappichelli, 1999 Buruma I., Voltaire’s Coconut: or Anglomania in Europe, London, Weidenfeld and Nicholson, 1998 Camodeca R., Il bilancio dello Stato nel sistema della ragioneria pubblica, Padova, CEDAM, 2005 Cannan E., What is Capital?, “Economic Journal”, 7–1897, pp. 278–284 Canziani A., Measurements and Calculations in Accounting: a Note on Continental v. Anglo-Saxon Methodology, “Economia Aziendale”, 1–1982, pp. 57–71 Canziani A., La strategia aziendale, Milano, Giuff ré, 1984 Canziani A., Rondo Brovetto P., The Emerging of the Economics of Firms in continental Europe during the 20’s: Economia Aziendale and Betriebswirtschaftslehre as methodological Revolutions, in S. Todd Lowry (Ed.), 1992, pp. 168–191 Canziani A., Gino Zappa, in J.R. Edwards (Ed.), Twentieth Century Accounting Thinkers, Andover, Routledge, 1994, cap. VIII, pp. 142–165 Canziani A., Le discipline aziendali da tecnica a scienza, in Atti del II Convegno Nazionale di Storia della Ragioneria—L’evoluzione degli Studi di Ragioneria dalla fi ne del XVIII secolo, Pisa, Pacini, 1996, pp. 43–64 Canziani A., Dalla divulgazione all’istituzione: i trattati italiani di Ragioneria (1850–1922), , n. 1–2006, pp. 137–152 Canziani A., Economia Aziendale and Betriebswirtschaftslehre as autonomous sciences of the Firm, in Biondi Y., Canziani A., Kirat T. (Eds.), 2007, 2009II, pp. 107–130 Capaldo P., Il cash-fl ow e le analisi finanziarie nella gestione d’impresa, “Rivista dei dottori Commercialisti”, nov.-dec. 1971, pp. 1717 ff.

96 Arnaldo Canziani Capaldo P., La programmazione aziendale, con particolare riferimento alla programmazione pluriennale, Milano, Giuff ré, 1965 Capaldo P., Reddito, capitale e bilancio d’esercizio. Una introduzione, Milano, Giuff ré, 1998 Caprara G., Previsioni e programmazioni in un’impresa industriale, Milano, Giuffré, 1965 Caprara U., Le negoziazioni caratteristiche dei vasti mercati, Milano, Vallardi, 1926 Caprara U., La banca, Milano, Giuff ré, 1948 Caramiello C., L’indagine prospettiva nel campo aziendale, Pisa, Cursi, 1965 Caramiello C., Il bilancio d’esercio ieri e oggi. Brevi note per un confronto, Milano, Giuff ré, 1994 Cassandro P.E., Incidenza dei fattori produttivi a lungo termine sul risultato economico di periodo delle imprese, Bari, Cacucci, 1950 Cassandro P.E., I gruppi aziendali, Bari, Cacucci, 1957 Cassandro P.E., La pianificazione aziendale, Bari, Cacucci, 1968 Cassandro P.E., La formazione e la determinazione dei costi nelle imprese industriali, Bari, Cacucci, 1980 Cassandro P.E., Trattato di ragioneria. L’economia delle aziende e il suo controllo, Bari, Cacucci, 1982 Catturi G., La redazione del bilancio d’esercizio, Padova, CEDAM, 1992II Cavalieri E., Il comportamento strategico d’impresa. Variabilità, strutture e rischio, Torino, Giappichelli, 2008 Cavalieri E., Le nuove dimensioni dell’equilibrio aziendale, Torino, Giappichelli, 2010 Cavalieri E., Franceschi R., Economia Aziendale, Torino, Giappichelli, 2008III Ceccherelli A., Il linguaggio dei bilanci, Firenze, Le Monnier, 1939 Ceccherelli A., Economia Aziendale e amministrazione delle imprese, Firenze, Barbera, 1948 Ceccherelli A., Istituzioni di ragioneria, Firenze, Le Monnier, 1955 VIII Cerboni G., Primi saggi di logismografi a, Firenze, La Minerva, 1873 Cerboni G., La ragioneria scientifica, Roma, D. Alighieri, 2 volumes, 1891–94 Ceriani G., Frazza B., L’implementazione dei principi contabili IAS/IFRS nell’ordinamento giuridico italiano, Roma, Aracne, 2006 Clark J.B., The distribution of wealth: a theory of wages, interests and profits, New York, Macmillan, 1899 Coase R.H., On the nature of the fi rm, “Economica”, November 1937, 386–405 Colletti N., Il tempo in economia aziendale, Palermo, Abbaco, 1955 Colletti N., Programmazioni e scelte in economia aziendale, Palermo-Roma, Abbaco, 1964 Consorti A., L’evoluzione della funzione informativa del bilancio d’esercizio. Dal conto del patrimonio al sistema delle informazioni, Torino, Giappichelli, 2001 Corsani G., Le caratteristiche fondamentali delle esportazioni, Vicenza, Rossi, 1925 Corsani G., Le determinazioni di convenienza economica nelle imprese mercantili e manifatturiere. Il fondamento economico della gestione, Firenze, Tipografia Sordomuti, 1930 Corsani G., Vie della gestione nelle imprese manifatturiere della lana—Il collocamento dei manufatti e il rifornimento delle materie prime, Firenze, Tipografia Sordomuti, 1931 Corsani G., La gestione delle imprese mercantili e industriali, Padova, CEDAM, 1936, 1939II, 1949III Corsani G., Le caratteristiche della gestione nelle banche ordinarie, Padovas, CEDAM, 1946, 1953II

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Corticelli R., La crescita dell’azienda: armonie e disarmonie di gestione, Milano, Giuff ré, 1979 Corticelli R., L’obsolescenza degli impianti, Milano, Giuff ré, 1983 Fanni M., Cossar L., Il metodo contabile, Roma, Carocci, 1998 Croce B., La logica come scienza del concetto puro, Bari, Laterza, 1905 Croce B., Filosofi a della pratica. Economica ed etica, Bari, Laterza, 1909 Cyert R., March J., A behavioral theory of the fi rm, New York, Prentice Hall, 1963 D’Alessio L., Il budget nel sistema del bilancio dello Stato, Torino, Giappichelli, 2002 D’Angelo P., Trattato di tecnica bancaria, Milano, Vallardi, 1917 D’Angelo P.—Mazzantini M., Trattato di tecnica bancaria, Milano, Vallardi, 1972 Davenport H.J., Economic of enterprise, New York, 1913 De’ Dominicis U., Lezioni di ragioneria generale, Bologna, Azzoguidi, Modena, Foto-lito Dini, 7 vv., 1967–68 Della Penna F., I fondamenti della ragioneria, Roma, Castellani, 1931 De Minico L., Rinnovamento e liquidità nel capitale delle imprese industriali, Napoli, Rondinella, 1931 De Minico L., Elasticità e relazioni dinamiche dei costi nelle imprese industriali, Napoli, Rondinella, 1935 De Minico L., Lezioni di ragioneria. I fondamenti teorici della rilevazione del reddito, Napoli, Pironti, 1945 De Minico L., Amodeo D., Saggi di economia delle aziende, Milano, Giuff ré, 1942 Dell’Amore G., La lana, Milano, Giuff ré, 1934 Dell’Amore G., Il commercio dei prodotti agrari in Italia, Milano, Giuff ré, 1942 Dell’Amore G., Economia delle aziende di credito, Milano, Giuff ré, , 1965–1977, 3 volumes Di Meo W., Teoria unifi cata e modulare della contabilità, Torino, Giappichelli, 2004–2005, 3 volumes D’Ippolito T., Costi e prezzi nelle aziende industriali, Milano, Giuff ré, 1935, 1946II D’Ippolito T., La determinazione dei costi di produzione e di distribuzione, Palermo-Roma, Abbaco, 1955 D’Ippolito T., La contabilità e bilancio delle aziende di produzione, Milano, Giuffré, 1949 D’Ippolito T., Le discipline amministrative aziendali. Ragioneria—Tecnica— Organizzazione—Economia aziendale, Palermo-roma, Abbaco, 1952, 1957 III D’Ippolito T., La contabilità analitica d’esercizio svolta secondo il tipo combinato preventivo-standard e consuntivo, Palermo-Roma, Abbaco, 1961 D’Ippolito T., Documenti per lo studio storico delle dottrine di ragioneria, Palermo-Roma, Abbaco, 1967 D’Oriano R., Sugli sviluppi dell’informativa di bilancio, Napoli, Editoriale Scientifica, 1984 Edwards J.R. (Ed.), Twentieth Century Accounting Thinkers, Andover, Routledge, 1994 Fabrizi C., Lezioni di tecnica commerciale e industriale. Fabrizi C., Separazione del credito commerciale dal credito mobiliare, Trieste, Università di Trieste, 1935 Fama E.F., Miller M.H., The Theory of Finance, New York, Holt, Rinehart and Winston, 1972 Fazzi R., Il trasferimento dei rischi aziendali e la gestione delle imprese di assicurazione, Firenze, Cionini, 1942

98

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Fazzi R., Considerazioni sul contenuto e sul metodo proprio della tecnica commerciale, Firenze, Coppini, 1951 Fazzi R., La produzione di massa, aspetti economico-tecnici, Firenze, Coppini, 1954 Fazzi R., I1 contributo della teoria delle funzioni e dei rischi allo studio dei comportamenti imprenditoriali, Pisa, Cursi, 1957 Fazzi R., Il governo d’impresa, Milano, Giuff ré, 1982, 2 vv. Ferrara R., La localizzazione degli impianti nelle imprese industriali, Milano, Giuff ré, 1969 Ferrer Pacces F.M., Introduzione agli studi di aziendaria, Roma-Torino, Istituto aziendale italiano, 1935 Ferrero G., Dezzani F., Pisoni P., Puddu L., Contabilità e bilancio d’esercizio, Milano, Giuff ré, 2004 Ferrero G., Impresa e management, Milano, Giuff ré, 1987 II Ferrero G., Istituzioni di economia d’azienda, Milano, Giuff ré, 1968, 1974II Ferrero G., La valutazione del capitale di bilancio, Milano, Giuff ré, 1995II Ferrero G., La valutazione economica del capitale d’impresa, Milano, Giuff ré, 1988II Ferrero G., Le determinazioni economico-quantitative d’azienda, Milano, Giuffré, 1965 Ferrero G., Dezzani F., Pisoni P., Puddu L., Contabilità e bilancio d’esercizio, Milano, Giuff ré, 2004 Fetter F.A., Recent Discussions of the Capital Concept, “Quarterly Journal of Economics”, November 1900, pp. 1–45 Fisher I., The Nature of Capital and Income, New York, The Macmillan Co., 1906 Fisher I., The purchasing power of money, New York, Macmillan, 1911 Fisher I., The theory of interest, New York, Macmillan, 1930 Franceschi R., L’indagine metodologica in economia aziendale, Milano, Giuff ré, 1978 Franceschi R., Il percorso scientifico dell’economia aziendale. Saggi di analisi storica e dottrinale, Torino, Giappichelli, 1994 Franceschi R., Problemi attuali dell’economia aziendale in prospettiva metodologica, Milano, Giuff ré, 1998 Franceschi R., Processi evolutivi dei sistemi di supporto al governo d’impresa, Torino, Giappichelli, 2000 Galassi G., Misurazioni differenziali, misurazioni globali e decisioni d’azienda, Milano, Giuff ré, 1983 Galassi G., Sistemi contabili assiomatici e sistemi teorici deduttivi. Prime proposizioni per una teoria generale della ragioneria, Bologna, Patron, 1968 Garrani G., Tecnica amministrativa societaria, Padova, CEDAM, 1939 Garrone N, La scienza del commercio, Bari, Laterza, e Milano, Vallardi, 1913, 1922–25II, 1942III, 1956 IV, 5 vv. Garrone N., Istituti speciali di credito, Milano, Vallardi, 1942 Garrone N., Circolazione e credito negli Stati Uniti d’America, Roma, Edizioni Italiane, 1947 Giannessi E., Corso di economia aziendale, Pisa, Cursi, 1954 ff. Giannessi E., L’equazione del fabbisogno di finanziamento nelle aziende di produzione e le possibili vie della sua soluzione, Pisa, Cursi, 1955; Milano, Giuff ré, 1982 Giannessi E., Il Kreislauf fra costi e prezzi, Pisa, Cursi, 1958 Giannessi E., Considerazioni introduttive sul metodo storico, Milano, Giuffré, 1992 Gomberg L., Handelsbetriebslehre und Einzelwirtschaftslehre; Leipzig, Teubner, 1903

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Guatri L., La produzione e il mercato nelle ricerche e nelle rilevazioni d’impresa, Milano, Giuff ré, 1951 Guatri L., I rendimenti, Milano, Giuff ré, 1951 Guatri L., La diversificazione dei prezzi. Fondamenti economici, Milano, Giuff ré, 1951 Guatri L., L’economia delle imprese cotoniere, Milano, Giuff ré, 1952 Guatri L., Il costo di produzione, Milano, Giuff ré, 1955 Guatri L., Ricerche di mercato, Milano, Giuff ré, 2 volumes, 1956 Hansen A., Fiscal policy and business cycles, New York, Norton, 1941 Hansen A., Business cycles and national income, New York, Norton, 1951 Hicks J.R., Value and Capital, London, Clarendon Press, 1948II Jensen M.C., Meckling W.H., Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure, “Journal of Financial Economics”, 3 (4) 1976, pp. 305–360 Kuhn, The Structure of Scientifi c Revolutions, Chicago and London, The University of Chicago Press, 1962, 1970II, 1996 III Lipari C., Fondamenti di ragioneria teoretica, Palermo, Università degli Studi, 2003 Lorusso E., La filatura del cotone, Milano, Giuff ré, 1940 Lorusso E., Economia dell’azienda agraria, Milano, Giuff ré, 1954, 2 volumes Mach E., Analisi delle sensazioni, Torino, Bocca, 1910 Machlup F., Marginal analysis and empirical research, “American Economic Review”, September 1946, 519–554 Machlup F., Rejonder to an antimarginalist, “American Economic Review”, March 1947, 148–154 Marcantonio A., Legnami. Gestioni forestali e gestioni mercantili, Milano, Giuffré, 1939 Marcantonio A., L’azienda dello Stato, Milano, Giuff ré, 1950 Marchini I., Costi standard e controllo dei costi di produzione, Torino, Giappichelli, 1961 Marchini I., La pianifi cazione strategica a lungo termine nell’impresa industriale, Torino, Giappichelli, 1967 Masi V., Ragioneria generale, Bologna, Cappelli, 1926 Masi V., La Ragioneria come scienza del patrimonio, Bologna, Cappelli, 1928 Masi V., Battaglie e conquiste in economia aziendale, Pescara, Arte Stampa di Livio Stracca, 1935 Masini C., Economia delle imprese industriali, Milano, Giuff ré, 1949 Masini C., La dinamica dei sistemi di valori d’azienda. Valutazioni e rivalutazioni, Milano, Giuff ré, 1963 Masini C., Le politiche e le programmazioni d’impresa, Milano, Giuff ré, 1965 Masini C., Lavoro e risparmio, Torino, UTET, 1980II Mazza G., Problemi di asiologia aziendale, Milano, Giuff ré, 1997 IV Mazza G., Problemi di valutazione per il bilancio di esercizio, Milano, Giuffé, 1984II Mulazzani M., Economia delle aziende e delle amministrazioni pubbliche, Padova, CEDAM, 2006 II, 2 volumes Nicklish, H. Die Betriebswirtschaft, Stuttgart, Poeschel, 1929–1932VII, 3 volumes Onida P., Economia d’ azienda, Torino, UTET, 1971II Onida P., Il bilancio, Milano, Giuff ré, 1945 Padroni G., L’organizzazione aziendale di fronte alla complessità: aspetti etici ed economici, Pamplona, Università di Navarra, 1999 Pantaleoni M., Erotemi di economia, Bari, Laterza, 1925 Pataleoni M., Studi storici di economia, Bologna, Zanichelli, 1936 Paolone G., D’Amico L., Consorti A., La revisione aziendale. Fondamenti, principi e procedure, Torino, Giappichelli, 2000.

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Paton A.A., Cost and value in accounting, “journal of Accountancy”, March 1946 Penndorf, Geschichte der Buchhaltung in Deutschland, Leipzig, G.A. Gloeckner, 1913 Penrose E., A Theory of the Growth of Growth of the Firm, Peri, G.D., Il Negotiante, Venezia, Herz, 1682 Pini M., Politiche di bilancio e direzione aziendale, Milano, Etaslibri, 1991 Pivato G., Le imprese di servizi pubblici, Milano, Giuff ré, 1939 Podestà S., Introduzione alla pianificazione nell’impresa, Milano, Giuff ré, 1971 Polonelli C., Una introduzione ai principi contabili per la determinazione del reddito di esercizio nelle imprese, Milano, Giuff ré, 1981 Potito L., I principi contabili generalmente accettati, Napoli, Giannini, 1973 Potito L., Il rendiconto fi nanziario nelle imprese, Napoli, Giannini, 1980 Potito L., Bilanci straordinari, Torino, UTET, 1993 Potito L., Le operazioni straordinarie nell’economia delle imprese, Torino, Giappichelli, 2006 Potito L., Le operazioni straordinarie nell’economia delle imprese, Torino, Giappichelli, 2006 II Prato G., Di alcune recenti teorie sul capitale e sul reddito e delle loro conseguenze tributarie, “La riforma sociale”, 11–1912 Provasoli A., Il bilancio d’esercizio destinato a pubblicazione, Milano, Giuff ré, 1974 Provasoli A., Viganò A. (Eds.), Processi di formazione dei principi contabili in alcuni paesi europei, Italia, Francia, Regno Unito, Germania, Napoli, Edizioni Scientifiche Italiane, 1995 Puddu L., Ragioneria pubblica. Il bilancio degli enti locali, Milano, Giuff ré, 2001 Ranalli F., Sulla capacità informativa delle strutture di bilancio, Padova, CEDAM, 1984 Renzi A., La difesa del risparmio e l’esercizio del credito in regime corporativo, Padova, CEDAM, 1938 Renzi A., Lineamenti di tecnica amministrativa industriale, Milano, Hoepli, 1941, 1943II Renzi A., Lezioni di tecnica del commercio estero, 1954 Renzi A., Tecnica mercantile, Milano, Hoepli, 1962IX Ricci U., Il capitale. saggio di economia teoretica, Torino, F.lli Bocca, 1910 Ricci U., Reddito e imposta, Roma, Athenaeum, 1914 Rossi N., Rilevazioni d’impresa nella industria meccanica in condizioni economiche perturbate, Milano, Giuff ré, 1950 Rossi N., Il commercio delle stoffe, Milano, Giuff ré, 1955 Rossi N., L’economia d’azienda e i suoi strumenti d’indagine, Torino, UTET, 1969II Rossi N., Organizzazione aziendale e decisioni imprenditoriali, Torino, UTET, 1968 Salzano A., L’assegnazione di valore al capitale in relazione al reddito futuro, Napoli, “Il Piccolo Marittimo”, 1938 Salzano A., Metodologia contabile e determinazione del reddito, Catania, Edizioni dell’Ateneo, 1963 Saraceno P., La gestione della banca di credito ordinario, Milano, Vita e Pensiero, 1948 Saraceno P., La produzione industriale, Venezia, Libreria Universitaria Editrice, 1980VII Sassi S., Il sistema dei rischi d’impresa, Milano, Vallardi, 1940

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Schmalenbach E., Die Privatwirtschaftslehre als Kunstlehre, „Zeitschrift für Handelwissenschaftliche Forschung“, 1911–12, pp. 304–316 Schmalenbach E., Dynamische Bilanz, Leipzig, G.A. Gloekner, 1933VI. Schumpeter‘s J. A., Die Theorie des Wirtschaftliche Entwicklung, Leipzig, A.G. Gloeckner, 1912 Shubik M., Strategy and Market Structure: Competition, Oligopoly, and the Theory of Games, New York, Wiley, 1959 Spranzi A., Introduzione allo studio della variabilità dei costi di produzione, Milano, Giuff ré, 1964 Spranzi A., Piani aziendali di breve e di lungo periodo, Milano, Giuff ré, 1970 Superti Furga F., Le fl uttuazioni di breve periodo nell’economia delle imprese, Milano, Giuff ré, 1965 Superti Furga F., Il fabbisogno fi nanziario nelle imprese industriali, Milano, Giuffré, 1974, Superti Furga F., Le valutazioni di bilancio Milano, Giuff ré, 1979 Superti Furga F., Reddito e capitale nel bilancio d’esercizio Milano, Giuff ré, 1991 Superti Furga F., Il bilancio d’esercizio italiano secondo la normativa europea, Milano, Giuff ré, 1997 III Taylor F.W., Principles of scientific management, New York, Harpers and Brothers, 1911 Terzani S., Introduzione al bilancio d’esercizio, Padova, CEDAM, 1995 V Todd-Lowry S. (Ed.), Perspectives in the History of Economic Thought, vol. VII, London, Elgar for the History of Economics Society, 1992 Tridente N., La concentrazione bancaria, Bari, Macrì, 1936, 1948II Veblen Th., Theory of the leisure class: an economic study of the evolution of institutions, New York, Macmillan, 1899 Viganò E., La natura economica del capitale d’impresa e le sue applicazioni, Napoli, Giannini, 1967 1967 Viganò E., L’Economia aziendale e la ragioneria, Padova, CEDAM, 1996 Viganò E., on the contents and goals of annual accounts as general conventions . . . 2007 VV.AA., Bilancio di esercizio e amministrazione delle imprese. Studi in onore di Pietro Onida, Milano, Giuff ré, 1981 VV.AA., Il bilancio secondo i principi contabili internazionali IAS/IFRS. Regole e applicazioni, Torino, Giappichelli, 2010 Williamson O.E., Markets and hierarchies: analysis and antitrust implications, New York, The Free Press, 1975 Zappa G., Le valutazioni di bilancio con particolare riguardo alle società per azioni, Milano, Società Editrice Libraria, 1912 Zappa G., La determinazione del reddito nelle imprese commerciali. I valori di conto in relazione alla formazione dei bilanci, Roma, Anonima Editoriale Italiana, 1920–29 Zappa G., Tendenze nuove negli studi di ragioneria, Milano, Società Editrice Libraria, 1927 Zappa G., Le produzione nell’economia delle imprese, Milano, Giuff ré, 1955–57, three volumes Zappa G., Marcantonio, A., Ragioneria applicata alle aziende pubbliche, Milano, Giuff ré, 1954 Zerbi T., La banca nell’ordinamento fi nanziario visconteo, Milano, Giuff ré, 1949 Zerbi T., Il Mastro a partita doppia in un’azienda mercantile del Trecento, Milano, Giuff ré, 1950 Zerbi T., Le origini della partita doppia, Milano, Marzorati, 1952 Zunino G., Il mercato italiano degli oli d’oliva, Milano, Giuff ré, 1939

4

The Accounting and Business Economics Traditions in Japan Masatoshi Kuroda and Ellie Okada

INTRODUCTION Both accounting and business economics in Japan owe the impetus for their emergence and development mainly to foreign countries. However, the accounting/bookkeeping discipline was introduced relatively early in Japanese institutions of tertiary education by comparison with other countries. Anglo-American accounting ideas and practices dominated at fi rst, up to the end of the nineteenth century. The German business economics (Betriebswirtschaftslehre) concept, which owed much to German academic accountants, was adopted by Japanese accounting researchers only in the 1920s, when the accounting discipline had established itself fi rmly at tertiary business colleges. The influence of German writings provided an important intellectual stimulus to Japanese academic accountants, encouraging them to turn to more theoretical aspects of accounting studies. However, Japanese academic accountants were apparently interested only in the research implications of the accounting-related aspects of German business economics, rather than its wider aspects. In Japanese universities, separate groups of business economists would be established: They would tend to take into consideration the prior existence of the discipline of accounting by leaving the task of elaborating accounting-related aspects of business economics to their academic accounting colleagues. At present, both disciplines—accounting and business economics (or business administration)— co-exist in Japanese universities relatively independently of each other, although they are usually subsumed within the same faculty or department. Given the traditional emphasis on bookkeeping and fi nancial reporting among many Japanese academic accountants, it appears that only management accountants fi nd the ideas of business economics or administration to be particularly suited to them when carrying out their studies. In this chapter, we review the main tendencies in Japanese accounting and business economics in the modern period from the Meiji Restoration in 1868. Rather than repeat prior scholarship in this area, we have thus chosen to focus on the period after Japan became open to foreign influences and entered its modern period. In the next section of the chapter, we

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consider the development of accounting in the tertiary education section in Japan until World War II, and in the following section, we continue the story after World War II. In both sections, we begin by describing the system of tertiary education, which was radically overhauled in 1949. The fi nal main section considers the relationship between accounting and business economics, and we fi nish with a brief concluding section. Any description of a complex field must to some extent reflect the personal views of its authors, and inevitably this runs the risk of introducing biases. Our personal interests lie more toward fi nancial accounting than toward management accounting and auditing, so the latter fields may receive less than their fair share of attention. Naturally, the main works on accounting and business economics are written by the Japanese authors in the Japanese language: As a matter of convenience, we have nevertheless attempted to limit the amount of accounting literature written in Japanese cited throughout the chapter. As far as possible, we aim to refer to articles written by Japanese authors in one of the European languages, in particular English and German, although they may have only a peripheral significance.

DEVELOPMENT OF ACCOUNTING IN JAPAN UNTIL WORLD WAR II

The System of Tertiary Education The system in which the present-day arrangement for education in Japan is rooted began to be built up as late as 1872. Tokyo University was thus established as the fi rst national (government-sponsored) university in 1877 by putting together several predecessor institutions. This was followed in 1897 by the second national university: Kyoto University. The aim of the national universities was primarily to produce officials for public service, and accounting or business education was not offered at fi rst. In the meantime, a new type of school, mainly private, emerged in the tertiary sector for the study of law. These schools were legally known as (jitsugyo) semmon gakko (“vocational colleges”). They were ranked above middle schools but below universities and were not provided with the right to confer an academic grade of bachelor as universities. About the same time, national colleges for commerce and business education began to come into existence. Tokyo Higher Commercial School (HCS) (later Tokyo University of Commerce, now Hitosubashi University) was founded in 1887. The second tertiary-level national college for commerce and business, Kobe HCS (later Kobe University of Commerce, now Kobe University), was set up in 1902. Other national HCSs (Yamaguchi, Nagasaki, Yokohama, etc.) were successively founded, but those in Tokyo and Kobe enjoyed a privileged standing, since the students had to be enrolled there at least four years

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before graduation, while at the others they had to stay for only three years. Besides this, a special two-year course was attached to the Tokyo HCS. This was an institutional arrangement of further studies (two-year duration) for those who had fi nished a higher commercial school; until 1915, however, only the graduates of Tokyo and Kobe HCSs were admitted, and they were awarded the academic degree of bachelor of commercial science upon completion. At that time, bachelor degrees were generally awarded only to graduates of a university in succession to a three-year study at higher schools (preparatory schools for university studies in the tertiary sector). The HSCs in Tokyo and Kobe thus played the role of principal suppliers of professors for accounting and business studies in Japan. With the rapid development of the Japanese economy, private colleges also began to place emphasis on the education of suitable persons for business (captains of industry). The forerunners of the present Keio Gijuku University (originally founded in Tokyo by Yukichi Fukuzawa as early as 1858), Doshisha University in Kyoto (founded in 1875), Waseda University in Tokyo (1882), and Chuo University in Tokyo (1885) can be cited as examples. However, the private schools at the tertiary level were not recognised officially as having a status corresponding to that of the universities until an Imperial edict in 1918 at last allowed not only prefectural or municipal, but also private, universities to be established. Both the national HCSs in Tokyo and Kobe acquired the legal status of universities, in 1920 as Tokyo University of Commerce (UC) and in 1929 as Kobe University of Commerce, respectively. Hirai (1923a, 1924a, 1924b) sees these institutions as following the German model of the Handelshochschule, moving toward becoming a Handelsuniversität. As the Osaka Municipal HCS had become Osaka Municipal University of Commerce in 1928, there were thus three public universities of commerce in Japan until the end of World War II. At the renowned Tokyo and Kyoto Universities, meanwhile, the faculty of economics had become independent in 1919, and a similar development took place in private universities.

Accounting in the Period from the 1860s to 19191 Before the Meiji Restoration of 1868, a steelworks had been established in Yokosuka (near Yokohama) by the then Tokugawa government in 1865. Here a European form of bookkeeping was practiced for the fi rst time in Japan under the guidance of chief accountants from France. Accounting books are said to have been kept in French as well as in Japanese (Shimme 1937; Nishikawa 1956). In 1873, two books on bookkeeping written in Japanese were published (Shimme 1937; Nishikawa 1956). One was written by Yukichi Fukuzawa, with the title Choai No Ho (“Bookkeeping Method” published in 1873–74): This book was really a translation of a bookkeeping textbook for commercial colleges in the United States, Bryant and Stratton’s Common School

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Table 4.1

Main Events in the Years fom 1860s to 1919

1868

Meiji Restoration

1873

Fukuzawa,Yukichi: Bookkeeping Method published Shand, Alexander Allan: Bank Bookkeeping Method in Detail published

1877

Tokyo U founded

1878

Predecessor of Tokyo Stock Exchange opened

1887

Tokyo HCS founded

1890

Older Commercial Code promulgated

1895

Shimono (1895) published

1899

New Commercial Code codified

1902

Kobe HCS founded

1910

Yoshida (1910) published

1914

Outbreak of World War I

1917

“Japan Society of Accounting” founded

1918

Imperial Edict (University Reform) issued

1919

End of World War I

Bookkeeping (Bryant et al. 1871). However, Fukuzawa had to adapt the way of writing the accounting books so that they might be kept in Japanese, from right to left and using Japanese numerals. The use of Arabic numbers was at that time considered foreign. The other book, Ginko Boki Seiho (“Bank Bookkeeping Method in Detail”), which was translated and published by the Ministry of Finance, was based on the teaching manuscripts of an English banker Alexander Allan Shand, who, as a consultant to the Ministry, taught bookkeeping techniques to clerks at the first national bank set up under the new regime. Both books played an important role in modernizing the Japanese economy. Shand’s method of bank bookkeeping was not only adopted by many banks, but it also over time shaped the bookkeeping practices of other commercial and industrial undertakings in Japan. Arabic numerals gradually came into wide use. The newly established Tokyo HCS offered a wide spectrum of disciplines of the so-called “commercial science.” “Bookkeeping” was always regarded as an indispensable subject for those who would go to work in business. At the other public and private HCSs, the curriculum was structured in a similar manner. “Business economics” or “Business administration,” however, was not yet to be fully found there. It was only at Tokyo HCS from 1912 that students could study under Teijoro Ueda2 a discipline named Sho Ko Keiei (“Commercial and Industrial Management”), which seems to be similar to business economics.3 Bookkeeping education in Japan until the beginning of the twentieth century appears to have relied in the main on the bookkeeping theory of “coequal receipt and disbursement of values” developed by Folsom (1873).

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A central influence on accounting by Japanese stock corporations was the Commercial Code. The original version of this Code was developed by a German scholar, Hermann Roesler, based largely on the emerging German Commercial Code, and it was promulgated in 1890. However, enforcement of the Code was not initially effective (Chiba 1987), and the Code was revised in 1899. This version included requirements for accounting and external reporting by stock corporations, including “the preparation and presentation of an inventory, a balance sheet, a profit and loss account, and proposals relating to the reserve fund and the distribution of profits or interest” (McKinnon 1994: 194). Many other textbooks on double-entry bookkeeping were written during the early period, based mainly on American or British sources. Graduates of Tokyo HCS were particularly noteworthy in this. For example, Naotaro Shimono,4 though under the influence of Folsom’s theory of double-entry bookkeeping, proposed a new concept for explaining the principles of double entry in 1895 (see Shimono 1929). In his work on commercial bookkeeping of 1903, Sekigoro Higashi5 gave the fi rst interpretation of the provisions in the Japanese Commercial Code of 1899 applying to stock corporations on commercial records and fi nancial statement preparation. Until the beginning of the twentieth century, the discipline had invariably been called “bookkeeping” in Japanese institutions. For the fi rst time in 1911, “accounting” began to be taught alongside bookkeeping by Higashi at Kobe HCS, followed by the course for further studies at Tokyo HCS. In 1910, Ryozo Yoshida6 published a work titled Accounting (Yoshida 1910), in which he set forth the accounting theory of Henry Rand Hatfield (1909).7 In 1917, leading professors of accounting (Shimono, Higashi, and Yoshida, among others) took the initiative to form the “Japan Society of Accounting.” This organisation’s members numbered more than a thousand over the years and consisted not only of accounting teachers at universities and HCSs but also many company accountants. Thus, the Japanese equivalent to “accounting” (kaikeigaku or kaikei) gained general acceptance as the generic term for education and research in accounting. The Society began to edit the monthly magazine Kaikei (“Accounting”), which was to become a forum for publishing research works in accounting. The magazine still exists. During this period, Japan achieved an industrial revolution. While in 1902, of the total capital stock of companies in Japan, only 17.5% was accounted for by industrial companies, with as much as 50.1% represented by commercial companies, by 1912 the share of capital stock represented by industrial companies had risen to 31.1% against 49.2% for commercial companies (Takahashi 1977: 56). Furthermore, Japan’s limited engagement in World War I had given it great industrial advantages. The predecessor of the present Tokyo Stock Exchange had already been opened as early as 1878. The market was, however, dominated by government bonds. The

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zaibatsu, which may be characterized as large diversified Japanese business groups standing under the exclusive control of a single family, had emerged in the late nineteenth century and established themselves as business groups by about 1920. However, early reviewers of international accounting practices tended to overlook developments in Japan. For example, Hatfield, who presented a comparative study of accounting in 1911, paid no attention at all to Japan (Hatfield 1966).

Accounting in the Period from 1919 to World War II The early years of this period saw the establishment of additional HCSs as well as the recognition of public or private colleges in tertiary education as universities in accordance with the new Imperial edict (see Table 4.1). At these institutions, education in either “bookkeeping” or “accounting and bookkeeping” was almost invariably offered. Subjects called “business economics” or “business administration” began to appear in the curricula, being introduced fi rst by Yasutaro Hirai8 at Kobe HCS in 1925. Paralleling the Japan Society of Accounting, the “Japan Society of Business Administration” was established in 1926 by around 100 researchers of business economics or commercial science in the faculties of commerce or economics of universities and at HCSs. Through a series of articles published between 1927 and 1928 in the magazine Kaikei (“Accounting”), Shimono developed an accounting theory based on his own concept of a calculation of cash receipts and disbursements. Although his theory may be evaluated as a kind of dynamic accounting conceived independently of the dynamic accounting theory of Eugen Schmalenbach, it contained certain defects: it neglected, for example, the nature of accounting as a periodic calculation. Tetsuzo Ota9 tried to remedy the defective idea of Shimono by clarifying the concept of assets

Table 4.2

Main Events in the Perion from 1919 to World War II

1926

“Japan Society of Business Administration” founded

1930

“Committee of Financial Management” (CFM) at Ministry of Commerce and Industry formed

1934

CFM Working Rules for Financial Statements issued

1936

CFM Working Rules for Valuation issued

1937

Invasion of Japanese Military Forces into China (July) CFM Working Rules for Manufacturing Cost Accounting issued (November) “Japan Accounting Association” founded (December)

1938

Japanese translation of Schmalenbach’s Dynamische Bilanz (5th ed.) published

1941

Outbreak of World War II for Japan

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as expenses of future periods (deferred expenses). It was in this period that bookkeeping or accounting studies in the German Betriebswirtschaftslehre tradition began to interest Japanese accounting scholars. Knowledge of both bookkeeping and the balance sheet theories of German authors such as Friedrich Schär, Eugen Schmalenbach, Ernst Walb, and Fritz Schmidt were diff used through publications by Japanese scholars who were well acquainted with German business economics, such as Michisuke Ueno10or Masazo Toki.11 The accounting works of the German business economics scholars served to turn the interest of Japanese academic accountants from practical to theoretical accounting research. Moreover, the rapid growth of manufacturing industries in this period led to the importance of cost accounting. Encouraged by the development of cost accounting ideas and methods, particularly in the United States, Yoshida had already written a book on factory accounting in 1917 (Yoshida 1917). Other works on cost accounting, budgetary control, management accounting, and the like, based on American writers, followed in the 1920s and 1930s. The influence of German business economics may also be observed in several theoretical works on costing published in the 1930s. While most theoretical accounting research work in Japan had until this time been stimulated by comparable work in the United States or European countries and took less notice of conditions in Japan, by the 1920s, some individual Japanese scholars of accounting or business economics began to express themselves in a European language (e.g., Hirai 1923a, 1923b, 1924a, 1924b; Higashi 1929; Shimono 1929). There were studies by Japanese academic accountants on old bookkeeping forms in Korea as well as Japan (see Hirai 1926 for Korean bookkeeping). The results of accounting studies by Japanese scholars intended for application to the Japanese accounting system emerged in the 1930s. The impetus for these came in part again from international comparisons but also from a severe economic recession in Japan. In this context, an ad hoc department, the Department for Industrial Rationalisation, was set up at the Japanese government’s Ministry of Commerce and Industry in 1930. In addition to other committees, the CFM was formed. This committee was charged with investigating possible improvements in business accounting as the basis of rationalizing business fi nance. Yoshida, Ota, Higashi, and several other practitioners were appointed members of the CFM to begin with. Many academic accountants of the younger generation assisted in the work of the CFM. In particular, the CFM developed and issued the Working Rules for Financial Statements (“Rules”) in 1934, which had to remain a recommendation. Nevertheless, many textbooks on accounting at that time adopted the Rules as the basis for explaining the fi nancial accounting system in Japan; it is said that a considerable number of large companies improved the format of their accounts by reference to the Rules (Kurosawa 1990: 258). In view of the influences of the Rules on accounting education and

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practice, the paradigmatic effect of the Rules may be considered to be very great. The intention to codify the contents of the Rules in the form of a regulation of the Ministry of Justice for the Commercial Code could not, however, be realized until 1963. While the Commercial Code still prescribed that assets might not be valued above their market value, the Working Rules for Valuation of the CFM issued in 1936 developed a general principle of valuation at acquisition cost. Furthermore, as the result of the international studies, the CFM issued the Working Rules for Manufacturing Cost Accounting in 1937. These rules insisted that the cost accounting system in Japan should serve the fi nancial accounting purposes promulgated in the Rules. The Working Rules for Manufacturing Cost Accounting, which referred to standard cost accounting, also had a paradigmatic effect on cost accounting education and practices in Japan, in particular after the outbreak of war between Japan and China in 1936. As the Japanese economy increasingly assumed a wartime character, the Working Rules for Manufacturing Cost Accounting formed the model for cost measurement with respect to army and navy contracts for the procurement of munitions. In 1937, about 100 accounting instructors at universities and HCSs separated themselves from the Japan Society of Accounting and formed the Japan Accounting Association (JAA) as an association of research workers. The JAA was able to hold annual conventions only until 1943; from 1944, it had to cease its activities because of the worsening of the war situation.

DEVELOPMENT OF ACCOUNTING IN JAPAN AFTER WORLD WAR II

The System of Tertiary Education The unconditional surrender of Japan in 1945 brought about a radical overhaul of her educational system in 1949. The higher commercial schools, of which there were twenty-nine, were reorganized into faculties of economics, commercial science, or business administration of newly established universities. The other colleges and old-system higher schools were also integrated into new-system universities. Graduate studies led to the acquisition of an academic degree of master or doctor. It must be noted that the Japanese universities, except for the older national universities, are not normally managed on the basis of a system of academic chairs. Professors are regarded as researchers and instructors of specific subject disciplines. Professors had and still have opportunities to visit North America or Western Europe so as to get acquainted with the latest developments in accounting and/or business research there. Moreover, Japanese students have traditionally been expected, and are normally still required, to study works in their field of study written in languages other than Japanese.

110 Masatoshi Kuroda and Ellie Okada Research work and education in accounting and business economics in Japan are nowadays undertaken mainly in faculties or departments of economics, commercial science, business administration, and so on of universities. According to the available official statistics of the Japanese government for 2009 (“Basic Statistics of School Education”), there were 773 universities in Japan (86 national, 92 prefectural and municipal, and 595 private). Of the 2.7 million students in Japan, about 19% of undergraduates were enrolled in the faculties of economics, commercial science, business administration, and the like, but only some 8% of postgraduate students were majoring in these disciplines. The number of the full university professors in Japan who were working on a full-time basis amounted to about 68,000. In 2010, the JAA listed about 1,900 members, the majority of whom appear to be interested in issues of fi nancial accounting. In contrast, the Japan Society of Business Administration had some 2,100 members in 2008. Not only full professors, but also associate and assistant professors, academic assistants, and some practitioners in the accounting and business administration fields belong to both societies as ordinary members.

Important Events during the Period Various changes in the regulation of fi nancial reporting and the accounting profession have had an important impact on the direction in which today’s accounting practice in Japan has developed and have given rise to significant amounts of research work in the institutions of tertiary education that have, since 1949, uniformly been called universities (Yamashita 1952). The main events to note are as follows (see also Table 4.3): 1. The enactment in 1948 of the Securities and Exchange Law (SEL). Together with the Commercial Code and the Corporation Tax Law, this law was to form the three basic pillars of fi nancial accounting regulation for the Japanese companies (Arai and Shiratori 1991); 2. The enactment also in 1948 of the Certified Public Accountants Law. 3. The issue in 1949 of Financial Accounting Standards for Business Enterprises by the Research Committee for the Improvement of the Corporate Accounting System of the government’s Economic Stabilization Board (later the Business Accounting Deliberation Council [BADC] of the Ministry of Finance, since 2001 of the Financial Services Agency of the Government’s Cabinet Office; JICPA 1994a). 4. The issue in 1950 of Auditing Standards, together with the Working Rules for Field Work and the Working Rules for Reporting by the BADC (JICPA 1997). 5. The reform in 1962 of the accounting provisions of the Commercial Code.

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6. The issue in 1962 of Cost Accounting Standards by the BADC (Kubota 1964). 7. The issue in 1975 of Financial Accounting Standards for Consolidated Financial Statements by the BADC (JICPA 1994b); 8. The establishment in 2001 of the Financial Accounting Standards Foundation (FASF); 9. The codification in 2005 of the Company Law mainly through the abstractions of relevant provisions from the Commercial Code (Araki and Saito 2009); 10. The codification in 2007 of the Financial Instruments and Exchange Law (FIEL) as the successor of the SEL and 11. The recognition from 2009 of the Japanese GAAP as equivalent to the IFRS by the European Commission (COMMISSION REGULATION (EC) No 1289/2008). The various standards and ordinances of the Ministry of Finance (now the Financial Services Agency of Government’s Cabinet Office), which were enacted in conjunction with diverse standards on financial accounting, regulated and regulate the accounting practice of the Japanese companies subject to the SEL (now FIEL), thus giving rise to a new field of accounting in addition to accounting under the Commercial Code. The ordinances have been modified many times over the years and continue together with the underlying standards to form the object of discussions by accountants in universities and in practice. On a number of occasions, they have been commented on by Japanese authors (sometimes working with Western scholars) in European languages,12 as well as being discussed by Western authors.13 Various international accounting classification studies (e.g., Nair and Frank 1980; Nobes 1998) included Japan, although they stressed different attributes of Japanese financial reporting and hence reached different conclusions. Given the current trends of internationalization, the rules of the SEL financial reporting system were completely reformed with effect from 2000 (Sakurai 2001; Kuroda 1998, 2001). Among others, the reforms by the BADC include disclosure of not individual but consolidated statements as the main financial statements together with internationalization of accounting standards for consolidation (Kuroda 2001), introduction of cash flow statements as a necessary component of the consolidated financial statements, setting up of accounting standards for post-retirement benefits, deferred taxation, and financial instruments (Sakurai 2001). The establishment of the FASF on July 26, 2001, is also an answer to the international demand. The task of strengthening the liaison with the International Accounting Standards Board is levied on this new private foundation. The FASF is equipped with the Accounting Standards Board of Japan (ASBJ) as the accounting standard setter in the private sector in Japan, which has taken over the activities of the BADC of the Financial Services Agency (Koga and Yao 2011, Kuroda 2011).

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Table 4.3

Main Events in the Years after World War II

1945

End of World War II for Japan

1948

Securities and Exchange Law enacted Certified Public Accountants Law enacted

1949

BADC Financial Accounting Standards for Business Enterprises issued

1950

BADC Auditing Standards issued

1951

Yamashita (1951a) published

1953

Japanese translation of Paton and Littleton (1940) published

1956 1962

Someya (1956) published Accounting Provisions of Commercial Code revised

Katano (1962) published BADC Cost Accounting Standards issued

1963

Bamba (1963) published

1975

BADC Financial Accounting Standards for Consolidated Financial Statements issued

1997

BADC Financial Accounting Standards for Consolidated Financial Statements revised

2001

Financial Accounting Standards Foundation with Accounting Standards Board of Japan established

2005

Company Law codified

2007

Financial Instruments and Exchange Law codified

2009

Equivalence of Japanese GAAP to IFRS recognized by European Commission

Focal Points of Accounting Research In Japan, almost all substantial accounting research works have included detailed studies of theories developed in the United Kingdom, the United States, and/or Germany. It may safely be said that the greatest theoretical influences on Japanese accounting research and education came from Eugen Schmalenbach and William A. Paton.14 Their theories were interpreted from various points of view. By the mid-1960s, the most popular research topics in the fi nancial accounting field in Japan were the theory of periodic profit and loss

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accounting or income calculation (including the realization concept), the study of accounting regulation, the theory of the accounting entity, and the theory of asset valuation.

The Problem of Periodic Income Calculation To begin with, it must be stated that in his work published in 1951, Katsuji Yamashita,15 who had devoted deep studies to the accounting and bookkeeping theories of European scholars such as Schär, Nicklisch, Osbahr, le Coutre, Reisch-Kreibig, Schmalenbach, Walb, Kovero, and Schmidt, established a theory of the evolutionary stages of forms or systems of income calculations in European countries (Yamashita 1951a). His dialectical arguments ascertained the historical development of income calculation systems or forms from (1) a system of individual income calculation (Partierechnung), through (2) a system of period calculation of income summarized as a whole for an undertaking (periodische Erfolgsrechnung) to (3) a system of individualization of income in terms of the sales of particular products (the incorporation of cost accounting into financial accounting). This development was, he argued, induced by changes in the forms of business activities (Yamashita 1951b). As recently as the mid-1970s, the accounting professors in Japan seemed to feel greatly influenced by the accounting theories of Schmalenbach and Paton.16 At present, young researchers may not feel that Schmalenbach influenced them, but his theory of periodic income calculation is more often than not still being presented at the beginning of accounting textbooks for students in Japan. His theory belongs to the common knowledge of Japanese accounting researchers to such an extent that no one may be conscious of it. Schmalenbach’s Dynamische Bilanz (fi fth, seventh, and eleventh editions) and his other main works were translated into Japanese by Masazo Toki, and many interpretations were published. His theory of the structure of income calculation, with concepts of expenses and accruals, were described and analyzed (e.g., Tanihata 1958, 1960 1961; Takeda 1962). Schmalenbach saw in the Dynamische Bilanz fi rst of all an income calculation for the purpose of proper business controls (Münstermann 1966). However, Japanese academic accountants may have produced their own interpretations and overlooked the management viewpoint almost totally. Many studies on the structure of profit calculation by means of the Dynamische Bilanz advanced by Schmalenbach were presented in the field of fi nancial accounting. As the calculation of profit based on the matching principle was not in general use within Japanese accounting practices until the publication in 1949 of Financial Accounting Standards for Business Enterprises by the BADC, the accrual principle derived from the approach of the Dynamische Bilanz had a great impact. The Dynamische Bilanz also played an important role in the establishment of depreciation

114 Masatoshi Kuroda and Ellie Okada practice in Japan. Schmalenbach’s basic structure for profit calculation was repeatedly discussed within the Japanese academic accounting community. Attention was also paid to theories developed by Ernst Walb (1926) and Erich Kosiol (1949), which combined cash flow with accrued cost and refi ned the Dynamische Bilanz. The revenue-expense approach, or the earnings statement view advocated by Schmalenbach, supplied a fi rm foundation for the Financial Accounting Standards for Business Enterprises of the BADC, which companies were required to follow in preparing their fi nancial statements. It may safely be said that Kobe University traditionally formed the center for studies of the accounting theories of the German Cologne School (Kölner Schule). Indeed, to mark his eightieth birthday in 1953, Kobe University granted an honorary degree of Doctor of Business Administration to Eugen Schmalenbach for his great contributions to the advancement of accounting and business economics in Japan (Kobe Daigaku Kaikeigaku Kenkyushitsu 1954). Another popular influence in those days was the U.S. researcher Paton. In the mid-1960s, Paton’s influence was second only to that of Schmalenbach. Paton’s views on accounting postulates, his entity theory, and his accounting measurement theory were all reviewed and quoted by many Japanese researchers. Paton’s ideas, just as those of Schmalenbach, appear to be somewhat distorted in Japan. Although Paton discussed cost in comparison with value, Japanese academic accountants stressed his theory of measurement at acquisition cost. His ideas of “costs attach” and of “effort and accomplishment” are often set forth at the beginning of accounting textbooks for Japanese accounting students as well as the ideas of Schmalenbach. These ideas have a strict relationship with the cost-based measurement and “realized” principle of revenue recognition. Under the traditional cost basis-realized principle regime of accounting, the input of production elements measured by cost basis and the output as accomplishment of management measured by realized revenue are matched when we are to investigate the effort and accomplishment of a management. The earnings thus measured mean the performance of the management. When the fair value measurement of fi nancial assets and liabilities was going to be introduced in the Japanese accounting standards, it was insisted that discussions should take place over whether the fair value measurement satisfied the criteria of “realized”/”realizable” principle of revenue recognition and whether the earnings thus measured meant the performance of management, even though the fair value measurement improved the value relevance of accounting information (Saito 1993). Further, it is interesting to note that Paton’s entity theory was developed in the Japanese way in the process of repetition of interpretations. Paton advanced the entity concept as one of his accounting postulates. However, his concept was linked in Japan with entity theory, rather than with the proprietary theory of accounting. An Introduction to Corporate Accounting Standards by Paton and Littleton (1940) was fi rst translated into Japanese in 1953. This had an

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important influence on Japanese accounting research and education. The work includes the essence of cost, revenue, recognition criteria, and measurement basis, and it played a crucial role in establishing the accrual and realization principles, the concept of matching of effort and accomplishment, and measurement at acquisition cost. As mentioned earlier, profit calculation had not been performed strictly according to the matching principle in the pre-World War II years. It required the issue of Financial Accounting Standards for Business Enterprises to make profit calculation in accordance with the matching principle effective. The elements presented by Paton and Littleton constitute the core of the BADC accounting standards that changed the accounting practices of Japanese companies. In particular, the principles of measurement at acquisition cost and of realization (in combination with the accrual principle, the matching principle, and the requirement for regular depreciation) are the two central pillars of the fi nancial accounting system in present-day Japan, each of them being regarded as opposite faces of the same coin.

Studies on Accounting Principles Another popular topic in Japanese accounting research and education has been the study of theories of accounting principles. The various Statements on Accounting Principles published by the American Accounting Association and others in the late 1930s were discussed seriously in Japan in the 1960s and 1970s. These documents included detailed consideration of the realization principle, as well as the distinction between profits and capital to be maintained. The work of Sanders et al. (1938) is said to be a basis of the Japanese Financial Accounting Standards for Business Enterprises issued in 1949 (JICPA 1994a; Yamashita 1952). Later, however, the Statements of Financial Accounting Concepts issued by the U.S. Financial Accounting Standards Board, which advance the asset-liability approach or balance sheet view of periodic income calculation, were providing a source of studies in the Japanese academic accounting research community. In Japan, the BADC of the Ministry of Finance (now the Financial Services Agency) and the Accounting Standards Board of Japan of the private FASF, groups of accounting experts including professors, played and play an important role in academic discussions. This situation is similar to that in the United States, where publications of the FASB (not only accounting standards but also discussion memoranda, interpretations, technical reports, etc.) often cause stirs among academic accountants. In addition, interpretations of publications of foreign institutions such as the American Accounting Association (AAA) have been a popular activity and provided noteworthy influences for researchers in Japan. For example, A Statement of Basic Accounting Theory published by the AAA in 1966 was a turning point for the thinking of Japanese academic accountants in the 1970s. Accounting theories since then have been developed

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in combination with information theory, communication theory, and fi nance theory. This movement provided a basis for positive accounting research in the 1980s and 1990s.

Consolidated Statements and International Accounting For a long time, the Japanese Commercial Code regulated only preparation and disclosure of the individual accounts of corporations, and the SEL also required merely disclosure of individual fi nancial statements. As Japanese enterprises diversified and internationalized their activities more and more over the years by acquiring subsidiaries and associated companies at home and abroad, the issue of consolidated statements arose out of necessity. Based on the Financial Accounting Standards for Consolidated Financial Statements issued by the BADC in 1975 (JICPA 1994b), the Ministry of Finance made the preparation and disclosure of consolidated fi nancial statements obligatory for the parent companies subject to the SEL as from 1978. In reality, however, this measure was taken against the background of window-dressing practices of some large companies at the same time. At fi rst, consolidated statements were regarded as supplementary to individual fi nancial statements. In Japan, the individual statements, especially the individual income statement, were considered to be more important than the consolidated statements until the revision of the BADC Consolidation Standards in 1997 (Kuroda 1998) because the distributable profit was, and in principle still is, determined by the individual company accounts, which have a role of coordinating interests between stockholders and creditors. As the stock market was not so active at that time and fi rms depended largely on banks for their fundraising in Japan, the function of providing information to investors was regarded in practice as more or less secondary. Many articles appeared in Japanese accounting journals on the subject of consolidated statements, but these represented technical comments on the Consolidation Standards in most cases. The situation changed gradually. It is now widely recognized that the diversification strategy followed by many Japanese companies of using subsidiaries and associated companies at home and abroad is an important one. Moreover, the legal prohibition on forming pure holding companies was lifted in 1997. In this year, the BADC proposed that consolidated fi nancial statements should be placed at the center of the Japanese fi nancial reporting system. In 1998, the Ministry of Finance responded to the opinion of the BADC by revising its ordinances for disclosure requirements. The new system became effective in March 2000 (Kuroda 2001). According to the newly codified Company Law of 2005, large companies subject to the FIEL are obliged to prepare consolidated accounts, too. The idea of consolidated fi nancial statements originated from characteristics of the business groups in the United States, the United Kingdom, and some other European countries. Some researchers point out that

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consolidation and concept of control are appropriate to the U.S. or UK business groups managed under the control of parent companies. So-called Japanese business groups are, however, somewhat different from those in the United States or the United Kingdom. In some Japanese groups, parent– subsidiary relationships are not so strictly defi ned as in the United States and the United Kingdom. Sometimes constituent companies in a business group hold shares in other companies of the same group in order to maintain relationships of some kind other than control (Kuroda 2001: 1839– 1845). Some researchers go so far as to assert that consolidated financial statements are like an improper grafting of the Anglo-Saxon way of thinking onto the Japanese way of business. According to the revised standards for consolidated statements, it was expected to become difficult to conceal a poor performance of a parent company by using substantially controlled companies not included in the consolidated statements. Nonetheless, although there was some evidence that consolidated earnings numbers were useful for shaping share prices, foreign investors seemed to be of the opinion that Japanese consolidated fi nancial statements were hardly capable of representing a true and fair view of Japanese enterprises. Before the revision of the Consolidation Standards in 1997, the assets and liabilities of consolidated subsidiaries were measured at book value. As a result, unrealized gains on land and shares were often included in the item “Consolidation adjustment account.” This item was interpreted to mean a mere difference, not goodwill. The revision, however, required the use of fair value measurement for assets and liabilities of acquired companies. There are signs of discussion concerning the relationship between internationally harmonized accounting and traditional Japanese-style management as the pressure of international harmonization increased. According to a survey (Hiramatsu 1981) of some 7,000 accounting publications in the 1970s in Japan, the number of international—broadly defi ned—accounting publications compared to the total in terms of percentages rose from about 5% in the early 1970s to some 15% in 1979. The proportion continued to increase. In the scene of tertiary accounting education, the fi rst chair for international accounting was set up at Kobe University in 1975. A number of other universities began to offer an international accounting course for advanced students. As this chapter shows, Japanese academic accountants have traditionally looked abroad for their intellectual pursuits. The authors can hardly deny that the theoretical considerations of accounting in Japan reflected, and still reflect to a greater or lesser extent, elements of accounting theories in foreign countries. In this sense, the Japanese accounting research may be characterized as international. When Japanese researchers were faced with issues in international accounting, however, they had to look not only to theories in foreign countries, but also to accounting standard setting mechanisms as well as underlying socio-economic conditions in foreign countries (Kuroda 1998). They contemplated the basic

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problems of accounting functions in Japan in light of the development of international accounting. A research outcome (Okada 1999) has lately analyzed the Japanese accounting environment and advocated the necessity of harmonization of Japanese standards and practice with the International Accounting Standards. Japanese accounting academics have been and will continue to be confronted with the challenges that the globalization of business activities as well as the ongoing international harmonization have posed and will never cease to pose. Indeed, the ASBJ has been working successfully in this direction.

Capital Markets-Based Research Capital markets-based research in Japan has appealed to the capital asset pricing model as well as to the “positive accounting research” approach associated with Beaver (1981) and Watts and Zimmerman (1986). By the mid-1980s, a series of positive research projects examined the efficiency of the Tokyo Stock Market and the information value of certain fi nancial statement items. This research provided some evidence that the Tokyo Stock Exchange Market was efficient and took into account the influence on cash flow brought about by changes of accounting policy on depreciation and other accounting items (e.g., Sakurai 1987, 1990, 1991). Since then, every time a new type of accounting treatment appeared, positive accounting research was undertaken in order to obtain evidence as to whether the information produced by the new accounting procedure had an information value for investors. As a consequence, positive accounting research obtained a fi rm position within the Japanese academic accounting community. On the whole, capital markets-based research offered evidence in support of fi nancial reporting based on the realisation and cost principles.

Accounting Research and Contract Theory During the 1980s, Japanese business economists began to publish their analyses of the nature of Japanese enterprises from various viewpoints (e.g., Aoki 1984, 1988; Imai and Itami 1984; Kagono et al. 1984; Imai 1987–1988). In parallel with these studies of Japanese enterprises within business economics, a number of Japanese researchers in the field of financial accounting also began to clarify the characteristics inherent in the Japanese fi nancial reporting system. This research was often based on an agency theory framework (Fama 1980) as a main variant of the “nexus of contracts” approach associated with Jensen and Meckling (1976). Although the Commercial Code, the Company Law, the fi nancial statement regulations of the Ministry of Finance, the accounting standards issued by the BADC, and the provisions of the corporation tax law constrain the choice of accounting policies by Japanese management, it is still possible for management to select accounting methods relatively freely,

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since there is still room for discretion within the rules. Hence, both the rules contained in the regulations and the managerial discretion determine the accounting information that is circulated in Japan. Accounting information is in theory part of the range of devices for regulating the agency problem. However, research by Okabe (1994) indicated that an “inner circle” existed in Japanese enterprises defi ned by the stratified implicit longterm contracts between and among Japanese enterprises, as is the case with cross-shareholdings, the so-called main bank system, long-term sale and purchase relationships, and so on. This research claimed further that this “inner circle,” which might not always be clearly defi ned, was more relevant for the purpose of controlling the behavior of Japanese management by means of accounting information than the investors in general. Other research appears to have arrived at similar conclusions. Accounting textbooks based on contract theory came to be used for postgraduate-level education. The accounting standard setters seem also to be conscious of the potential behavior patterns of management.

Management Accounting and Target Cost Management Active management accounting research emerged in Japan later than fi nancial accounting studies (Mizoguchi 1963; Hiromoto 1988, 1989; Monden and Sakurai 1989). An outstanding management accounting technique developed by Japanese companies that awakened echoes in Western manufacturing companies was surely that of target cost management (TCM) (referred to in German as marktorientiertes Zielkostenmanagement). The TCM approach was fi rst introduced by Japanese automobile manufacturers in the late 1950s and 1960s (Tani and Kato 1994a, 1994b) and obtained a theoretical basis later (Sakurai 1989; Kato 1993; Tani 1995). It was adopted by Western manufacturers in the 1980s and publicized in several European languages by Japanese management accounting academics (Tani et al. 1996; Tani 1997). TCM “is concerned with simultaneously achieving a target cost alongside the planning, development and detailed design of new products by using methods such as value engineering (VE)” (Tani 1995: 399). It is not merely a management accounting technique for cost reduction, but includes topics such as setting of target costs, tools for TCM, relationships with suppliers, and so on. Thus, it is an overall management system that demands a simultaneous implementation and operation of marketing, corporate strategy, management accounting, target control, information system, value engineering, and so on.

Another Aspect to Accounting Research It must be noted that a minority of Japanese academic accountants, deeply influenced by the socialistic view of Karl Marx, were highly critical,

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especially during the era of rapid economic growth from the 1950s to 1970s, of the reasoning of the dominant “capitalistic” trend in accounting research in Japan and the United States. This critical accounting thought was derived from prewar Japanese studies in business economics based on the political economy of Marx. Although these accountants also analyzed accounting, for instance, in the Soviet Union, the German Democratic Republic, or elsewhere in accordance with the Japanese accounting tradition and found many adherents because of their clear theoretical line of argumentation, they would or could not advocate constructive arguments for Japanese accounting. Instead, they criticized almost all the accounting institutions in Japan in a purely theoretical way from their viewpoint of Marxist economics. This critical view faded away gradually in the 1980s and 1990s with the stagnation of Japan’s economic growth, in particular after the collapses of the socialist countries in Europe.

The Traditional Relationship of Accounting and Business Economics in Japan: A Proposition In Japan, it was not academic accountants but other researchers who in general wanted to establish business economics as an independent discipline at universities or who began to consider the nature or essence of business economics and its relationship with accounting while respecting the very existence of accounting. Both groups of researchers were well aware that accounting professors had developed German business economics and that accounting was fi rmly integrated into business economics in Germany. However, neither the accountants nor the business economists in the present-day academic world in Japan seem to give much consideration as to the relationship between accounting and business economics. It is necessary to examine more traditional thoughts by earlier Japanese scholars in order to gain an idea of the nature of the relationship. When Teijiro Ueda first introduced a discipline named “Shoko Keiei” (Commercial and Industrial Management or Business Economics) at Tokyo HCS around 1910, he tried to clarify the contents of the new discipline in Japan. During a stay abroad, he had met and had discussions with W. J. Ashley at the University of Birmingham in 1905, and he was well acquainted with Ashley’s approach to commercial education, as well as the debates in favor of and against the emerging business economics (Handelsbetriebslehre, Privatwirtschaftslehre, Betriebswirtschaftslehre) in Germany. Based on his distinction between the business (Betrieb) to be guided by economic efficiency considerations (Wirtschaftlichkeit) and the enterprise (Unternehmung) to be operated on a profit basis, Ueda’s business economics was intended to address efficiency issues in the commercial, industrial, and financial areas.17 Accounting was not integrated into Ueda’s system of business economics, however, but was regarded as a separate discipline that should only be utilized for purposes of business economics (Ueda 1930, 1937).

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Another representative scholar of business economics in prewar Japan, Yojiro Masuchi,18 who had studied from 1923 to 1925 under Heinrich Nicklisch in Berlin, maintained that the Japanese business economics should in the future include accounting for management, although accounting from the standpoint of the owners should not constitute a branch of the business economics in his sense. He seems to be referring to “budgetary control,” which at that time was not much developed in Japan. Nevertheless, Masuchi had to assign the research and teaching tasks relating to management accounting not to business economists but rather to accountants for reasons of the academic division of labor (Masuchi et al. 1929). On the basis of an extensive literature survey of German business economics, Eiichi Furukawa19 asserted that the accounting branch of Japanese business economics should consist of two areas: “accounting for external reporting purposes” and “accounting for internal reporting purposes.” At the same time, he attached decisive importance to internal accounting, arguing that external accounting should assume only a derivative significance from the viewpoint of the business economics (Furukawa 1942). On the part of academic accountants, Kiyoshi Kurosawa 20 characterized the whole of business analysis (Betriebsanalyse), balance sheet theories of business economics (betriebswirtschaftliche Bilanztheorien), cost accounting, and budgetary control as the accounting aspects of business economics (Kurosawa 1933). His arguments did not consider the situation of accounting in Japan in a proper manner. It may be that he conceived a vague idea such as an economics of calculation as an overlying discipline under which all branches of accounting should be subsumed. After World War II, Yasutaro Hirai succeeded in establishing the fi rst separate faculty of business economics at a national university alongside the faculty of economics: This was the “School of Business Administration” at Kobe University. Hirai’s graduation thesis at Kobe HCS considered Luca Pacioli’s bookkeeping, and the thesis was published in 1918. Between 1921 and 1925, Hirai visited Europe, spending his time mainly in Germany (with H. Nicklisch in Berlin, B. Penndorf in Leipzig, and F. Schmidt in Frankfurt). On his return, he was an expert on German business economics, and he participated decisively in creating the “Japan Society of Business Administration” in 1926. He was also an active member of the “Japan Society of Accounting,” and he published review articles on German static, dynamic, and organic balance sheet theories in Kaikei (Aaccounting), the journal of the Society. Indeed, his professorial seminar for business economics at Kobe University of Commerce produced many outstanding academic accountants, for example, Katsuji Yamashita. Although Hirai’s approach to business economics included the accounting area as a matter of course (Hirai 1926, 1935), he gradually left accounting research work to other academic accountants (possibly a case of the academic division of labor). Tetsuzo Ota had once expected that Hirai would become an excellent academic accountant, but in this respect Hirai disappointed Ota.

122 Masatoshi Kuroda and Ellie Okada In Japan, therefore, by the end of the 1930s, strong personal and institutional links existed between accounting and business economics in leading universities, although some degree of a division of labor was already manifesting itself. At the present time, faculties or departments of economics, commercial science, business administration, and the like at universities in Japan offer both accounting and business disciplines, often in a wide variety of subjects. Accounting-related subjects such as “fi nancial accounting,” “management accounting,” and “auditing” are offered to students of different levels, while education within business disciplines is organized within such subjects as “general business economics,” “business organisation,” “business strategy,” “business fi nance,” “personnel management,” “marketing,” “banking,” “insurance,” and “transportation,” reflecting in part the Japanese tradition of commercial science. The range of the present business disciplines in Japan often includes elements of sociology or even psychology. Thus, it is natural for present-day Japanese researchers on business matters to give an impression on occasion in their arguments that they are not economists. In this sense, the entire range of Japanese business disciplines nowadays may more properly be designated by “business administration” rather than “business economics.” Both the disciplines of accounting and business administration, as well as their researchers and instructors, coexist in the same organizational units, and this does not exclude the possibility of exchanges of ideas on certain occasions. The traditional condition of accounting and business economics or administration in Japan seems, however, to lead their respective representatives at universities to take it for granted that both disciplines are existent in their own right. While the Cost Accounting Standards issued by the BADC in 1962 mainly envisaged cost accounting embedded in fi nancial accounting system (Kubota 1964), present-day management accounting researchers in Japan have wide study areas in mind: accounting for management decision making, accounting for management performance evaluation, and so on (Kobayashi 1993; Okamoto 1996; Kato 2007). Then, only those who major in management accounting in Japan appear to sense or have a closer affinity to management studies carried out in business economics, or more exactly business administration inclusive of a wide variety of business disciplines as cited above, than to the results of fi nancial accounting research. As this chapter shows, it cannot be denied that both accounting and business economics in Japan represent exogenous disciplines, imported cultural goods, as contrasted with indigenous branches of science. When the German business economics interested Japanese scholars of business studies, moreover, accounting of an Anglo-Saxon origin had already assumed a determined position at Japanese institutions of tertiary education. If accounting in the United Kingdom and the United States has developed as an independent discipline (Mueller 1967), this seems to apply to accounting in Japan, too. Fundamentally, in the Japanese society, there is “a strong departmentalism constructed along functional vertical tie,” as a Japanese social anthropologist

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once put it (Nakane 1972: 38). The tie is formed by an individual university, an individual faculty or department, an individual discipline, an individual branch of a discipline, an individual academic chair, and so forth, as the case may be. It is traditionally regarded by the Japanese society as a definite virtue of younger academic research workers, and academic research workers are expected of them to devote themselves to a specialized area of studies, however narrow the area may be. Hence, rather than a tendency toward interdisciplinary studies and integration, Japanese social norms as they operate in universities tend to support research and education developed within separate disciplines, with little practical opportunity for interaction.

CONCLUDING REMARKS Traditionally, accounting and business economics in Japan derive the incentive for their emergence and development from foreign countries. Compared with foreign countries, nevertheless, the accounting/bookkeeping discipline was in relatively early years introduced into curricula at institutions of tertiary education. At first accounting of the Anglo-Saxon origin prevailed around the turn of the nineteenth to the twentieth century in Japan. However, the concept of the German business economics (Betriebswirtschaftslehre), which had been developed mainly by academic accountants, began to be taken over by Japanese accounting researchers only in the 1920s, when the accounting/ bookkeeping discipline had established its position as an important teaching/ learning business subject firmly at institutions of tertiary education. But, Japanese academic accountants were seemingly interested only in the research outcomes about the accounting-related matters in the German business economics rather than in the whole research areas of the Betriebswirtschaftslehre, although the Germans gave an intellectual stimulus to finding more theoretical aspects in accounting studies. In Japan, it was not the accountants, but the business economists, who were supposed to set up their discipline themselves while considering the existence of accounting discipline at HCSs or universities, and thus the Japanese business economists tended to leave the task of elaborating accounting-related studies in their business economics to their colleagues there, the academic accountants who pursued their studies of accounting as an “independent discipline.” Especially in the years after World War II, however, the Japanese business economists for their part became more and more receptive to the outcomes in a wide variety of research fields of business administration in the United States when they tried to shape the whole content of the businessrelated subjects at many faculties or departments for business studies at universities that were newly brought into being. It may be due to the Japanese tradition of encyclopaedic curricula of the commercial science at prewar HCSs or to the decreasing ability of the German language, which has been unmistakably observed among post-war Japanese research workers.

124 Masatoshi Kuroda and Ellie Okada At present, both disciplines—“accounting” and “business economics or administration”—co-exist at the Japanese universities relatively independently of each other, although they are subsumed under the same faculties or departments. It cannot be denied that financial accounting studies in Japan nowadays are conducted under the influence coming overwhelmingly from the accounting issues in the United States or, lately, from the questions raised by the International Accounting Standards Board. Papers begin more often than not with a survey of literature by foreign authors before discussing the subject matters in more detail with a view to improving their theoretical or logical consistency, or elaborating them in the light of the socioeconomic conditions in Japan, if they are concerned with Japanese financial accounting standards. They are in general well acquainted with the accounting-related trends in foreign countries, a situation that coincides with the tradition in Japan. However, Japanese financial accounting research will not seem to take much notice of the research results of the business economics or business administration on that occasion. At most, only management accounting appears to find in business economics or administration something congenial to itself when theorizing the issues in Japanese company practice in its own right by sometimes referring to the Betriebswirtschaftslehre, or more often “business administration” of the U.S. origin. The research work on target cost management is a case in point.

NOTES 1. The descriptions of the developments in this and the following subsection are largely based among other sources on Aoki (1976) and Kurosawa (1982, 1990). 2. 1879–1940; education: graduated from Tokyo HCS in 1902; occupation: 1905–1920: professor at Tokyo HCS, 1920–1940: at Tokyo UC. 3. In an article written in German for a German journal, Hirai (1923a: 52) called this discipline Betriebswirtschaft. 4. 1866–1939; education: graduated from Tokyo HCS in 1888; occupation: 1892–1920: professor at Tokyo HCS, 1920–1929: at Tokyo UC. 5. 1865–1947; education: graduated from Tokyo HCS in 1887; occupation: 1898–1903: professor at Tokyo HCS; 1903–1916: at Kobe HCS, 1916–1939: public accounting practice. 6. 1878–1943; education: graduated from Tokyo HCS in 1903; occupation: 1906–1918: professor at Waseda U; 1918–1938: at Tokyo UC; 1938–1943: at Chuo U. 7. Hatfield’s thinking was itself influenced by that of Johann Friedrich Schär of the University of Leipzig in Germany (Hatfield 1966: 169). 8. 1896–1970; education: graduated from Kobe HCS in 1918 and from Tokyo HCS in 1920; occupation: 1923–1929: professor at Kobe HCS; 1929–1949: at Kobe UC; 1949–1960: at Kobe U. 9. 1889–1970; education: graduated from Tokyo HCS in 1913; occupation: 1923–1948: professor at: at Tokyo UC; 1950–1964: at Chuo U. 10. 1888–1962; education: graduated from Tokyo U in 1912; occupation: 1919– 1949: professor at Tokyo U.

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11. 1893–1963; education: graduated from Kobe HCS in 1916; occupation: from 1923: professor at Wakayama HCS, Nagoya U. Toki had attended the seminar of Schmalenbach in Cologne between 1928 and 1930. 12. See, for example, Murase (1962), Mizoguchi (1963), Yamashita (1964), Kubota (1964), Mori (1966), Saito and Scheid (1979), Kuroda (1981, 1985), Nakamura and Anguis (1981), Iino and Inoue (1984), Iizuka (1984), Choi and Hiramatsu (1987), Coenenberg and Kuroda (1988), Arai and Shiratori (1991), Hiramatsu (1993), and Araki (2005). 13. For example, Cooke (1991) and Evard (1999). 14. The main sources for Schmalenbach’s ideas were Schmalenbach (1919, 1939, 1953). In addition to Paton’s principal theoretical work (Paton 1947), his collaboration with his son (Paton and Paton 1955) was influential, as was Paton and Littleton (1940). 15. 1906–1969; education: graduated from Oita HCS in 1927, from Kobe UC in 1932; occupation: 1936–1947: professor at Hikone HCS; 1947–1949: Kobe UC; 1949–1969: Kobe U. 16. Indeed, an article in an extra issue of a monthly magazine for accounting students Kigyo Kaikei (Accounting), Vol. 28, No. 6 (May 1976), pp. 113–116, still expounded the basic doctrines of Schmalenbach and Paton as the fathers of contemporary accounting discipline. 17. There are similarities, although only at a rudimentary level, with concepts and discussions of Erich Gutenberg in Grundlagen der Betriebswirtschaftslehre in the 1950s and 1960s. 18. 1896–1945; education: graduated from Tokyo HCS in 1919; occupation: 1925–1945 professor at Tokyo UC. 19. 1904–1985; education: graduated from Tokyo UC in 1929; occupation: professor: 1930–1940: at Yamaguchi HCS; 1941–1949: at Tokyo UC; 1949– 1968: at Hitotsubashi U. 20. 1902–1990; education: graduated from Tokyo U in 1928; occupation: 1928– 1937: professor at Chuo U; 1937–1949: professor at Yokohama HCS; 1949– 1968: at Yokohama National U; 1968–1990: at Dokkyo U.

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5

Accounting and Business Economics in the Netherlands Kees Camfferman

INTRODUCTION The existence of a school of thought in the Netherlands in which accounting is studied as part of a more general discipline of bedrijfseconomie or “business economics”1 has been acknowledged both inside and outside of the Netherlands. It is equally clear that this approach to accounting is, by now, largely a historical phenomenon. This tradition had its roots in the late nineteenth century, became fully developed by the mid-twentieth century, and had, by the end of that century, largely disappeared as a distinguishing feature of accounting in the Netherlands. This chapter outlines the historical development of this understanding of accounting as part of business economics in the Netherlands. Its main argument is that this historical episode is best understood by considering it as an aspect of the history of the Dutch accountancy profession. The trajectory of emergence and disappearance of the conceptualization of accounting as a part of business economics follows the emergence, strengthening, and gradual loosening of the ties between the Dutch accountancy profession and higher business education in the Netherlands, a dynamic that is in turn part of the more general stories of the evolution of the profession and the universities. In terms of the international linkages explored in this volume, the peculiar flavor of Dutch accounting and business economics is considered in this chapter as resulting from a mingling of a German-oriented business education movement with an accountancy profession oriented primarily toward the English-speaking world. In terms of influential individuals, it means that in this chapter, the life and work of Theodore Limperg (1879–1961) loom large, as he was both a key actor in the forging of the institutional links between the profession and higher education, as well as the one who provided the most influential articulation of the conceptual link between accounting and business economics. This chapter is organized along broadly chronological lines. The second section takes an institutional perspective and reviews the origins of the accountancy profession and its links with the movement for higher business education from the late nineteenth century to about 1920, when

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the accountancy profession successfully established itself within the academic community. The third section shifts the focus to the substance of the link between business economics and accounting. It discusses how, during the 1920s and 1930s, the newly created academic platform was used to propose and work on a program of developing an academic discipline of business economics of which accounting was a key component. The fourth section describes how, during the postwar period until the 1970s, notable practical successes were achieved on the basis of the prewar program, but also how its limitations gradually became more evident. It also briefly considers some of the institutional factors responsible for dissolving, from the 1970s onward, the tradition of viewing accounting as part of a discipline of business economics. It is by no means presumed that this chapter presents an exhaustive treatment of the subject. It is hoped, however, that, together with its references, it will provide a useful introduction to the rich existing literature. 2

ORIGINS OF THE ACCOUNTANCY PROFESSION AND ITS LINKS TO HIGHER BUSINESS EDUCATION In the Netherlands, business economics as an academic discipline did not emerge out of the universities. Its origins were to be found in attempts to improve practice-oriented education for commerce and in the nascent accountancy profession. Its entry into the universities was the result of successful efforts by relative outsiders to graft this new discipline onto the academic tree (Brands 1963: 8; see also van Rossum 1979: 184; Muysken and Schreuder 1985: 3). As shown by de Vries (1985), accounting education was at the roots of the Dutch accountancy profession that emerged at the end of the nineteenth century. Bookkeeping instruction at the secondary school level had to a degree become professionalized with a national examination introduced in 1864. This diploma turned out to have more than educational relevance: It also served as an early qualification for accounting practice. Holders of the diploma organized themselves in a national association in 1883, which began issuing its own journal in 1894. In 1895, the fi rst national accountancy body, the Nederlandsch Instituut van Accountants (NIvA), was founded, and many of the founding members came from the group of qualified bookkeeping instructors. From the start, professional education and examinations were one of the NIvA’s main areas of activity, providing much natural overlap in membership and activities between the NIvA and the earlier national association of qualified bookkeeping instructors. It has been observed (de Vries 1985: 32) that the NIvA expressed the aspirations of its members for upward social mobility. A university education was generally quite beyond their reach, but diplomas such as, initially, the one for bookkeeping instructor and, subsequently, the NIvA’s

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rather more demanding examination requirements could be the means for men from relatively modest backgrounds to move out of the general ranks of office clerks. The NIvA oriented itself on the accountancy profession in the United Kingdom (see Camfferman 1998). Apart from a strong emphasis on foreign languages for business correspondence, its initial exam program was probably not very different from that of the English and Scottish institutes. However, shortly afterward, developments in Germany led to new ideas about educational standards for the accountancy profession. During the second half of the nineteenth century, secondary commercial education in specialized schools had become available in a number of Continental European countries. Tertiary-level commercial education was rare, and few if any institutions claimed to be offering university-level education or were accepted as doing so (James 1893; see also Schneider 2001: 190–191). During the 1890s, however, a movement to provide tertiary-level commercial education, with aspirations to academic status, began to gain momentum in Germany. The establishment of a commercial college (Handelshochschule) in Leipzig in 1898 is generally seen as a pivotal moment. It was followed by numerous similar foundations in Germany and other countries (see Isaac 1923: Appendix A; Titze 1989, 1995; Albach 1990; Büsse von Colbe 1996: 414). Even though it may be pointed out that the German Handelshochschule were not original but inspired by earlier establishments in Belgium and France, and that their immediate academic achievements were less than impressive (Schneider 2001: 190–193), it seems reasonable to accept that, in contemporary eyes, developments in Germany did represent a significant new development. The year 1899 saw the formation in the Netherlands of the National Union for Commercial Education (Nationale Vereeniging voor Handelsonderwijs), which began to aim for the establishment of one or more Handelshochschule along German lines in the Netherlands. The National Union had a broader base than just the young accountancy profession. The Union had strong links with the Amsterdam Commercial School (Openbare Handelsschool; see Bossevain 1919). This was a secondary-level school, established in 1869, which offered three- and five-year programs. The German-born director of the School, J. H. H. Hülsmann, moved about in the circle of European congresses on commercial education and was well aware of developments abroad. Graduates of the school, many of whom came to occupy prominent positions in business, maintained a well-organized and active alumni society. In this way, the school and the National Union tapped into a social network that would probably still be a notch above many of the NIvA’s members. However, there were contacts with some of the NIvA’s leading members, who saw the potential significance of the Union’s plans for their own profession and who began to set their sights on the objective of a dedicated academic training program for accountants. It is in this context that the idea emerged that such a program should not merely consist

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of a pragmatic collection of commerce-related courses, but should be based on an integrated discipline of “business economics.” An early link between the National Union and the accountancy profession was Wouter Kreukniet (1870–1952), a founding member of the NIvA as well as an active member of the earlier association of bookkeeping instructors. Kreukniet published an oft-cited brochure on commercial education (Kreukniet 1898), which practically served as the National Union’s founding manifesto. On this basis, the National Union developed plans for a curriculum in which, for the fi rst time, reference was made to what would become known as business economics. Whereas the subject matter of commercial education had typically been described in terms of handelswetenschappen (“commercial sciences,” a direct derivation of the German Handelswissenschaften), in a 1904 proposal, it was referred to as Handelsbedrijfsleer, a direct translation of the German Handelsbetriebslehre. It was explained that, “with this course, the future merchant is taught that apart from political economy there is a doctrine concerning the way a mercantile business is to be organized” (Handelingen 1904:48). Another link between the National Union and the accountancy profession was J .G. Ch. Volmer (1865–1935). Volmer was also a qualified bookkeeping instructor, one of the fi rst practicing auditors in the Netherlands and the prime mover in the founding of the NIvA in 1895. He did not limit himself to auditing, but developed a strong reputation as a more general business advisor. As such he was recruited to become a director of the Vienna branch of one of the companies that would subsequently merge into Unilever. His stay of a few years in Vienna probably helped to give Volmer a life-long orientation toward the German-speaking world. In 1908, he came back to the Netherlands to become a professor of bedrijfsleer en boekhouden (“business studies and bookkeeping”) at the Technical University in Delft. This institution had only recently, in 1905, been elevated to university status and perhaps still lacked some of the standing of the older universities. Nevertheless, it was a fi rst and significant step toward commercial education at the university level, and the National Union hailed Volmer as “our fi rst professor” (Bouman 1908). The next step was the founding, in 1913, of the Nederlandsche HandelsHoogeschool in Rotterdam by a coalition including the municipal government, prominent Rotterdam businessmen, and the National Union. The school started by offering a two-year undergraduate program with a core of economics, economic geography, accounting, and law, together with an array of minor courses. A graduate program was soon added, and the fi rst doctoral thesis was defended in 1918. Business economics (under the name of Bedrijfsleer) occupied an important part of the program. The objective was to have two full professors of business economics, in addition to an extraordinary (i.e., part-time) professor. From 1914 to 1935, the latter position was occupied by Volmer.

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The Rotterdam school was probably quite quickly accepted as a respectable academic institution, albeit one with a restricted range of studies. Yet the fi nal step of introducing business economics into one of the older, more “universal” universities still had to be taken. This occurred in 1922 with the establishment of a “faculty of commercial sciences” at the University of Amsterdam. A central role in this development was played by Theodore Limperg, who used it to forge a strong link between the universities and the accounting profession. Limperg was a graduate of the Amsterdam Commercial School, and he actively used its alumni society as a platform to argue for higher commercial education. In 1910, he represented the society at the International Congress for Commercial Education in Vienna, pleading for commercial education at universities rather than in separate commercial colleges. 3 Limperg was also active in the NIvA, of which he became a “secondgeneration” member on the basis of examination. He started as assistant to Volmer, but quickly worked with him as an equal. The fact that Limperg was still in his twenties during the 1900s did not prevent him from becoming one of the most outspoken members of the NIvA. With Volmer and others, Limperg argued strongly for improved professional standards, as well as for higher educational standards. In 1911, Limperg became an officer of the National Union and was presented to the membership as “no stranger among those who take an interest in commercial education.”4 Volmer and Limperg were both involved in the initiative to found the Rotterdam School, but, despite Limperg’s ambitions, it was Volmer rather than Limperg who became a professor there (see van Stuijvenberg 1963; Trompert 1988: 85–92). In the 1910s, Limperg’s ideas on education of auditors had become fully articulated. The ideal he had in mind was that auditors should have an academic degree in business economics, to be followed by an academic-level professional program (Limperg 1913). Such an arrangement was in place in Rotterdam from 1915 onward. Limperg now set his sights on establishing a similar program in Amsterdam. From 1913 onward, Limperg was a driving force behind the efforts of the alumni society of the Amsterdam Commercial School to establish an economics faculty at the University of Amsterdam (Posthumus 1932; Limperg 1946). This was fi nally successful in 1922, when Limperg became a full professor in business economics. In 1929, the University of Amsterdam opened its postgraduate professional program in accountancy. The professional programs in Rotterdam and Amsterdam established a tradition of bringing in leading accountancy professionals into the universities to teach on a part-time basis. Clearly, a university education was still not open to many aspiring auditors, and for many years, most new NIvA members still came through the NIvA’s own program of courses and examinations. However, gradually an elite group of university-trained auditors came into being, which formed

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its own professional association, as a sister body to the NIvA. 5 Limperg, a long-time chairman of the NIvA’s education and examination committee, not only made sure that the NIvA recognized the exams administered by the universities, but also that some of the ideas underlying the universities’ teaching made their way into the NIvA’s curriculum. Before World War II, the academic platform for business economics was extended with only one other institution, in the newly founded Catholic Handelshoogeschool in Tilburg (1927). In 1948, faculties of economics, including chairs of business economics, were established at the University of Groningen and the Vrije Universiteit (currently known in English as VU University) in Amsterdam. All three universities in due course established postgraduate professional programs in accountancy.

ACCOUNTING AND BUSINESS ECONOMICS DURING THE 1920S AND 1930S

The Nature of Business Economics So far, the focus in this chapter has been on institutions, and it has outlined how a link between the accountancy profession and the universities was established. This link consisted of the recognition of “business economics” as an academic discipline, the recognition that the study of this discipline was an important part of the training of an auditor, and the appointment of several influential members of the accountancy profession to academic positions. This institutional focus is justified as the energies of the principals prior to the 1920s were in fact mainly devoted to creating the institutions of business economics, rather than to reflecting deeply on the substance of the discipline and its implications for accounting. Up to this point, references to “commercial sciences” or “business studies” in educational programs had often suggested no more than a loose collection of courses, including accounting, economics, law, geography, and perhaps also languages. Gradually, the notion emerged that “business studies” (bedrijfsleer) or “business economics” (bedrijfseconomie) might also be thought of as a more coherent and focused discipline, a part of or derived from economics. In this respect, the situation in the Netherlands again mirrored that in Germany. Prior to World War I, an academic community had been formed in Germany that gradually began to develop more theoretical approaches to business economics (Schneider 2001: 194). In the Netherlands, the task of developing a more unified concept of business economics fell to the newly appointed professors, in particular Limperg and his counterpart in Rotterdam, Nico J. Polak (1887–1948). Both were appointed around the same time, and both held their programmatic inaugural lectures in 1922. Polak is often contrasted with Limperg and cited as an exponent of a less rigid, more pragmatic approach to business

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economics (van Rossum 1979; Bindenga 1990). However, to understand how a view of bedrijfseconomie as a recognized subdiscipline of economics developed in the Netherlands, it is good to stress the extensive agreement between the inaugural lectures of the two new professors.6 Both Limperg (1922) and Polak (1922) outlined how, traditionally, business practices had been simple enough to be learned by observation and imitation. From the sixteenth to the nineteenth centuries, this was often augmented by textbooks with descriptions of technique. However, both maintained that such guidance was typically little more than kunstleer (literally: “art lore”). This was a direct translation of the German Kunstlehre, which, since its appearance in Schmalenbach (1912), had become a key term in the methodological debate in the German business economics literature.7 Contrary to Schmalenbach, both Limperg and Polak used the term kunstleer dismissively to refer to a set of maxims for acquiring an art or a craft based on experience or intuition rather than on a rigorous enquiry into the causal interdependencies between the phenomena of interest. This latter aspect, the exhaustive exposure of causal relationships underlying observed tendencies, was proposed as the hallmark of science, following the epistemological work of Heymans,8 a well-known point of reference in the Dutch economics literature (see Klant 1979: 36–37). This did not mean that business economists had to investigate every “tendency” or “causal interdependency” in and around the enterprise. Both Limperg and Polak saw division of labor among scientists as imperative. While lawyers, psychologists, and engineers each had their own work to do on enterprise phenomena, economists should concentrate on phenomena explicable by economic causality and develop the laws of rational choice and optimization in the face of scarcity that formed the economic basis of enterprise behavior. This distinction between the fi rm as “empirical object” (ervaringsobject, German: Erfahrungsobjekt) and as “epistemological object” (kennisobject, German: Erkentnissobjekt) again directly reflected a commonplace of the Germanlanguage literature on the nature and methods of business economics from at least the 1910s to the present.9 But, since many economists were unequipped to study the internal working of enterprise, especially as the growth of businesses had made them less easily observable, a special group of economists, business economists, should come into being who were trained to study the enterprise, but who fully retained their identity as economists. Limperg took this one step further by arguing that auditors in particular were well equipped to take the lead in these studies. Hence, the study of business economics was not merely an educational requirement for auditors, but also a research mission to which auditors should make a strong contribution (Limperg 1924). As indicated, these thoughts had their counterparts in Germany (see also van der Schroeff 1970: 5). According to Leitherer (1947), the 1910s and 1920s saw a transition in the German literature from an early stage characterized by the pragmatic tackling of isolated issues in business technique

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and accounting, to a stage of formulating more comprehensive systems of general business economics. In this change, issues of method, and in particular the relation to general economics, were extensively discussed. Polak’s references showed that he was clearly aware of this discussion. Of the eighteen works cited in his lecture, thirteen are in German, two in Dutch, two in French, and one in English. Moreover, the German literature provides him with his key arguments. The various possible approaches to business economics are explained by describing the differences between various German texts on Betriebslehre; Osbahr (1918) and Nicklisch (1912) are approvingly cited as examples of studies of causality that are not directed at immediate practical results; the argument that economists lack the training and technical equipment for the study of modern business is derived from Weyermann (1913), and the necessity of respecting disciplinary boundaries is posited by disagreeing on this issue with Schmalenbach (1912). Limperg, in contrast, typically made only sparing and oblique references to the writings of others except in polemics, and his inaugural lecture is no exception. Yet, combined with some of his other writings, it is clear that he also was quite aware of the German literature and that this literature was important in shaping his categories of thought. In Limperg’s writings, Germany figures above all as a place where Betriebslehre is practiced as a Kunstlehre (Limperg 1922: 182), that is, without reference to economics. This was certainly not a charge reserved for Germany alone,10 but apparently the Germans, coming closest to Limperg’s own views, were seen as the most worthy opponents. In 1924, he wrote, It is my opinion that the new discipline [of business economics] would much earlier have obtained the indispensable solid scientific basis if in this country and in Germany it had been recognized earlier that there can exist no science of business economics with other objectives than those of general economics; that business economics is nothing but the science of economics as it deals in particular with phenomena in businesses. (Limperg 1924: 161) In a 1946 retrospect, he described how the development of business economics in Germany had, in his opinion, been hampered because general economists (Nationalökonomen) had been unwilling to recognize that they lacked the required specialist knowledge for a proper study of business enterprises, while, as a reaction, proponents of business economics as a Kunstlehre emphasized the other-worldliness of the economists who argued for a separate discipline. As an important exception, the economists Weyermann and Schönitz (1912) had, in Limperg’s view, correctly argued for a discipline of Privatwirtschaftslehre as a specialization of economics (it cannot be ruled out that Limperg’s specific endorsement of Weyermann and Schönitz was inspired by Schmalenbach’s [1912] rejection of the same authors). However, Limperg noted that more recently signs of improvement

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were evident. In Germany, business economics was evolving in a “normative-economic” direction so that “even a man like Schmalenbach has at long last come round to include economic theory in his expositions” (Limperg 1946: 240; see also Limperg 1950: 10). By that time, after World War II, it had become clear that despite the considerable degree of agreement between Limperg and Polak in their inaugural lectures, at least two separate approaches to business economics had developed in the Netherlands. These methods have traditionally been referred to, following Brands (1948), as the “Amsterdam school” and the “Rotterdam school.” But whereas the “Amsterdam school” did in fact have a leader, Limperg, and a recognizable group of disciples, the “Rotterdam school” did not have an obvious figurehead or a comparable degree of unity. Polak was apparently not a school-builder by temperament, and, unlike Limperg, he did not attempt in his subsequent writings to trace his positions explicitly back to a general understanding of bedrijfseconomie, such as expounded in his inaugural lecture. For this reason, the Amsterdam “school” is often contrasted to a Rotterdam “approach.” Schreuder (1985) has characterized the two in terms of two distinct strategies for the development of business economics: Whereas the “restrictive” strategy is theory-oriented, sees a close relationship between business economics and general economics, and cultivates the distinction with other social sciences, the “non-restrictive” strategy is in all respects the opposite and in particular does not emphasize the relationship with general economics. If the proponents of a restrictive approach viewed business economics as part of economics in general, it is reasonable to ask what kind of economics they had in mind. It seems fair to say that, to Limperg, this would primarily be the Austrian school. Limperg would not see himself as adherent of the Austrian school, and he spent considerable energy to set forth his disagreements with Menger, Wieser, and Böhm-Bawerk in particular (see Limperg 1964: 145–204). Nevertheless, their questions and general approach seem to have resonated with Limperg. Limperg shows no great interest in the functioning of markets as such and the role of price formation in competitive equilibrium. He does, however, have considerable interest in the formation of economic institutions (see e.g., his discussions of fi rm size, inventory, branded products, cooperatives, forward contracts, and many other issues in Limperg [1965b]). Unlike some of his students, Limperg never used mathematical analysis.

Business Economics, Accounting, and the Theory of the Firm Although Limperg and Polak, at least initially, shared to a large extent the same views on the nature of business economics, Limperg went further in his attempts to construct a coherent theory of business economics, including a theory of accounting. Polak did not attempt to construct a similar comprehensive theory of business economics. His writings on accounting,

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although they show a clear awareness of developments in the English- and German-language literatures, tend to be more fragmented and lack the cohesion of Limperg’s work. It is therefore to Limperg’s views, which have also attracted most attention internationally, that we will now turn. A fi rst implication of Limperg’s conception of business economics is that it considerably narrowed down the scope of the accounting issues that should be studied or taught under this heading. In Limperg’s view, academic status could be claimed for only part of the array of subjects that hitherto had been loosely grouped under the heading of “commercial sciences.” In 1919, at a time when the fi nal push toward the establishment of the new Faculty in Amsterdam was about to begin, Limperg argued, “What is generally regarded as commercial education lends itself only partially for development to higher, that is, academic education” (Limperg 1919: 39). Therefore, a commercial college could only be viable as an independent institution if it also offered a variety of non-academic courses. In a university, however, it would be possible to limit the program to a list of subjects that, in Limperg’s view, “lend themselves without doubt to academic inquiry and academic education.” The core of these would consist of economics, business economics, law, geography, and history. Whereas business economics was therefore to be ranked among the academic disciplines, some of the staples of commercial education were categorically excluded from the university curriculum by Limperg: “I do not, therefore, want commercial correspondence, bookkeeping, commercial arithmetic etc. to be taught” (Limperg 1919: 40). According to Limperg, the rightful place of bookkeeping was as a technique for gathering the data with which the business economist went to work (Limperg 1924), and in educational terms, it belonged in the secondary schools. One searches in vain, therefore, in Limperg’s academic writings for a discussion of, say, account charts. This was not merely a Limpergian point of view: During the 1910s, apologetic notes were sounded in the new Rotterdam school for the fact that bookkeeping courses still had to be taught because not all students entered the school with sufficient preparatory training (Sleumer 1938: 117). More positively, Limperg developed his views in a series of lectures in business economics for the various courses that he gave in Amsterdam. It is the notes of these lectures that provide the most important source of his views as they developed from the 1920s onward. Prior to that, Limperg had contributed numerous shorter pieces in the Dutch accountancy journals, but after he became an academic, the number of his publications dropped considerably. More or less officially sanctioned versions of the lecture notes were circulated in mimeographed form, which already made Limperg’s views quite accessible during his life. After his death, a sevenvolume edited collection was published. Apart from a series of introductory lectures outlining the scope and method of “business economics,” the lectures are grouped under seven headings: the theory of cost, the theory of internal organization, the theory of external organization, the theory of

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labor conditions, the theory of fi nance, the theory of value and profit, and the theory of auditing. In this chapter, attention will be given only to the theory of cost and theory of value and profit, which together cover Limperg’s thinking on accounting issues within the scope of business economics. It must also be added that the impact of Limperg’s views outside of the area of accounting and auditing has been quite limited. In principle, the starting point for Limperg’s thinking in all areas of business economics, including accounting, was his conception of the fi rm as a productive unit within the total organization of production in society. From a business economics point of view, this organization was normatively, but also empirically, governed by the economic principles of optimization in the face of scarcity. These principles predicted division of labor in the form of specialization (in terms of fi nal output) and differentiation (in terms of stages of the production process). Within the network of fi rms that handled the flow of production from raw materials to fi nal output, each fi rm had to select its own position on the basis of optimizing its production and exchange functions. While, in the long run, these optimal positions were continuously shifting because of technological change and other factors, in the short run, fi rms were faced with what Limperg called the law of continuity: Once a fi rm has discovered a viable position, rigidities caused by costs of change, time lags, and so on create a strong presumption that it is rational, both for the fi rm and for society as a whole, that the fi rm continue its production (Limperg 1964: 64–71, 86–87). It may be observed that this view of the fi rm is reminiscent of Schmidt’s conception of the “fi rm in the stream of value” (Schmidt 1929: 28–30), a similar notion of fi rms as optimizing units within a broader and continuously shifting network of social production arrangements. However, there is a difference in tone as Schmidt, probably reflecting Germany’s dramatic economic experience during and after World War I, emphasizes the instability and uncertainty that fi rms face as they have to navigate the “storms and beating waves” of inflation, technology, and shifting government policy. In contrast, Limperg’s depiction of societal production arrangements is more static and suggests a smoothly running process, in which gears and levers are shifted gently and deliberately. Whereas Schmidt was clearly thinking in terms of a market economy, Limperg could at least imagine that the whole process might be run from the top down as well as on the basis of private initiative: The laws of business economics would apply in a state-run economy as well as in a market economy. Both had their inefficiencies, and Limperg was quite willing to accept that society as he found it was market-based (Limperg 1964: 77–78). However, it was no secret that he was sympathetic to socialism (on Limperg’s relation to socialism and Marxism, see Trompert 1988). On the basis of this relatively simple theory of the fi rm, Limperg developed his theories of cost, value, and profit that can be said to constitute his thinking on accounting. Essentially, the normative role for calculations of

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value, cost, and profit was to provide the entrepreneur with the necessary information to understand whether he was still in a position that justified continuity of operations and to enable him to take the necessary action to ensure that continuity. In a nutshell, the entrepreneur had to satisfy himself on the basis of proper costing that his exchanges still made economic sense, and profits had to be calculated in such a way that their distribution as dividend would not impair the enterprise’s ability to continue operations. For these purposes, costs and profits had to be calculated on the basis of a proper concept of value. As has been discussed elsewhere (e.g., Camfferman and Zeff 1994), Limperg’s value concept closely resembled the notion of “value to the owner” as developed in the English-language literature. The value of a particular asset to a particular entrepreneur at a given time was the lowest of its “beneficial value” (opbrengstwaarde) and its “replacement value” (vervangingswaarde), with the “beneficial value” being the highest of the “direct beneficial value” (in effect the net realizable value) and the indirect beneficial value (in effect its value in use, or the value of the benefits to be produced by the asset). This value notion was derived in a straightforward manner from Limperg’s “law of continuity”: As long as replacement value was lower than “beneficial value,” replacement was not merely hypothetical, but economically imperative. The implication was that replacement value was the default valuation basis for determining costs and profits. Net replacement value or value in use might have to be taken into account in situations of discontinuity, but there was no place for historical costs in a rational approach to accounting. The resulting characteristics of Limperg’s writing on accounting were an emphasis on the income statement, and on full costing, both to be briefly discussed below. Regarding costing, Limperg was highly critical of marginal cost approaches to decision making (Limperg 1950) as he believed that these brought the risk of suboptimal decision making from the point of view of society as a whole. Pricing on the basis of marginal cost gave the wrong signal about the true necessary cost of producing goods at the optimum implied by the “law of continuity,” and it might erode a firm’s earning capacity necessary to continue producing at that optimum. Schmalenbach in particular was singled out for sometimes strongly worded criticism on this point (Limperg 1968: 565). But it is true as well that J. M. Clark’s Studies in the Economics of Overhead Costs (1923) became required reading in Amsterdam at least as early as 1927 and remained so until 1952.11 The oral tradition has it that Limperg included such books in the curriculum only to criticize them in class; indeed, it seems hard to connect the idea of “different costs for different purposes” with the “true cost” approach of Limperg. Yet he seems to have had a genuine appreciation for the method if not the conclusions of Clark, whom, on one occasion, he credited with being one of the few “Americans who can be considered as business economists” (Limperg 1968: 123).

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Limperg’s views of fi nancial accounting centered on the income statement, but this should not be confused with a historical cost-based “income statement approach” based on allocating historical costs on the basis of the matching principle. Limperg saw the economic significance of the income statement as an instrument to determine distributable profits (Limperg 1965a, 283–284). Profits that were calculated on the basis of the replacement value of the resources consumed could be safely distributed, as they again left the fi rm with sufficient resources to replace depleted assets, and thus to continue producing at the scale that was optimal for itself and for society. Whether assets (fi xed assets, inventories) on the balance sheet were actually valued at replacement value was not, so it seems, an essential issue to Limperg, although he certainly recognized the possibility of doing so. But for practical purposes, it would suffice if, for instance, depreciation was increased to the level of replacement value, with a corresponding increase in non-distributable reserves. With his insistence on the primacy of income determination, it might be argued that Limperg adhered to a “dynamic” balance sheet view, but he would have been among the fi rst to disclaim any dependence on Schmalenbach. Whereas Schmalenbach (1933: 80–81) would deny the possibility of a theoretically sound “dualistic” conception of the balance sheet, Limperg would maintain that on the basis of his theory, there need be no tension between a correct representation of capital and a correct determination of profit.12 Nevertheless, it was natural to notice that there were considerable similarities between German work in this area, notably by Schmidt, and that of Limperg (see Clarke and Dean 1990). As I have argued elsewhere (Camfferman 1994), the German Scheingewinne literature was not introduced in the Netherlands by Limperg, but in the circle of professional bookkeeping instruction. During the 1920s, the network of professional training courses set up around the 1864 national bookkeeping qualification (see second section) was still quite vibrant and processing more candidates than ever. It was in this context that developments in German inflation accounting during the 1920s and 1930s were introduced and quite keenly followed in the Netherlands and had a considerable influence on accounting education and research, quite apart from the influence of Limperg. Limperg and his students acknowledged the practical usefulness of German work on inflation accounting, but criticized it as insufficiently grounded in economic theory or, in brief, for being Kunstlehre rather than business economics (Limperg 1968: 124; van der Schroeff 1939: 11). This was not just the view of Limperg: A similar approach is observable in the (early) work of Polak, where issues of balance sheet valuation are treated as problems of theoretical economics and where the work of Schmidt is praised for its practical relevance but criticized for the absence of a strong link between its premises and economic theory (Polak 1924). But, looking back from the present, the thought naturally arises that Limperg and his followers overstated their

144 Kees Camfferman case when they stressed the differences between his own work and that of Schmidt. Not only was there a general correspondence in terms of practical consequences, but there was also a certain resemblance in the way both Limperg and Schmidt sought to base their work on a more general theory of the place of business enterprises in the economy as a whole.

SUCCESSES, LIMITATIONS, AND THE FADING AWAY OF BUSINESS ECONOMICS Limperg was not without his critics in the Netherlands. As indicated earlier, a more pragmatic strand of business studies continued to flourish next to Limperg’s more narrowly focused, economics-based programme (see Brands 1948). Volmer, mentioned previously as Limperg’s mentor and the fi rst professor in the field, was remembered for his flexibility in making business economics subservient to the requirements of business practice (Polak 1934). Volmer’s successor in Delft, J. Goudriaan, was of a similar opinion. In 1927, he defi ned bedrijfsleer pragmatically as the “doctrine of how best to manage a business” and warned that its sound development was threatened by “theoreticians.” These “are hardly heard in America, but in Germany they still have considerable influence.” These allegedly argued for a limited and unified conception of business economics, in which the selection of problems for study was not guided by the concerns of practice (Goudriaan 1932). Although Goudriaan did not mention any Dutch colleagues, it is clear that he intended to be critical of similar developments in the Netherlands. Nevertheless, the conception of business economics as a branch of economics, focused on problems of optimization and choice, gained considerable currency, and not only among Limperg’s adherents.13 Limperg’s views on replacement value became a standard part of both university curricula and professional training programs during the 1940s and 1950s. The NIvA’s standing in the country continued to increase, culminating in its legal recognition in the 1960s as the sole organization of auditors entitled to do legal audits. It continued to set the standard for auditor education, and, while not alone, Limperg ranked among the most influential NIvA members in the years following World War II (Schoonderbeek et al. 1995: 14–16). Equally important, these ideas gained a degree of acceptance in business practice. After World War II, the application of replacement value accounting in the fi nancial statements of the Philips group served as evidence, both in the Netherlands and abroad, that this was no mere theory, but relevant and practicable for modern enterprises. Repeated attempts to obtain recognition of replacement value accounting by the tax authorities failed, but when new legislation for company fi nancial reporting was discussed during the 1960s, it was widely recognized that the insights from business economics should be allowed to guide companies’ reporting practices. There

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had never been any legal impediments to use replacement value accounting in fi nancial reporting practice. When new legislation on fi nancial reporting was enacted in 1970, the government made it quite clear that, while it did not prescribe replacement value accounting, it certainly did not wish to discourage it (Zeff et al. 1992: 183). However, during the 1950s and 1960s, replacement value accounting also came under increasingly close scrutiny by academic business economists, who pointed out serious shortcomings in the theory. While Limperg’s student and successor in Amsterdam, H. J. van der Schroeff, by and large continued in Limperg’s line until around 1970, academics at other universities noted that the theory did not properly distinguish between determination of profit and financing decisions: Whether profit was “distributable” was perhaps not so much an accounting issue as a matter of the availability of alternative sources of finance. Another problem was that, on closer inspection, the notion of “replacement” turned out to be indeterminate: Technological development and rapidly changing markets made it ever less common for fixed assets to be replaced by identical assets. While in theory the objective of “continuity” might be redefined in terms of “maintaining a constant future income stream,” this opened up the question of whether all of a firm’s current strategic alternatives should be considered when thinking about “replacement” of assets, something obviously not feasible in practice.14 The significance of these theoretical problems was obscured for some time by the fact that replacement value accounting continued to flourish in practice. During the 1970s, as international attention for inflation accounting reached its peak, the NIvRA15 actively advocated “current cost accounting” as a superior alternative to “price-level accounting.” By this time, however, replacement value accounting was essentially offered as a “stand-alone” solution to a practical problem, not as part of a comprehensive package of normative-deductive business economics. A degree of practical recognition was again obtained when, in 1978, an essentially Limpergian form of replacement value accounting was included as an option in the Fourth Directive at the insistence of the Dutch. By the 1980s, however, when interest in inflation accounting waned, interest in economics-based theories of accounting was rapidly disappearing altogether in the Netherlands. Apart from the earlier recognition of shortcomings in Limperg’s theory, other important factors made themselves felt. A key factor was the defi nitive shift of attention among Dutch business economists, and indeed among Dutch academics in general, from Germany to the United States (Rupp 1997). Interest in the United States had already existed before World War II, and Limperg had taken a lengthy study trip there in 1929. But following the war, the shift became much more pronounced. Ironically, after the war, the German debate on Kunstlehre oder Wissenschaft was settled, under the influence of Gutenberg, in favor of a more formal, microeconomic approach (Gutenberg 1957; see also Albach 1991; Lücke 1997; Dietz 1997). While this was noted in

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the Netherlands by some academics who saw it as a vindication of earlier Dutch developments (Geertman 1955: 168; van der Schroeff 1970: 6), the German literature had little influence on the postwar development of accounting thought in the Netherlands. The shift to the American literature had several consequences for the loosening of the traditional link between accounting and business economics. At its most general, it encouraged a more fragmentary approach in which areas like organization, marketing, fi nance, and accounting became separate and largely unrelated disciplines, each no longer bound to an underlying theory of the fi rm, and each free to draw to varying degrees on other disciplines such as law or psychology. This tendency was reinforced by increasing academic specialization: Postwar growth in student numbers implied that instead of one or two professors of “business economics,” a far greater number of specialists could be appointed. By the 1990s, it could be said that “bedrijfseconomie is a label of the professional education in business administration containing a relatively heavy curricular load of fi nancial and management accounting” (Bouma and Feenstra, 1997: 188; see also van Baalen and Karsten, 2002). For accounting, this implied that new issues became relevant that had not traditionally been considered as part of the discipline. It has been argued, for instance, that traditionally, Dutch business economists tended to reduce management accounting strictly to cost accounting, in particular cost allocation and inventory valuation. In this way, they made it subservient to the requirements of fi nancial accounting to the detriment of more decision-oriented forms of management accounting (Bouma 1991). Those who thought outside this mould, like Goudriaan, were already active before the war in promoting the idea of budgeting, inspired in particular by Charter Harrison (1921). Apparently, the huge success of a budgeting system designed by Goudriaan around 1930 for the electronics fi rm Philips created a great interest in budgeting and standard costing. According to Geertman (1955), auditors in particular were active in spreading these American ideas. Following the war, interest in issues of management control continued to grow, and the managerial approach of Charles Horngren’s Cost Accounting (1962) became a key point-of-reference in Dutch universities. A broader outlook also became notable in fi nancial accounting as issues of fi nancial reporting were brought within the scope of academic study. The idea that fi nancial statements might play a role in investment decisions had remained underdeveloped in Limpergian business economics, to put it mildly, and any discussions on this point had been mainly restricted to the issue of secret reserves. But, from the 1950s onward, developing criteria of good fi nancial reporting became a serious issue, both in practice and at the universities. Over time, U.S. accounting standards became the standard point of departure for any discussions of fi nancial reporting issues. As argued earlier, the Dutch accountancy profession had been very important in fi rst defi ning and then upholding a link between accountancy

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and business economics. However, from the 1980s onward, the internationalization of the large audit fi rms made it ever less relevant to them to maintain a distinct national approach to accounting, or indeed to auditing. Tentative steps to forge links with audit fi rms abroad were already taken in the 1950s, but it really was the formation of KMG in 1979, and of KPMG in 1986, which signaled that the center of gravity of the leading audit fi rms was shifting from the national to the international level. Although it did not happen overnight, the consequence was that the NIvRA became less and less important as a platform for new thinking on accounting and auditing issues. The link between the accountancy profession and the universities was maintained, in the sense that a large proportion of auditors is still being trained in the postgraduate professional programs established at several universities. These programs are, as they used to be, to a large extent staffed by part-time faculty seconded from the main audit firms. However, these programs have tended to drift further apart from the graduate and undergraduate programs, as for the latter promotion and tenure criteria have increasingly been based on international research publications. This has tended to weaken the many personal links that existed between the accountancy profession and the academic world.

CONCLUDING REMARKS This chapter has outlined how, over the course of the twentieth century, a conceptualization of accounting as part of business economics came into being in the Netherlands and also gradually disappeared again. This conceptualization was not wholly original to the Netherlands, and, as indicated in this chapter, it came about under significant German influence. Nevertheless, some distinguishing characteristics may be noted as a brief appreciation. As this chapter has done little more than provide an introduction to the topic, a full evaluation is beyond its scope (see Klaassen and Schreuder 1984; Bouma and Feenstra 1997 for more extensive evaluations of the contributions of business economics to accounting). In a comparative sense, the most important observation is arguably that the link between academic business economics and the accountancy profession appears to have been stronger in the Netherlands than in Germany, in terms of both personal relations and the internalization of the concepts of business economics by practicing auditors. This meant in particular that replacement value accounting acquired a far greater acceptance in practice than could ever have been the case in Germany. Moreover, their training in the business economics tradition encouraged Dutch practicing auditors to consider fi nancial reporting quite independently of any applicable legal requirements. This difference was noticed, for instance, within the International Accounting Standards Committee formed in 1973: The Dutch

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delegation was generally regarded as having a rather different outlook on accounting issues compared with the delegations from other Continental European countries and to be more attuned to the conceptualization of accounting in the English-speaking world (Camfferman 2009). It would be a bit too simple to credit this directly to Limpergian business economics, which after all did have its more insular and narrow-minded side. Nevertheless, it seems reasonable to assume that on the positive side it also encouraged accounting thought that was not constrained by current practice or regulations. Whereas there is no reason to regret that academics and professionals have moved on from some of the more dogmatic formulations of the 1920s and 1930s, one cannot help feeling that more recently something has been lost as the teaching and practice of fi nancial accounting have become increasingly rule-based. One also cannot help but notice that the International Accounting Standards Board continues to wrestle with basic issues, such as the nature of net income, that would have been quite familiar to past generations of academic business economists, but that do not typically generate research output that is ranked highly in the current academic environment (see Khalifa and Quattrone 2008).

NOTES 1. With respect to terminology, the Dutch literature since the late nineteenth century has developed in close correspondence with that in Germany. From the general body of knowledge assumed to form the basis of commercial education, and referred to as handelswetenschappen (Handelswissenschaften), a more limited discipline emerged referred to as bedrijfsleer (Betriebslehre). Those who argued that this discipline was in fact a part of economics gradually came to prefer the name of bedrijfshuishoudkunde (Betriebswirtschaftslehre), huishoudkunde, or “housekeeping” simply being a purist expression for “economy” or “economics.” In this way, bedrijfshuishoudkunde, “business economy,” was presented as the twin sister of staathuishoudkunde or “political economy.” Gradually the somewhat artificial huishoudkunde was replaced by economie, resulting, without change of meaning, in bedrijfseconomie. Bedrijfsleer continued in use through the interwar period but has since fallen in abeyance. Approximately since the 1960s, it has reemerged as bedrijfskunde, which indicates a multidisciplinary, applied approach to the study of business, frequently seen as an equivalent of “business administration” as used in the United States. Bedrijfskunde is also used in a more specific sense of the application of technical studies to business issues, in which sense it is known in Germany as Betriebswissenschaft. 2. See Klaassen and Schreuder (1984) and Bouma and Feenstra (1997) for English-language introductions to the topic of accounting and business economics in the Netherlands. See Perridon (1974) for an introduction in German. See Camfferman and Zeff (1994) for an introduction to Limperg and for further references. 3. Limperg’s statement at this congress was later sometimes cited as an example of his far-sightedness in the matter of academic business economics (e.g., Limperg 1947; van der Wal 1979), but may subsequently have been attributed more significance than it had at the time. It was not mentioned in the

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4. 5. 6. 7. 8. 9. 10.

11. 12.

13. 14. 15.

149

report of the Dutch government’s representatives (Bos and Tjeenk Willink 1910) and characterized as “inept” by another Dutch delegate (Blink 1913; cf. Limperg 1913). Maandblad voor Handelsonderwijs en Handelswetenschappen, April 1911, 85. The Vereniging van Academisch Gevormde Accountants (VAGA). Quite similar views subsequently were expressed by Tilburg professor M. J. H. Cobbenhagen (1932). See Schanz (2004) for a brief review of this methodological debate. The international reputation of Gerard Heymans (1857–1930) rests mainly on his work in empirical psychology, but he also published on the general philosophy of science (1894) and the methodology of economics (1880). See Schneider (2001: 230) for an early instance of this distinction. It can be found in the introductory chapters of many current German-language textbooks on Betriebswirtschaftslehre. Thus, Limperg (1950: 8) wrote, “In the United States, as in England . . . the kunstleer of business fi nds many able practitioners, but the yeast of economic theory penetrates with difficulty as, likewise, that kunstleer is incapable of arousing the interest of the economic theorists.” As shown in the reading lists printed in the various editions of the Faculty’s almanac or Jaarboekje. See Kleerekoper (1934: 242) for the view that Limperg’s approach might justifiably be called “dynamic,” but that they should nevertheless not be identified with Schmalenbach’s views. S. Kleerekoper, one of Limperg’s students, gave a more extensive critique of Schmalenbach’s views on the nature of the balance sheet and of income in Kleerekoper (1956: 51–66). It may be noted that Polak (1924), while sympathetic to Schmalenbach’s emphasis on the income statement, rejected the “static/dynamic” terminology of Schmalenbach, preferring instead the traditional distinction between a “capital balance sheet” (vermogensbalans, German: Vermögensbilanz) and an “income balance sheet” (winst(verdelings)balans, German: Gewinnermittlungsbilanz). See, for instance, Thierry (1947) and Scheffer et al. (1966). Important critical discussions of the Limpergian profit concept include van Muiswinkel (1958), Meij (1960), Bouma (1966), and Burgert (1967). See Burgert (1972) for a discussion in English. In 1967, the NIvA and two smaller organizations merged into the NIvRA, which became the officially recognized organization of auditors entitled to perform legal audits. Since 2009, the NIvRA is in a process of merger with the last remaining “second-tier” organization of accountants in the Netherlands to form an organization known as Nederlandse Beroepsorganisatie van Accountants (NBA).

REFERENCES

Primary Sources Contributions to bedrijfseconomie by Dutch Authors Bouma, J. L. 1966. Ondernemingsdoel en winst: een confrontatie van enkele theorieën van het ondernemingsgedrag. Leiden: Stenfert Kroese. Burgert, R. 1967. “Bedrijfseconomisch aanvaardbare grondslagen voor de gepubliceerde jaarrekening.” De Accountant 74(Suppl.): 153–192.

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Burgert, R. 1972. “Reservations about ‘Replacement Value’ Accounting in the Netherlands.” Abacus 8(2): 111–126. Cobbenhagen, M. J. H. 1932. “De bedrijfshuishoudkunde als wetenschappelijk studievak, haar object en grondbegrippen.” Maandblad voor het Boekhouden en Aanverwante Vakken 38(450): 121–129. Kleerekoper, S. 1934. Bedrijfseconomie. Amsterdam: Arbeiderspers. Kleerekoper, S. 1956. Vergelijkend Leerboek der Bedrijfseconomie (Vol. II). Groningen: Noordhoff. Limperg, T. 1922. “Eenige beschouwingen over kostprijs en prijsvorming als bedrijfshuishoudkundig probleem.” In Bedrijfseconomische Studiën. Haarlem: Bohn, pp. 179–205. Limperg, T. 1924. “De beteekenis der bedrijfshuishoudkunde voor den accountant.” Maandblad voor Accountancy en Bedrijfshuishoudkunde 1(9): 161–164. Limperg, T. 1946. “Het object der bedrijfshuishoudkunde.” Maandblad voor Accountancy en Bedrijfshuishoudkunde 20(8): 231–241. Limperg, T. 1950. De gevaren van de leer der marginale kostprijs-calculatie. Purmerend: Muusses. Limperg, T. 1964. Bedrijfseconomie (Vol. I). Algemene Inleiding tot de Bedrijfshuishoudkunde en de Leer van de Waarde. Deventer: Kluwer. Limperg, T. 1965a. Bedrijfseconomie (Vol. IV). Leer van de Externe Organisatie. Deventer: Kluwer. Limperg, T. 1965b. Bedrijfseconomie (Vol. VI). Leer van de Accountantscontrole en van de Winstbepaling. Deventer: Kluwer. Limperg, T. 1968. Bedrijfseconomie (Vol. II). Leer van de Kostprijs. Deventer: Kluwer. Meij, J. L. 1960. “Moeilijkheden met de vervangingswaardetheorie.” Maandblad voor Accountancy en Bedrijfshuishoudkunde 34(6). Polak, N. J. 1922. Het huidig stadium en de naaste taak der bedrijfsleer. Inaugural lecture, Nederlandsche Handels-Hoogeschool, January 17, 1922. Polak, N. J. 1924. “Waarderings—en balansproblem en.” De Economist 73: 683– 699, 787–797. Thierry, H. 1947. Algemene economie en bedrijfseconomie. Arnhem: van der Wiel. Scheffer, C. F. (Ed.). 1966. Kernproblemen der bedrijfseconomie. Amsterdam/ Brussels: Agon/Elsevier. van Muiswinkel, F. L. 1958. “Schoonheidsgebreken in de vervangingswaardeleer.” Maandblad voor Accountancy en Bedrijfshuishoudkunde 32(11).

Contemporary Materials on the Development of bedrijfseconomie and Related Institutions Blink, H. 1913. “Een Handels-Hoogeschool te Rotterdam.” Maandblad voor Handelsonderwijs en Handelswetenschappen 13: 90–101. Bos, D., and Tjeenk Willink, P. 1910. “Verslag van het Congres voor Handelsonderwijs.” Maandblad voor Handelsonderwijs en Handelswetenschappen 10: 250–264. Bossevain, W. 1919. “Inleiding.” In Gedenkboek 50-Jarig Bestaan Openbare Handelsschool Te Amsterdam 1869–1919. Amsterdam: Hollandsche UitgeversMaatschappij “Amsterdam,” pp. 9–12. Bouman, J., Jr. (1908). “Onze eerste professor.” Maandblad voor Handelsonderwijs en Handelswetenschappen 8: 218. Brands, J. 1948. “Amsterdamsche school der bedrijfseconomie contra Rotterdamsche school?” In Weerspiegelde Gedachten, Opstellen Aangeboden Aan Prof. Dr N.J. Polak, ed. G. Huysmans. Haarlem: Bohn, pp. 27–32.

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Geertman, J. A. 1955. “Ontwikkeling en stand der bedrijfseconomie in Nederland.” Economica-Documentatie 4: 151–173. Goudriaan, J. 1932. “De ontwikkeling van de bedrijfsleer als toegepaste wetenschap.” In Bedrijfseconomische Studiën. Haarlem: Bohn, pp. 534–554. Handelingen der Commissie benoemd door de Nationale Vereeniging voor Handelsonderwijs tot het samenstellen eener Schets van Lessen welke aan een Nederlandsche Handelshoogeschool kunnen gegeven worden. 1904. Nationale Vereeniging van Handelsonderwijs. Kreukniet, W. 1898. Handelsonderwijs. Rotterdam: Delwel. Limperg, T. 1913. “Hooger of Voortgezet Handelsonderwijs voor de Koopman?” Maandblad voor Handelsonderwijs en Handelswetenschappen 13: 137–138. Limperg, T. 1919. “Universitair Handelsonderwijs.” In Gedenkboek 50-Jarig Bestaan Openbare Handelsschool te Amsterdam: 1869–1919, ed. W. Boissevain. Amsterdam: Hollandsche Uitgevers Maatschappij “Amsterdam,” pp. 38–41. Limperg, T. 1947. “De Faculteit der Economische Wetenschappen der Universiteit van Amsterdam.” Speech at the occasion of the 25th anniversary of the Faculty of Economics of the University of Amsterdam. Perridon, L. 1974. “Betriebswirtschaftslehre im Niederländischen Raum.” In Handwörterbuch der Betriebswirtschaft (4th ed.), ed. E. Grochla and W. Wittmann. Stuttgart: Poeschel Verlag, pp. 768–772. Polak, N. J. 1934. “Volmers beteekenis voor de bedrijfsleer.” In Van Boekhouden Tot Bedrijfsleer, ed. N. J. Polak. Wassenaar: Delwel, pp. 9–16. Posthumus, N. W. 1932. “De Faculteit der Handelswetenschappen.” In Gedenkboek van het Atheneum en de Universiteit van Amsterdam, ed. H. Brugmans, J. H. Scholte, and P. Kleintjes. Amsterdam: Stadsdrukkerij, pp. 351–364. Sleumer, W. 1938. Het economisch onderwijs maatschappelijk beschouwd. Unpublished doctoral dissertation, Universiteit van Amsterdam. van der Schroeff, H. J. 1939. “Limperg’s beteekenis voor de bedrijfseconomie.” In Bedrijfseconomische Opstellen, ed. M. Behrens, S. Kleerekoper, and C. L. Spits. Groningen: Noordhoff, pp. 1–16. van der Schroeff, H. J. 1970. Verleden, heden en toekomst van de bedrijfseconomie. Valedictory lecture, University of Amsterdam.

Other References Albach, H. 1990. “Business Administration: History in German-Speaking Countries” (Vol. I). In Handbook of German Business Management, ed. E. Grochla. Stuttgart/Berlin: Poeschel/Springer, pp. 247–270. Albach, H. 1991. “Editorial.” In Meilensteine der Betriebswirtschaftslehre, 60 Jahre Zeitschrift für Betriebswirtschaft (ZfB Ergänzungsheft 2/91). Wiesbaden: Gabler, pp. vii–xiv. Bindenga, A. J. 1990. “De Rotterdamse School.” De Accountant 96: 578–587. Bouma, J. L. 1991. “Management accounting na Limperg: de ontwikkeling in de theorie.” In Limperg Dag 1991. Rotterdam: Stichting Moret Fonds, pp. 7–25. Bouma, J. L., and Feenstra, D. W. 1997. “Accounting and Business Economics Traditions in the Netherlands.” The European Accounting Review 6(2): 175–197. Brands, J. 1963. Een halve eeuw bedrijfseconomie 1913–1963. Rotterdam: Nederlandsche Economische Hoogeschool. Büsse von Colbe, W. 1996. “Accounting and Business Economics Traditions in Germany.” The European Accounting Review 5(3): 413–434. Camfferman, K. 1994. “Schmidt, Limperg and the Dissemination of Current Cost Accounting in the Netherlands.” The International Journal of Accounting 29(4): 251–264.

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Camfferman, K. 1998. “Perceptions of the Royal Mail Case in the Netherlands.” Accounting and Business Research 29(1): 43–55. Camfferman, K. 2009 . “Het Nederlandse IASC-lidmaatschap in de periode 1973– 2000.” Maandblad voor Accountancy en Bedrijfseconomie 83(1/2): 5–17. Camfferman, K., and Zeff, S. A. 1994. “The contributions of Theodore Limperg jr (1879–1961) to Dutch accounting and auditing.” In Twentieth-century accounting thinkers, ed. J. Edwards. London and New York: Routledge, pp. 112–141. Clark, J. M. 1923. Studies in the economics of overhead costs. Chicago: The University of Chicago Press. Clarke, F. L., and Dean, G. W. 1990. Contributions of Limperg and Schmidt to the replacement cost debate in the 1920s. New York/London: Garland. de Vries, J. 1985. Geschiedenis der Accountancy in Nederland, Aanvang en ontplooiing 1895–1935. Assen/Maastricht: Van Gorcum. Dietz, A. 1997. “Reflexionen über die ‘Grundlagen der Betriebswirtschaftslehre’ anläßlich des hundertsten Geburtstages von Erich Gutenberg.” Zeitschrift fürBetriebswirtschaftliche Forschung 49(12): 1066–1083. Gutenberg, E. 1957. “Betriebswirtschaftslehre als Wissenschaft.” Zeitschrift für Betriebswirtschaft 27: 606–612. Harrison, G.C. 1921. Cost accounting to aid production. New York: The Engineering Magazine Company. Heymans, G. 1880. Karakter en methode der staathuishoudkunde. Leiden: Van Doesburgh. Heymans, G. 1894. Die Gesetze und Elemente des Wissenschaftlichen Denkens. Leiden: Van Doesburgh. Horngren, C.T. 1962. Cost Accounting. Englewood Cliffs, N.J: Prentice-Hall. Isaac, A. 1923. Die Entwicklung der wissenschaftlichen Betriebswirtschaftslehre in Deutschland seit 1898. Berlin: Industrieverlag Spaeth & Linde. James, E. J. 1893. Education of business men in Europe. New York: American Bankers’ Association. Khalifa, R., and P. Quattrone. 2008. “The governance of accounting academia: issues for a debate”. European Accounting Review 17(1): 65–86. Klaassen, J., and Schreuder, H. 1984. “Accounting research in the Netherlands.” In European Contributions to Accounting Research, ed. A. G. Hopwood and H. Schreuder. Amsterdam: VU Uitgeverij, pp. 113–131. Klant, J. J. 1979. “Grandeur en zwakte van een systeem.” In Refl ecties op Limperg: Opstellen over ontwikkelingen in onderneming, bedrijfseconomie en accountancy sinds de dertiger jaren, ed. J. W. Schoonderbeek and G. G. M. Bak. Deventer: Kluwer, pp. 33–42. Leitherer, E. 1947. “Dogmengeschichte der Betriebswirtschaftslehre.” In Handwörterbuch der Betriebswirtschaft (4th ed.), ed. E. Grochla and W. Wittmann. Stuttgart: Poeschel Verlag, pp. 694–710. Lücke, W. 1997. “Die prägende Wirkung der Lehre Gutenbergs für die Entwicklung der Betriebswirtschaftslehre.” Zeitschrift für Betriebswirtschaft 67(12): 1245–1256. Muysken, J., and Schreuder, H. 1985. “Economische wetenschappen: eenheid in verscheidenheid?” In Economische wetenschappen: eenheid in verscheidenheid?, ed. J Muysken and H. Schreuder. Assen/Maastricht: Van Gorcum, 1–47. Nicklisch, H. 1912. Allgemeine kaufmännische Betriebslehre als Privatwirtschaftslehre des Handels. Leipzig. Osbahr, W. 1918. Die Bilanz vom Standpunkt der Unternehmung. Berlin: Max Paschke. Rupp, J. C. C. 1997. Van oude en nieuwe universiteiten. Den Haag: SDU. Schanz, G. 2004. “Wissenschaftsprogramme der Betriebswirtschaftslehre.” In Allgemeine Betriebswirtschaftslehre, Band 1 Grundlagen (9th ed.), ed. F.

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X. Bea, B. Friedl, and M. Schweitzer. Stuttgart: Lucius & Lucius Verlag, pp. 83–164. Schmalenbach, E. 1912. “Die Privatwirtschaftslehre als Kunstlehre.” Zeitschrift für handelswissentschaftliche Forschung 6: 304–316. Schmalenbach, E. 1933. Dynamische Bilanz (6th ed.). Leipzig: Gloeckner. Schmidt, F. 1929. Die organische Tageswertbilanz (3rd ed.). Leipzig: Gloeckner. Schneider, D. 2001. Betriebswirtschaftslehre, Band 4, Geschichte und Methoden der Wirtschaftswissenschaft. München/Wien: Oldenbourg. Schoonderbeek, J. W., de Hen, P. E., and Berendsen, J. G. 1995. Hoofdstukken uit de geschiedenis van het Nederlandse accountantsberoep na 1935. Assen: Van Gorcum. Schreuder, H. 1985. “Economie (en) bedrijven.” In Economische Wetenschappen: Eenheid in verscheidenheid, ed. J. Muysken and H. Schreuder. Assen/Maastricht: Van Gorcum, pp. 199–223. Titze, H. 1989. “Hochschulen.” In Handbuch der Deutschen Bildungsgeschichte, D. Langewiesche and H.-E. Tenorth. München: Verlag C. H. Beck, pp. 209–258. Titze, H. 1995. Datenhandbuch zur deutschen Bildungsgeschichte, Band I: Hochschulen, 2. Teil: Wachstum und Differenzierung der deutschen Universitäten. Göttingen: Vandenhoeck & Ruprecht. Trompert, K. 1988. Een Amsterdamse Lente: Honderd Jaar Limperg 1879–1979. Delft: Eburon. van Baalen, P., and Karsten, L. 2002. “Interdisciplinariteit, professies en Amerikanisering: een geschiedenis van het ontstaan van de Nederlandse bedrijfskunde.” NEHA-Jaarboek voor economische, bedrijfs- en techniekgeschiedenis 65: 256–304. van der Wal, R. W. 1979. “Limperg en Hou’ en Trouw.” In Herinneringen Aan Limperg, ed. G. G. M. Bak and J. W. Schoonderbeek. Amsterdam: Limperg Instituut, pp. 37–39. van Rossum, W. 1979. Wetenschappelijke ontwikkeling als een sociologisch probleem met speciale aandacht voor ontwikkelingen in de Nederlandse bedrijfseconomie. Unpublished doctoral dissertation, Universiteit van Amsterdam. van Stuijvenberg, J. H. 1963. De Nederlandsche Economische Hoogeschool 1913– 1963. Rotterdam: Nijgh & van Ditmar. Weyermann, M. R. 1913. Das Verhältnis der Privatwirtschaftslehre zur Nationalökonomie. Inaugural lecture, Bern. Weyermann, M. R., and Schönitz, H. 1912. Grundlegung und Systematik einer wissenschaftlichen Privatwirtschaftslehre und ihre Pfl ege an Universitäten und Fach-Hochschulen. Karlsruhe: Braun. Zeff, S. A., van der Wel, F., and Camfferman, K. 1992. Company Financial Reporting: A Historical and Comparative Study of the Dutch Regulatory Process. Amsterdam: North-Holland.

6

Development of Accounting and Business Economics in Finland From a Practical Discipline to a Scientific Subject and Field of Research Salme Näsi and Juha Näsi

INTRODUCTION The purpose of this chapter is to shed light on the development of accounting as an academic discipline and as a part of business economics and business school education in Finland during the twentieth century. The main focus is on the development of accounting as an art and doctrine and as a field of research. Special attention is paid to the nature and historical foundations of accounting as a discipline, particularly to its relationship to business economics education. A mainly chronological order will be followed, starting from the turn of the twentieth century and advancing to the beginning of the twenty-fi rst century. The most recent developments are not covered in this chapter for several reasons, one of the most important being the current radical changes occurring in the field of higher education in Finland, like in many other Organisation for Economic Cooperation and Development (OECD) countries. These developments would merit another chapter. This chapter has a more historical perspective. It represents historical study and uses historical methodology. In Finland, the “umbrella” term “business economics” (in Finnish liiketalous, liiketaloustiede) is used to refer to business disciplines in their entirety traditionally comprising accounting and finance, marketing and management, and organisation. This concept has been used since the 1920s and is equivalent to the American expression “business administration.” Only more recently have some alternative terms been adopted as synonyms or to replace the term business economics. Terms such as commercial sciences (in Finnish kauppatieteet) and business competence (in Finnish liiketoimintaosaaminen) are today often used to refer the whole field of business economics (on the terminology problem, see Näsi and Neilimo 2008: 247–252). A variety of historical documents are used in this study: business economics and accounting literature, research studies and academic textbooks, accounting articles in professional journals, study guides for business economics programmes, and studies on the history of business economics in Finland. Special attention has been paid to doctoral education and dissertations. Finland is a small country, where the field of business economics

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has been and continues to be dominated by Finnish scholars educated in the Finnish Business Schools or universities, forming a small identified society. Unlike in many other countries, in Finland, through the decades doctoral theses have played an important role in the business disciplines, partly because they have been considered as one of the most noteworthy landmarks in an individual’s scientific publications and career. All the doctoral dissertations in Finland are publicly available. Traditionally they were printed and published as books. Since around 2000, doctoral dissertations in most Finnish universities have been published in electronic form and are available on the internet through the university libraries’ electronic collections. Doctoral dissertation production serves to mirror the key interest areas and foci in the field of business economics through the ages. This chapter is a qualitative and historical study. Based on historical documents, it tries to produce as comprehensive a picture as possible of the theme examined i.e., of the development of accounting and business economics in Finland as an academic subject from the beginning of the business education to the end of the twentieth century.

THE BIRTH AND DEVELOPMENT OF HIGHER BUSINESS EDUCATION IN FINLAND Finland was annexed by Imperial Russia in 1809, and until 1917 it was an autonomous Grand Duchy within the Russian Empire. During this period of autonomy, Finland was a rather underdeveloped country, being essentially an agrarian society. Most people lived in the countryside and produced and consumed all they needed themselves. Clothing, footwear, farming tools, sleds, and carts were all home-made. However, broadcloth and cotton factories, engineering works, and paper factories were established with technical innovations such as steam engines from the 1840s onward. The 1860s and 1870s were a period of rapid advance in the Finnish economy and industrial development. Improved conditions for businesses were created by various services. For example, banking, insurance, post, and telegraph services all developed considerably. The fi rst railway arrived in 1862. Industrial development in Finland during the second half of the nineteenth century was so significant that the period from 1860 to 1917 (the year of independence) has been called the fi rst period of Finnish industrialization. This period represented the true beginning of industrialization, urbanization, and diversification of the economy. Compared with 1820, Finland was a different country by 1920. The population had grown from 1.2 million to 3.15 million. The share of the population earning its living from trade and industry in 1820 was only 4%. One hundred years later, 13% of the population earned a living from industry, crafts, and construction and 10% from trade and services (see Jauri 1948: 14–51; Virrankoski 1975: 93–191; Rasila 1982: 13–32).

156 Salme Näsi and Juha Näsi By the turn of the twentieth century, about half a dozen commercial schools and institutes existed in Finland, the first of which was founded in 1839 in Turku. The first bilingual (Finnish and Swedish) school of commerce was founded in 1864 in Oulu. However, educated and upper class people, for example, business proprietors, were mostly Swedish-speaking in nineteenth-century Finland. The diversification and expansion of trade and industry throughout the country during the second half of the nineteenth century created a need to improve education among the Finnish-speaking population. The last decades of the century, and the 1890s in particular, saw a strong awakening of national identity among people who spoke Finnish. Finnish elementary and secondary school education gained a foothold, and the idea of starting postsecondary Finnish education in business also gained acceptance. At the end of the nineteenth century, trade and industry, transport, banking, and insurance had reached such a high level that the successful practice of business called for a better understanding and knowledge of commercial and economic issues. The need and opportunities for higher business education were investigated by two committees, the fi rst in 1889 and the second in 1898. However, it was the Suomen Liikemies-Yhdistys (the Association of Finnish Businessmen) that launched the business school project. Partly as a result of its Finnish nationalist beliefs, the Suomen Liikemies-Yhdistys established its own business college in 1898, naming it the Suomen Liikemiesten Kauppaopisto (the Commercial College of Finnish Businessmen). Part of this was detached in 1911 to become the fi rst university-level business school in Finland. The name of this school was the Kauppakorkeakoulu, a direct translation of the German term Handelshochschule. The German Business School concept was adopted in all the Nordic countries, including Finland, during the fi rst decades of the nineteenth century (see Näsi and Rohde 2007). At that time, the name of the school was translated misleadingly into English as “School of Economics.” Later the same school was called Helsingin kauppakorkeakoulu in Finnish and in English the “Helsinki School of Economics and Business Administration” (terminology and translation problems in management education are discussed in Engwall and Gunnarsson 1994: 13–32). Today this school is part of the Aalto University in Helsinki.1 Some disagreement transpired on the necessity of having a postsecondary business school in Finland at the beginning of the twentieth century. The school’s first annual report refers to the view that a postsecondary college in such a small country was merely a manifestation of national vanity and an unnecessary luxury (see The Annual Report of the School of Economics 1911–1912: 6). Nevertheless, the year 1911 is, due to the start of higher business education, a justifiable starting point for looking at the history of business economics and accounting as a scientific discipline in Finland. The next two postsecondary business schools, both teaching in Swedish, were established in 1927. The Svenska Handelshögskolan (the Swedish School of Economics) originated from the Högre Svenska

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Handelsläroverket, which was founded in 1909 in Helsinki. The Handelshögskolan vid Åbo Akademi (the School of Economics, Åbo Academy) was founded in Turku (the city is called Turku in Finnish and Åbo in Swedish). All other schools for business economics were established after World War II. In 1950, the Turun kauppakorkeakoulu (the Turku School of Economics2) was founded, while the 1960s brought the Vaasan kauppakorkeakoulu (the Vaasa School of Economics, now part of the University of Vaasa) and the departments of business economics at the universities of Tampere and Jyväskylä. In addition to these six aforementioned schools, university-level business economics programs today are found at the University of Oulu, the Lappeenranta University of Technology, and the University of Eastern Finland. As the oldest and biggest institution, the Helsinki School of Economics had a central role in Finnish-language business education until the 1970s. Currently, nine universities have degree programs in business economics in Finland, located in different parts of the country. Besides universities, business studies are taken in Finland in polytechnics, also called the universities of applied sciences.

DEVELOPMENT OF ACCOUNTING AND BUSINESS ECONOMICS FROM 1911 TO THE MID-1940S

Pioneering Academic Characters In order to succeed, a new scientific discipline needs strong personalities to show the way forward. Although the number of scholars in business economics and accounting was small from 1911 to 1945, this period could boast three pioneering characters: Kyösti Järvinen, I. V. Kaitila, and Ilmari Kovero (see also Kettunen 1986: 8). Kyösti Järvinen, with a doctorate in political sciences from Kiel, served the (Helsinki) School of Economics fi rst in 1911–1919 as a lecturer and then as the holder of the only chair in liikkeenhoito-oppi (practical business studies) in 1921–1939. Dr. I. V. Kaitila held the fi rst and only chair of liikelaskentaoppi (accounting) from 1921 to 1945 and was influential in the development of accounting at all levels in education, legislation, and actual practice. Dr. Ilmari Kovero was a teacher at the Suomen Liikemiesten Kauppaopisto (the predecessor of the School of Economics) in 1904–1917 and served the Helsinki School of Economics as lecturer in kirjanpito, kirjeenvaihto ja konttorityöt (bookkeeping, correspondence, and office duties) from 1916 to 1919. Kovero then continued his career in economics and fi nance at the University of Helsinki.

Accounting: Curricula and Main Textbooks With the advent of the business schools, bookkeeping and calculation gained an undisputed place in academic education in Finland. In traditional

158 Salme Näsi and Juha Näsi universities, bookkeeping had been more of an uninvited guest than an academic discipline (see Brunsson 1981: 7; Engwall and Gunnarsson 1994: 46 for Swedish experiences). In Finland, bookkeeping had been taught at the university level earlier by the lecturer in commercial disciplines at the Imperial Alexander University in Helsinki 1871–1890. Bookkeeping and calculation were included from the beginning as two of about twenty subjects in the fi rst business school curriculum. The names of the two accounting disciplines were kirjanpito, kirjeenvaihto ja mallikonttori (bookkeeping, correspondence, and the model office) and kauppa- ja finanssilaskento sekä kalkulatsionioppi (commercial and fi nancial arithmetic and calculation). In the 1920s, the different branches of accounting were brought together under the title liikelaskentaoppi (studies in business calculation). The initial course literature for accounting was mostly German, with names such as Calmes, Lehmann, Penndorf, Schmalenbach, Schubitz, and Tremponau. The fi rst accounting textbook in Finnish, Käytännöllinen opastus Yksinkertaisessa kirjanpidossa varsinkin Tehdastelioille ja Ammattilaisille (A Practical Guide to Single-entry Bookkeeping), written by Augusti Lilius had been published in 1862, and other bookkeeping manuals soon appeared during the last decades of the nineteenth century. At the beginning of the twentieth century, Dr. Kovero’s contribution needs to be underscored. His dissertation (Die Bewertung der Vermögensgegenstände in den Jahresbilanzen der privaten Unternehmungen mit besonderer Berücksichtigung der nicht realisierten Gewinne und Verluste, officially defended at the Imperial Alexander University in Helsinki in 1911) and textbooks on balances and bookkeeping (Kovero 1910, 1911) show Kovero to be one of the most significant forerunners and developers of accounting thought in Finland. Eugen Schmalenbach had a major influence on accounting in Finland. His books Grundlagen dynamischer Bilanzlehre (1925a) and Grundlagen der Selbstkostenrechnung (1925b) laid the foundations for Finnish accounting thought in both fi nancial and cost accounting. The dynamic balance theory of accounting was often discussed, for example, in I. V. Kaitila’s writings, although he basically represented the static school of thought. In any case, profit and loss calculation was held to be no less important as a function of fi nancial accounting than determining the assets and credit position of an entrepreneur. Underlying this way of thinking was not only the influence of German theoretical research on accounting but also the changes taking place in Finnish business and society during the fi rst decades of the twentieth century. The emergence of profit and loss calculation as the central function of bookkeeping was further enhanced by the rapid spread of share companies and cooperatives and their need for profit distribution and surplus returns based on their shareholders’ and members’ interests. These trends were reinforced by the legislation (passed after Finland became an independent country in 1917) on fi nancial accounting (Act on

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the Obligation to Keep Accounts 1925; Act on the Publicity of Financial Accounts, 1928) and taxation of the company based on bookkeeping and fi nancial accounts income (Income and Property Tax Law 1920 and 1924; Law on Obligation to Declare Income for Municipal Taxation 1919). The origins of today’s cost accounting lie in the discipline of calculation. In the fi rst decades of the twentieth century, the main, indeed almost the sole, purpose of calculation in Finnish doctrine was to determine the production costs and selling prices of products. Some brief expositions of factory accounts can be found in the Finnish accounting literature of the 1920s and 1930s, but cost accounting as an integral part of bookkeeping systems only came into textbooks in the 1940s. Over the years, the course literature became more Finnish as Professor Kaitila wrote books in all the areas of accounting: bookkeeping and fi nancial accounts (1921, 1940) and cost accounting (1928). However, Kaitila was still greatly influenced by the German literature. For instance, the reference list of his 1928 textbook had sixty-three references, with ten works in English, two in Finnish, and the rest in German-language books and articles. The term laskentatoimi (accounting) was fi rst used in Professor Kaitila’s book Teollisuusliikkeen laskentatoimen perusteet, Osa I, Omakustannuslaskenta (The Principles of Accounting in an Industrial Firm, Part I, Self Cost Accounting) published in 1928. The Finnish term laskentatoimi was a direct translation of the German term Rechnungswesen. Kaitila divided accounting into ex ante and ex post accounting. Both of these terms were further divided into three elements: the former into budgeting, ex ante calculations, and speculative estimates, the latter into bookkeeping, ex post cost accounting, and statistics. This classification followed the “schema” of accounting presented by Lehmann in the 1920s (see e.g., Lehmann 1926). The task of accounting in Kaitila’s textbook was to follow the activities of the fi rms in detail and as an entirety by using figures. This view was accompanied by the idea of accounting being an aid to the manager or management of the fi rm. To sum up, until the mid-1940s, accounting in Finnish textbooks and curricula was divided into four elements or branches: bookkeeping, cost accounting, budgeting, and statistics. Bookkeeping and calculation, and later cost accounting, formed the backbone of accounting in Finland. In this period, they were basically seen as office techniques or procedures and were therefore by nature practical subjects. Statistics and budgeting were regarded as belonging to the field of accounting, but hardly any Finnish literature dealt with these branches.

Other Areas of Business Economics In addition to the accounting disciplines, kauppa- ja liikkeenhoito-oppi (commerce and practical business studies) represented studies in business economics in the fi rst business school curriculum. Bookkeeping

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and calculation were taught as independent courses, but courses in commerce and practical business studies came under “Courses in Economics,” together with economics, fi nance, statistics, transportation, trade politics, and money and banking. Much later, toward the end of the1960s, practical business studies came to form the basis of a new, independent branch of business economics, organisation and management. (see Tainio, Ahlstedt, and Pulkkinen 1982). In 1923, Kyösti Järvinen, chair of commerce and practical business studies at the (Helsinki) School of Economics, published Liiketalous, a textbook on business economics, which was the fi rst comprehensive treatment of the subject in Finnish. The model and basic doctrine for this book were taken from the German Privatwirtschaftslehre or Betriebswirtschaftslehre literature (Järvinen’s references were almost exclusively to German-language books and articles). Järvinen divided business economics (liiketaloustiede, the Finnish translation of the German term Betriebswirtschaftlehre) in his text into two branches: pure and applied. The fi rst is more theoretical and concentrates on questions of “how things are” rather than “how they should be.” The second branch, applied business economics, takes into account the needs of practical business life and could therefore be called liikkeenhoito-oppi (doctrine of practical business, a translation of the German terms Betriebslehre and Handelsbetriebslehre) (see Järvinen 1923: 5–7). Professor Järvinen’s textbook (1923) and its second edition, Liikeorganisatio (Business Organisation, 1939), formed the basic texts for business economics students until the end of the 1940s. According to the author, the title of the second edition, Business Organisation, described a wide concept. It consisted of issues on two different levels: the organization of an individual business firm and the general organization of businesses within the national and world economy. The second edition of Järvinen’s book was still clearly influenced by the German tradition, the author’s references being German. He also explicitly stated that “this science (business economics) has been developed in several business schools, particularly in Germany, where its main target has been a systematic presentation of phenomena” (Järvinen 1939: 10).

Academic Research Academic research started slowly in the Finnish business schools. In the fi rst decades, business school education and particularly its two branches of business economics concentrated more on the practical problems of fi rms than on scientific research. These subjects were perceived more as an art than a science. The fi rst doctoral theses addressing business accounting issues written by Finnish academics were either in other sciences (e.g., economics) or published abroad, mainly in Germany. The earliest theses came from the fi rst

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academics and pioneering authors already mentioned. They were Ilmari Kovero (doctoral thesis published in 1911) and Ilmari Kaitila (1921). The third accounting thesis was written by Hilmer Brommels (1928). All of these doctoral dissertations, together with the fi rst thesis on business economics written by Paavo Nurmilahti and accepted at the (Helsinki) School of Economics in 1937, focused on financial accounting, balance sheet valuation, depreciation, and the structural problems of fi nancial statements (on these early developments, see S. Näsi 1990). The doctoral degree had been officially incorporated into the statute of the (Helsinki) School of Economics in 1931. The Swedish School of Economics was granted the right to provide doctoral-level education in 1944, followed by the School of Economics at Åbo Academy in 1954.

Summary of the Early Evolution In summary, it can be stated that in the Finnish academic system, business economics was kept separate from economics and education in business economics before World War II had a mainly practical orientation. As to different disciplines, accounting dominated the development of business economics during the fi rst decades of education. Academic research in business economics only really got under way later in the second half of the twentieth century (see also Kettunen 1984 on the origin and development of business economics in Finland). The business economics curriculum in Finland before World War II was almost exclusively influenced by ideas from Germany and other Germanspeaking countries. At least three reasons explain the German influence. First, fi nancial accounting research was widely practiced and advanced in Germany during the fi rst decades of the twentieth century. Second, Finland enjoyed active business and cultural contacts with Germany, German influence being particularly strong in higher education. Third, German was commonly studied as the fi rst foreign language in the Finnish school system until the 1970s (see also Lukka et al. 1984).

THE 1940S AND 1950S: A PERIOD OF TRANSITION

Wartime and Postwar Changes in the Economy and Business Life World War II forms a watershed in Finnish history. Economic development was fairly rapid in Finland before the war but came to a halt with the start of hostilities. Reconstruction work started a long period of economic growth. This growth could only be achieved through industrialization, and this was, at least in part, a consequence of Finland’s obligation to pay the Soviet Union war indemnity. Only one quarter of the war indemnity products that Finland delivered to the Soviet Union consisted of the traditional

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Finnish staple exports, forestry products. Three quarters were machinery, ships, and cable products. Thus, Finland was compelled to diversify its industrial structure and develop new branches of industry. Industrial production only got properly under way in the 1950s after the war indemnity obligations were fulfilled and various raw materials were more easily available. All this started the second period of industrialization in Finland, the fi rst one having taken place about 100 years earlier. Wartime also had its influence on accounting. Bookkeeping and cost calculations were the most important branches of accounting, and wartime changed both practice and thinking in these two areas. The difficulties of running the wartime economy created a need for increased state control over business fi rms. This required provision of comparable economic information from fi rms and was achieved by reforming the accounting legislation. The reform was started during the war in 1942. New legislation was passed in 1945 and mostly came into force at the beginning of 1947. The main achievement of the new regulations was that the fi nancial statements of Finnish fi rms had, for the fi rst time, a standardized form and content. They could therefore be compared, for example, by state authorities. This meant a radical change in accounting practice and thought in Finland. The previous accounting legislation from 1925 and 1928 was based on the idea that the form and content of fi nancial statements could basically be decided by the business as it considered appropriate. The 1945 accounting legislation also required that continuous cost accounting, comparable to bookkeeping, had to be carried out in industrial and comparable craft fi rms. This was needed for inventory valuation in closing the accounts and also for other cost accounting purposes. Price regulations during wartime and cost calculations made for war indemnity products had aroused interest in cost accounting and provided the impetus for the construction of modern, theoretically justifiable cost accounting systems for fi rms. The accounting ideal in Finland in the 1940s was “a perfect and comprehensive cost accounting system.” It contained figures that were comparable to bookkeeping. It provided cost information by cost categories, cost centers, and products, and cost allocations were based on production volumes. Ideas about “modern,” “current,” or “complete” cost accounting began to appear in business journal articles and other accounting literature in the late 1940s in Finland (see more on this topic in S. Näsi 1990; Näsi and Rohde 2007).

A New Generation of Legendary Academics The 1940s brought forth a second generation of legendary academics. The rise of the new generation had been made possible by the opportunities created to perform doctoral research and achieve qualifications in business economics. The 1940s produced four theses in accounting, all pioneering efforts in their respective areas. One of these early pioneers was

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Axel Grandell, whose doctoral thesis (1944) concentrated on the history of accounting (bookkeeping) in Finland. Axel Grandell later served the Åbo Academy as accounting professor for decades. Martti Saario’s dissertation (1945) dealt with the depreciation of fi xed assets and annual income measurement. Esa Kaitila’s (1945) and Unto Virtanen’s (1949) studies concerned costs, the former taking up theoretical cost-volume ratios, the latter the cost structure of Finnish industry. The choice of a successor for the accounting professorship left vacant by I. V.Kaitila lay between Esa Kaitila and Martti Saario. The latter was appointed after an arduous contest. Martti Saario held his professorship at the (Helsinki) School of Economics from 1948 to 1971. He became widely known as the creator of the Finnish expenditure-revenue theory, a dynamic profit calculation theory of accounting (see Saario 1945, 1959; Pihlanto and Lukka 1993). Professor Saario’s theory strongly influenced Finnish accounting thought, legislation, and practice until the mid-1990s. Another chair in accounting was established at the (Helsinki) School of Economics in the 1940s. This second professorship was held by Henrik Virkkunen for fi fteen years from 1948 to 1963. With Professor Saario concentrating mainly on fi nancial accounting and being responsible for bookkeeping, company income taxation, and auditing courses, Professor Virkkunen concentrated on what we today call management accounting. Virkkunen’s contribution to accounting thought in Finland, particularly in management accounting, has been far-reaching. The rise of the new generation also occurred in commerce and practical business studies. Professor Järvinen retired in 1939 and was succeeded by Hugo Raninen, who held the professorship at the School of Economics until 1967. Raninen had his doctorate in law and therefore stressed legal forms of business practices in his research. His discipline was subsequently developed in that direction and so diverged from the path laid out by his predecessor.

Revolution in Accounting Thought in the 1950s Accounting thought remained almost unchanged from the 1910s to the 1940s. Accounting and its four branches (bookkeeping, calculation, later cost accounting, budgeting and business statistics) were seen as routines belonging to office practices. The enormous changes in economic life after World War II required more modern management thinking and also new tools. In the 1950s, accounting thinking changed so thoroughly that we can speak of a revolution in accounting thought. The two accounting professors in the (Helsinki) School of Economics, Martti Saario and Henrik Virkkunen, were prime movers of change and of new ways of thinking in their own special fields. As mentioned earlier, Professor Martti Saario created his expenditurerevenue theory of accounting. Saario’s theory is coherently based on the realization principle in recording three kinds of business transactions:

164 Salme Näsi and Juha Näsi expenditures, revenues, and finance transactions. Bookkeeping describes the monetary process of the fi rm, cash and money being the focus of recording even though expenditures and revenues are recognized and recorded on an accrual basis. The closing of the accounts at the end of the fi nancial year is a matter of profit calculation. Recognition of the accrual-based sales (and other possible) revenues of the fi nancial year forms the starting point for the profit calculation. In the second phase, expenditures are divided into expenses and aktiva (unexpired costs, which are recorded as assets on the balance sheet). The aim is to match expenses against corresponding revenues (i.e., to follow the matching principle in annual income measurement). The balance sheet is a transfer account. Through it, all unexpired costs are transferred to the later fi nancial years: to earn and to be matched against revenues in later years. Saario worked for about 25 years (until 1971) as professor of accounting in the School of Economics in Helsinki. From that influential position and with the aid of the textbooks he published, he was able to ensure a prominent role for his expenditure-revenue theory in the university teaching of fi nancial accounting. The determination of annual profit in accordance with the realization principle and the matching principle was adopted in company taxation legislation in Finland in the 1960s, and from the 1970s, the accounting legislation was also based on Saario’s theory. Professor Saario’s theory has exercised great influence on Finnish accounting thought, especially as the explanatory theory of bookkeeping. Preparations for EU membership in the early 1990s led to the harmonization of accounting with the European directives and thereafter with the international accounting and reporting standards (IAS/IFRS). Both regulations confl icted with the main ideas of the expenditure-revenue theory. In 1954, Henrik Virkkunen, the holder of the other chair in accounting, published his textbook Laskentatoimi johdon apuna (Accounting as a Tool of Management), which has had a great influence on Finnish accounting thinking. The subtitle of the book was A Systematic and Theoretical Study of the Branches and Functions of Industrial Accounting from the Point of View of the Tasks of Management. This book set out to clearly establish the view that accounting should be studied as an aid to management and managerial tasks. Virkkunen’s point of view was that “accounting is a management tool without any right to an existence of its own.” This meant the harnessing of accounting to serve business management in planning, control, and information. Accordingly, accounting was classified into planning, control and information calculations, and recording systems using commercial bookkeeping and factory accounts. Recording was secondary to the managerial tasks and managers’ information needs. This new way of thinking widened the scope of accounting. A significant expansion was the explicit inclusion of the future in the dimensions of accounting information. Being a rigorous theoretical work, Virkkunen’s book has had a far-reaching influence on Finnish accounting thought and thinking concerning the nature of business

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economics as an academic subject. Virkkunen’s book was also translated into German in 1956, allowing some reciprocal exchange of accounting ideas between Finland and the German-speaking countries. This new way of thinking about accounting as a management tool matched with changes in business life. The growth and diversifi cation of industry, mechanization and increased capitalization, international integration and competition, and the need to improve productivity all necessitated and contributed to the development of accounting as a management tool. The new idea of orientation toward the future was especially needed. In traditional (prewar) producers’ or sellers’ markets ex-post calculations were sufficient, but this no longer applied in (postwar) competitive buyers’ markets. Ex-ante estimates were also needed for planning and directing the company’s activities. The typical emphasis of traditional cost accounting on cost control now shifted toward the planning and control of profi tability. Topics such as standard cost accounting, budgeting, investment calculations, and break-even analysis embracing both components of profitability, revenues and costs, all represented a more dynamic way of thinking and grew in importance in accounting thought and academic curricula.

The Concept and Nature of Business Economics The relationship of economics to business economics was not much discussed in Finland. Professor Henrik Virkkunen dealt explicitly with this question in his book (1954: 15–31) and was later often referred to by other Finnish academics. Virkkunen stated that this question had been discussed, particularly in the German literature, but that there were widely diverging opinions. Virkkunen, as Professor Kyösti Järvinen had done three decades earlier, distinguished between theoretical (pure) and applied business economics. According to Virkkunen, theoretical business economics is the same as the theory of the firm in economics. They both have the firm as the research object (Erfahrungsobjekt) and the same economic point of view (Auswahlsprinzip). They also share the same fundamental research problems (Erkenntnisobjekt) in the structure and internal relationships of the firm, the functioning of the firm, reactions to macroeconomic events, and so on. The results of the theory of the firm and theoretical business economics are used for different purposes (i.e., the Erkenntnisziel is different). Economics needs the theory of the firm for its macroeconomic analyses. Applied business economics needs theories to examine the problems, means, and methods of practical business life and management. The problems in applied business economics are not, however, solely economic but also non-economic. Social objectives, for example, are set for firms, and therefore economic objectives cannot be achieved without studying and accepting social factors, too. According to Virkkunen, accounting is a part of applied business economics, and although it cannot be considered a pure economic science, as a discipline it utilizes economics and also organization theory, mathematics, statistics,

166 Salme Näsi and Juha Näsi technology, and law. Compared with all other areas of practical management in applied business economics, accounting has the strongest tie to economics, and this is through the theory of the firm (see Virkkunen 1954: 31).

Academic Research The 1950s brought only two—but very influential—new doctors, Henrik Virkkunen and Jaakko Honko, onto the stage of Finnish accounting research. Their doctoral theses dealt with management accounting, in line with concerns prevailing at the time. The focus of Virkkunen’s work (1951) was cost accounting, while Honko (1955) dealt with investment problems and calculations. The works were pioneering efforts in their fields and have had an important influence on Finnish accounting doctrine.

Summary To sum up the transition period of the 1940s and 1950s, we can say that in the 1950s, accounting was still dominant in and central to all business economics education in Finland. It had its roots in economics through the theory of the fi rm, production and cost theories, and investment and fi nance theories. Accounting as part of business education was essentially practical in nature, being developed as an area of applied business economics. In the 1950s, accounting was explicitly linked to management. This strengthened the rise of the “Management Process School of Thinking,” which stressed management in business economics as a process of planning, organizing, coordinating, motivating, and controlling. We can thus state that the 1950s brought the management process view, alongside the economy of the fi rm view, to strengthen business economics as a field of science. During this transition period, American influence in business economics increased rapidly as seen in the rise of the Management Process School, while correspondingly German influence declined. This period was, however, affected by many different countries and cultures. For instance, the bibliography of Virkkunen’s 1954 book consisted of 104 titles, fortyone of which were in English, thirty-two in German, nineteen in Finnish, twelve in Swedish, and a couple of sources in other languages.

DEVELOPMENTS IN BUSINESS ECONOMICS AND ACCOUNTING FROM THE 1960S TO THE END OF THE CENTURY

Business Economics Redefined and Restructured in the 1960s and 1970s The conceptual distinctions between theoretical and applied business economics made in classics like those of Järvinen (1923) and Virkkunen (1954) have also appeared in later Finnish literature (e.g., Honko 1969; Lehtovuori

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1973; Kettunen 1974). However, this division has merely been understood as a basis for philosophical speculation and methodological discussion (see Neilimo and Näsi 1980: 26–31; Näsi 1983: 36) rather than as an organizing principle or practical guide for this science. More operational defi nitions of business economics and the concept of the fi rm became established from the 1960s onward. In 1969, Professor Jaakko Honko published his book Liiketaloustiede (Business Economics), which then became the basic textbook for new students of this science in every business school around Finland. Honko considered business economics as an all-embracing discipline that concentrated on analyzing the economic process of a fi rm. The functional parts of this process were purchasing, production, marketing, and fi nance, and the key concepts were costs, revenues, profitability, and sharing of profits. The monetary process and the economic result of the fi rm were crucial. The steering of a fi rm formed one more area for business economics, and management, decision making, and accounting as an aid in these tasks represented the basic elements of business economics.

The Concepts of the Firm At the same time, concepts of the fi rm in an operational form were becoming established. Two competing perceptions emerged. The fi rst could be called the capital circulation model or economic process model of the firm (see e.g., Virkkunen 1961; Artto 1968; Lehtovuori 1972; Kettunen 1974; Niskala and Näsi 1995). The firm in this traditional model is seen as a producer of goods and services and may be defi ned as an economic entity that buys production factors from the factor market, transforms them in the production process into goods and services, and sells them in the product market for the purpose of profit (see e.g., Honko 1969; Lehtovuori 1972). Figure 6.1 describes this input-output process from the factor market through the fi rm to the product market. The monetary process is, then, a “mirror image” of the material process. In the monetary process, the activities of the fi rm are described using one common measure: money (Lehtovuori 1972; Kettunen 1974). The third market in the capital circulation model is the capital market. It is assumed that the fi rm tries to maximize its profits and the value of the fi rm through activities in these three markets. The other predominant model of the business fi rm was fi rst outlined in Swedish books by Rhenman (1964) and Rhenman and Stymne (1965) and some years later in Finnish by Ahlstedt and Jahnukainen in their book Yritysorganisaatio yhteistoiminnan ohjausjärjestelmänä (A Business Organisation as a Management System, 1971). The fi rm was seen as a social and technical system where different stakeholders play a part (see Figure 6.2).3 Different stakeholders, such as owners, customers, employees, suppliers, and lenders, and even the central and local governments, all make their contributions to the activities of the fi rm. At the same time, these stakeholders make demands (money, goods, information, status, power, etc.) for

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Figure 6.1 The capital circulation model of the firm.

Figure 6.2

The stakeholder model of the firm.

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their rewards. Only if these demands are satisfied through rewards from the fi rm will the stakeholders be willing to continue their interaction with the enterprise. Management has two crucial functions in this matter: an interpreting function to perceive and a balancing function to manage the demands and rewards of different stakeholders (e.g., Rhenman 1964; Rhenman and Stymne 1965; Ahlstedt and Jahnukainen 1971; Lehtovuori 1972; J. Näsi 1995; Niskala and Näsi 1995). These two “basic models of the fi rm” have subsequently been reiterated and applied in Finnish business economics for decades, at all levels from introductory business courses to academic dissertations. The capital circulation model has mainly been used in accounting but also utilized in other fields, and the stakeholder approach is applied most often in management but, again, often used in other subdisciplines of business economics, too.

The Branches of Business Economics Throughout the 1960s, subject titles such as Business Economics I and Business Economics II were used in the business schools in Helsinki and Turku. The former referred to accounting, and the latter included everything else, such as distribution, selling, management, and organization. The next step was to divide the field of business economics into sub-subjects: accounting, marketing, and organization and management. During the 1960s, education in business economics in Finland expanded significantly, as units at the universities in Tampere, Vaasa, and Jyväskylä were established. Tampere and Vaasa started with all three branches, while the University of Jyväskylä focused mainly on accounting. Marketing was second in gaining an independent profi le as a subdiscipline within business economics in the late 1960s, the fi rst professor in the area being Mika Kaskimies. From distribution and selling functions, and marketing mix or parameter views, the discipline grew into a comprehensive field of study and teaching during the 1970s, covering such wide areas as marketing management, international marketing, and consumer behaviour (J. Näsi 1982). Prior to the 1970s, only two doctoral dissertations in marketing were presented, by Mika Kaskimies and Martti Särkisilta. The period since 1970 has been highly productive. In the 1970s alone, a dozen doctoral theses were published (see Näsi and Saarikorpi 1983). Marketing has retained its popularity among students ever since. Organization and management (sometimes called simply management or even administration) started to develop into an independent subject in the early 1970s. The fi rst professors were sociologists, and this left a mark on the early development of the discipline. In the two fi rst decades of its history, this discipline operated on a much smaller scale than accounting and marketing, but since the turn of 1990s, organization and management have grown in popularity, thanks to such attractive labels as strategy, leadership,

170 Salme Näsi and Juha Näsi business and society, environmental management, and quality management, which are often studied under the field of management. The fi rst doctoral theses in organization and management were published in the mid-1970s. Soon, discussion about the roots, elements, and essentials of this subject got under way (see Tainio 1978, 1979). In the fi rst years of the 1980s, this discussion on identity led to the subject being defi ned as a branch of business economics instead of other social sciences (Näsi 1981a, 1981b, 1983; Tainio et al. 1982). The subdiscipline “Systems” has existed in the Helsinki School of Economics since the 1970s. This discipline includes elements from information systems, computer science, and operations research. In other institutions, the practice has been to locate these fields close to but separate from business economics. Several synthetic subdisciplines have been established within business economics, too. Strategy, entrepreneurship, logistics, and international business all represent subdisciplines with a comprehensive view of the fi rm as a discrete entity. Environmental management, then, as an independent branch is an example of our society’s value-related fi rm– nature relationship.

DEVELOPMENTS IN ACCOUNTING

The Development of the Scope of Accounting The scope of accounting as a branch of business economics has constantly broadened and consists of many subareas. Virkkunen’s 1950s conception of accounting as solely a management tool was criticized some fifteen years later. Lehtovuori wrote in an article that the fundamental idea of Virkkunen’s book (1954) “lays emphasis on the use of numerical information and implicitly monopolises accounting as a tool for the operational management of the fi rm” (1967: 338). Veijo Riistama later referred to this criticism in his article (1971: 210) and emphasized that accounting data can be used to produce information not just for operational management but also for the company’s other stakeholders or those whose economic interests are affected by the firm’s activities. Accounting thought in Finland is fi rmly rooted in the useful information approach. The accountability approach was seldom emphasized, even though it had provided another and more compatible basis for accounting with the wide stakeholder concept and approach. Public sector accounting or not-for-profit sector accounting as well as social accounting, environmental accounting, social responsibility reporting, and so on have been seen in the Finnish accounting curricula as some sort of special areas of accounting. Within the accountability and stakeholder frameworks, they could have been perceived as even more central elements in the curriculum of business economics and accounting.

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Corporate finance became a part of the accounting curriculum at the end of the 1960s. Two of the four doctoral theses produced in accounting in that decade concerned corporate finance problems (Jääskeläinen 1966; Artto 1968), while the other two concentrated on public sector accounting (Pitkänen, 1969) and the information value of audit reports (Jägerhorn, 1965). Jääskeläinen was also the fi rst to bring linear and other programming models into Finnish accounting. Artto developed Saario’s ideas and contributed to Finnish accounting, including several cash-based profitability and fi nance studies of industries. The basic textbook on corporate fi nance in Finnish was written only in 1971 by Pertti Kettunen. Since then, fi nance courses in some Finnish universities have been included in accounting curricula, even though developments in modern finance theory have given good reason to change this practice and allow finance to form its own separate subject in business economics. Especially at the University of Vaasa, the Helsinki School of Economics (today Aalto University), and the Swedish School of Economics (Hanken), finance has been an important subject in its own right since the early 1990s. The terminology used in accounting education during the 1970s and 1980s in Finland was operational accounting (in Finnish operatiivinen laskentatoimi) and equity accounting (in Finnish yleinen laskentatoimi). These terms were introduced in the AAA Supplement in 1971 (Report of the Committee on Foundations of Accounting Measurement) and translated into Finnish by Riistama (1971). Since the 1990s, accounting education has been dominated by the English literature, and the translations of the concepts management accounting and fi nancial accounting (in Finnish johdon laskentatoimi and rahoituksen laskentatoimi introduced by Vehmanen 1992) are commonly used.

Research and Methodological Approaches in Accounting While the 1930s produced only one doctoral dissertation, the 1940s and 1950s generated two doctoral dissertations each, and the 1960s produced four doctoral dissertations in accounting, the 1970s saw much energy being expended on scientific activity and produced twenty-eight doctoral dissertations in the field of accounting. During that decade, serious interest in systematic and comprehensive postgraduate education in accounting appeared for the fi rst time. By the end of the 1970s, formal licentiate and doctoral programs in most business schools had been established, and a nationwide postgraduate consortium in business economics (KATAJA) was created. The institutionalization of doctoral programs in Finland led to a lively debate on methodology and the philosophy of science in accounting and business economics (see e.g., Kettunen 1974; Lehtovuori 1977; Salmi 1976, 1978; Tainio 1978, 1979; Mäkinen 1980; Neilimo and Näsi 1980; Näsi 1980a, 1980b, 1981a, 1981b). The basic questions contemplated are “What do we do when we do scientific research?”, “What is the subject domain

172 Salme Näsi and Juha Näsi and character of the business economics as a science?”, and “What are the various scientific methods of doing research?” Typically, these writings produced frameworks to classify different research essentials. For example, one contribution from this era, developed by Juha Näsi and Kari Neilimo (see e.g., Näsi 1980a, 1980b; Neilimo and Näsi 1980; compare also with Lukka et al. 1984), which often still seems to be applied in the field of business economics, is a methodological classification distinguishing the nomothetic, decision-oriented, action-oriented, and conceptual approaches. Later the fi fth approach, the constructive research approach, was added to the model by Kasanen, Lukka, and Siitonen (see Kasanen et al. 1991; Lukka 1991; Pihlanto 1992; Lukka and Kasanen 1993; Tamminen 1992, 1993). All five methodological approaches have been presented in more detail in Figure 6.3 (see also Kihn and Näsi 2010). The conceptual approach can be labelled a method of reasoning and argumentation. It aims to develop logically consistent mental and linguistic systems by using conceptual analysis and synthesis. This means an involvement with philosophy; in general, the path of every new science begins with such a conceptual approach. In accounting research, too, this approach was applied in most of the fi rst doctoral dissertations during the 1950s, but since then research has been mostly empirical in its nature. The nomothetic approach is one of the two predominant approaches. It is the traditional positivist-empirical approach stressing the need for large corpora of data. Causality and explanation are emphasized, along with key matters like hypothesis testing, verification, and evidence. This approach has been used since the 1960s in accounting research in Finland and has preserved its strong status despite the advent of alternative approaches. The decisionoriented approach is also based on positivism but has more specific goals. Usually it sets out to fi nd optimal decisions, most commonly by building different mathematical models. The origins and background for this approach lie in operations research and management science. It was widely adopted during the 1970s only, but since then has been almost absent from the Finnish doctoral dissertation research. The action-oriented approach was fi rst seen as an opponent and later as a challenging alternative to the nomothetic approach. While the nomothetic approach highlights Galilean ideas of science, the action-oriented view emphasizes Aristotelian traditions. Such research is qualitative in nature, concentrating on a few empirical cases or subjects. The aim is to understand unique processes and develop conceptual systems, frameworks, and “languages.” This approach has increased its popularity especially in management accounting research during the previous 20 years. According to Kasanen et al. (1991; see also Lukka and Kasanen 1993), the purpose of constructive research is to solve managerial problems through the construction of innovative models, diagrams, plans, organizations, and so on. An essential part of the constructive approach is to connect a practically relevant problem and its solution to accumulated theoretical knowledge. The novelty and the actual functioning of the

Figure 6.3 The research methodological alternatives (Modified by Kihn and Näsi 2010 based on Näsi 1980, Neilimo & Näsi 1980 and Kasanen, Lukka and Siitonen 1993).

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solution have to be demonstrated as well. The constructive approach has been used only in the most recent doctoral dissertations. All the research methodological approaches have been used in the Finnish doctoral accounting research. The first dissertations in the field of accounting used the concept analytical methodology. The decision analytical approach was popular only in the 1970s. The nomothetic approach has enjoyed a strong position in Finnish accounting research since the 1970s and 1980s. This is mainly due to its dominant role in the research in finance and modern finance theory. The considerable popularity gained by the action-analytical approach during the 1980s and especially in the 1990s may be explained by several new waves: the growing interest in management accounting, interest in management issues and interdisciplinary matters, emphasis on human aspects of accounting, as well as the focus on the qualitative side of accounting reality. If the developments since the 1980s are highlighted, the trend clearly flows from concept-analytical and decision-analytical approaches toward nomothetic and action-analytical strategies, the latter being popular especially in the management accounting research (see Näsi and Näsi 1985, 1988; Näsi et al. 1993; Kihn and Näsi 2010). Dissertations are of course only one element in Finnish accounting research. To examine all accounting research would demand too many pages here. Worth mentioning is the fact that, in accordance with the European mainstreams, behavioral and humanistic accounting research has its proponents in Finland, too. Pekka Pihlanto of the Turku School of Economics was one of the fi rst Finnish scholars in these areas (examples of Pihlanto’s publications in these areas are Pihlanto 1988a, 1994). The British approach, personified by Anthony Hopwood, has had much influence on the work of in particular the younger generation of accounting researchers since the late 1980s. As some examples of the early substance areas in management accounting, we can name investment process studies produced especially in the Helsinki School of Economics and Business Administration. Investment studies were started by Jaakko Honko during the 1950s (see Honko 1955, 1963) and continued since then under the guidance of Kalervo Virtanen (see his dissertation in this field;, Virtanen 1979). Activity-based costing as a new management accounting theme in the 1990s has been studied to some extent at several schools (doctoral theses, e.g., by Malmi 1997; Järvinen 2005; Wingren 2005). Petri Vehmanen had a scientific interest in ABC’s fundamentals in early 1990s and published both articles and a textbook on that topic (see Vehmanen 1994; Vehmanen and Koskinen 1997). Following Martti Saario’s example, several Finnish accounting researchers have been interested in the theory of bookkeeping and fi nancial accounting (e.g., Artto, Kettunen, Lehtovuori, Pihlanto, and Ruuhela, to mention a few). Now the companies are internationalizing, and the harmonization of fi nancial accounting and reporting have become central issues in the practice of accounting. The need for harmonization was

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intensified in particular by Finland’s accession to full EU membership at the beginning of 1995. In the academic sphere, the national character of Finnish fi nancial accounting theory and matters relating to international harmonization have been taken up by researchers at the Turku School of Economics, among others (see e.g., Pihlanto 1988b; Pihlanto and Lukka 1993; Majala 1987, 1992; Flower 1994). From 1937 to 1989 (i.e., in the fi rst 50 years of doctoral education in accounting), fi fty-one doctoral dissertations were published in the field of accounting in Finland (see Näsi et al. 1993). On average it makes one doctoral degree per year. Since 1990 (i.e., in the past twenty years), some 100 dissertations have been defended in the field of accounting. That makes five dissertations every year on average. Almost half of these dissertations have been in the field of management accounting. The total number of all the management accounting dissertations through the ages (until 2010) in Finland is sixty-seven (see Kihn and Näsi 2010). This brief overview of doctoral thesis output indicates how many researchers there have been in Finland working in the field of accounting. Each business school or university department has created its own publication series, and most research has been published in these. Since its fi rst inception in 1953, The Finnish Journal of Business Economics has also proved a popular publication forum. The number of articles on accounting by Finns published in international journals before 2000 has been modest, but has grown steadily with the rapidly increasing number of researchers and more emphasis by governmental authorities and university managements on research and publishing in international reviewed journals.

Summary The 1960s brought a widening of business economics education in Finland as new university departments of business economics were established. The curriculum followed by each “business school” was approximately the same, but the larger and better endowed schools were able to provide more alternative courses and so were better able to represent the diversity of the discipline. As to the traditional three major disciplines—accounting, marketing, and organizations and management—four key features may be synthesized on the basis of their development until the end of twentieth century. First, all branches have been internationalizing, strongly and rapidly. Scholar and student exchange, numerous networks with foreign universities, more frequent participation in conferences, international co-operation in research, and a growing tendency to publish results in international journals are typical factors in this respect. Second, all three disciplines have succeeded in consolidating their domains and key elements as well as highlighting all the major fashionable trends of practice. From accounting, the area of fi nance has separated and forms clearly an independent branch of business economics. As to foci of

176 Salme Näsi and Juha Näsi teaching and research, accounting has been following “the marks of the era.” Activity-based accounting and management, value chain thinking, performance measurement based on strategy, and “Balanced Scorecard” are examples of tools and techniques of the 1990s taught and studied in management accounting. In research, accounting is perceived from behavioral, social, and contextual perspectives more than from a technical perspective. In fi nancial accounting, Finnish accounting theory and thinking have been replaced by the European and international accounting standards and thinking. In 1997, the Finnish accounting legislation was totally harmonized with the European directives. Therefore, the Finnish accounting thinking survives only in history. In marketing, new essential topics are introduced into the area of serious examination. Business-to-business marketing, networks and relationship marketing, marketing of services, and brand management serve as good examples of such a development. In organization and management, a change from the label of personnel administration toward a general management doctrine has emerged. A number of new interest areas have also come to the fore: process management, business ethics, network management, and cluster economics. Third, the 1990s became a period of refi ning doctoral education into its comprehensive and solid structure. The key was the nationwide alliance between business schools offering a lot of common studies and graduate school research positions for doctoral students. Foreign teachers and aspiration to motivate students to become familiar with the international scholarly culture by attending conferences and taking part of one’s PhD studies abroad have become more and more common characteristics of the Finnish PhD education and later career. Fourth, the methodological focus of research is varied and has turned onto the qualitative side, even in accounting. Until the 1960s, accounting research in Finland was done by a few scholars and was mainly theoretical and conceptual in nature. International publishing was rare, and the doctoral dissertation was typically the best known study of each academic. Research often related to different aspects of the balance sheet, income statement, and profit measurement. In management accounting, the focus was on major issues of capital budgeting and costing. In the 1960s, the statistical explanatory research and decision-making models assumed a growing role in Finnish accounting research. German influence was replaced by American influence. Scientific awareness and scientific debate among academics has improved since the 1980s. Since the 1990s, doctoral education in accounting as well as in other business disciplines has increased tremendously. The most obvious reason for growth is the performance-based funding system of the Finnish universities applied since the mid-1990s. The total number of PhD dissertations in accounting and fi nance before the 1990s was about fi fty, whereas the number of dissertations in accounting during the last two decades has been

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about 100. Thus, the total number of doctoral dissertations in accounting through the ages is about 150, almost half of them in the field of management accounting (see Kihn and Näsi 2010, 2011).

SYNTHESIS The fi rst three business schools in Finland were founded during the 1910s and 1920s on the Central European model. During the fi rst fifty years of their existence, their activities were practically oriented. The fi rst few academics in the business schools were therefore also experts in practical problems. In addition to the three older business schools, one new unit was established in the 1950s and then several new departments of business economics at universities in different parts of the country in the 1960s. Enrollment increased, and faculties were strengthened. Gradually business economics also became more scientifically oriented. From the beginning of higher business education, business economics has been kept separate from economics in the Finnish academic system. During the fi rst decades of the century, the term “private” was accentuated to keep the new “private business economics” distinct from “national” economics. Accounting formed the oldest and most fundamental sector of business economics. Bookkeeping and calculation were taught during the fi rst years of business school education as independent courses, whereas the subject practical business studies was taught as part of courses in economics. Bookkeeping and calculation were by nature more practical arts than scientific subjects. Soon all accounting courses were gathered under the title of liikelaskentaoppi (business calculation studies). From 1957 onward, accounting was taught as Business Economics I, while Business Economics II consisted of courses in distribution, selling, and organization and management. Accounting was split into two parts. The fi rst part covered bookkeeping and fi nancial accounts, company income taxation, and auditing. The second part comprised cost accounting, standard costing, budgeting, investment calculation, and so on. Even at this stage, accounting was the only distinct branch in business economics. In the late 1960s and early 1970s, Finnish business school education divided business economics into three main branches according to certain business functions: accounting, marketing and organisation and management. Business economics has traditionally been divided into theoretical and applied branches (see Järvinen 1923; Virkkunen 1954; Honko 1969). Virkkunen (1954) conceded that economics and business economics share a significant research area in the theory of the fi rm or theoretical business economics. According to Honko (1969), theoretical business economics strives to form theories concerning the business economy: It examines the structure, activities, and regularities of the fi rm. The aim of applied business economics, then, is to fi nd universally applicable ideas and skills for

178 Salme Näsi and Juha Näsi problem solving and also the means to influence business operations. It was later suggested that this division be replaced by the distinction between business economics (liiketaloustiede) and business management (liikkeenjohtotiede) (Lehtovuori 1969, 1973; Kettunen 1974; J. Näsi 1983: 38). This proposal, however, met with little enthusiasm. The subject of business economics is “the fi rm.” The concept of the fi rm has had two established definitions since the turn of the 1970s, the one being strictly economic, the other being social. The fi rst was the economy process model—the capital circulation model—of a fi rm, where an enterprise was considered to exist as an input/output unit in the middle of three markets: the production factor, the selling, and the finance markets. The task of business economics was to analyze the behavior and management of that unit in relation to profitability. The second definition was the stakeholder model, where the fi rm is in the midst of several stakeholders, each of whom has his or her own interests, offers his or her contributions, and demands rewards to match his or her contribution. Now it was the task of business economics to analyze the fi rm and its management while trying to maintain a balance between demands and rewards in order to ensure the fi rm’s survival. In many ways, the 1950s were a transitional phase for accounting as part of business economics when thinking in accounting changed from cost and production theories toward management-oriented ideas. The view of accounting with its four branches as administrative techniques was superseded by the idea of accounting as a management tool. Accounting was consequently remolded to match the range of managerial tasks; in other words, the field that we today call “management accounting” made its breakthrough in Finland in the 1950s. Since the 1970s, the main purpose of accounting has been held to be the production of information for management and other stakeholders, which happens through internal and external, operational and equity, or managerial and fi nancial accounting, different pairs of terms being used at different times. The growing impact of surrounding society on business brought new areas into accounting, like social accounting in the 1980s and environmental accounting in the 1990s. In the 1990s, fi nance was breaking away from accounting to form an independent subject in some schools. Throughout the history of Finnish accounting thought, the foreign influences have been obvious. Until the 1950s, the German heritage of balance sheet theories and production and cost theories prevailed. From the 1950s to the 1980s, American influence predominated. The atmosphere since then can be called simply international. Influences come not only from Europe, where the British influences are perhaps most strongly felt, but also from other parts of the world. However, when summarizing the character of Finnish accounting doctrine, one feature needs to be remembered: There has also been a genuine Finnish accounting doctrine. This is true especially in fi nancial accounting in the form of an indigenous accounting theory,

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known as Saaario’s expenditure-revenue theory, but also in management and cost accounting, where the Finnish doctrine can be positioned somewhere between the American and German doctrines. Especially in the early stages of developments, the influence of the other Nordic countries has also been strong (Näsi and Rohde 2007). Scientific research was slow to get under way in business economics and accounting, and it only achieved significant proportions in the latter half of the twentieth century. Licentiate and doctoral education only became properly organized in the late 1970s, before which doctors were self-taught pioneers. Finally, in the 1980s, a nationwide network to improve postgraduate education was created. Since the mid-1990s, the funding model of Finnish universities has emphasized doctoral education with consequently many more activities directed to research and doctoral education compared with earlier times. The nationwide total picture of business economics and accounting at the turn of the millennium differs from the past in at least four ways. First, internationalization is a natural part of all education. For instance, Finnish EU membership has made Finnish business schools members of international university networks with extensive exchange programs. In addition, business schools have established networks in Asia and North America. Second, performance-based funding of the Finnish universities has led to all the business schools becoming consciously managed units, each evaluating and refi ning their own missions and strategies. Third, the fact that the various business schools have become profi led in their own ways, combined with the fact of competition between schools, will perhaps cause tension in cooperation. Fourth, as a consequence of these profi le and differentiation pressures, the traditional branches of business economics may become even more independent and concentrate on developing only their own field in research and teaching. At the same time, new branches, being mainly comprehensive and synthetic in nature, are emerging. Strategy, entrepreneurship, and international business are examples of newer multidisciplinary branches of business economics. This means that accounting as a discipline will survive and may well grow, but whether there will be a need to sustain an umbrella concept like business economics is by no means certain. Since the turn of the millennium, it has often been replaced by the concept of business competence (liiketoimintaosaaminen) in Finland.

ACKNOWLEDGMENTS Professor Stefano Zambon and the internal review panel as well as three anonymous external reviewers are gratefully acknowledged for their helpful comments on the early version of this chapter, as well as Editor-in-Chief Yuri Biondi and the anonymous reviewer for their helpful comments on the later phase of revision of this chapter.

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NOTES 1. In 2010 (i.e., just before its centenary), the Helsinki School of Economics was merged with the Univeristy of Technology and the School of Art and Design. These three schools together form the Aalto University. 2. In 2010, the Turku School of Economics merged with the University of Turku. 3. This model resembles the stakeholder approach presented by Freeman (1984).

REFERENCES Ahlstedt, L., and Jahnukainen, I. 1971. Yritysorganisaatio yhteistoiminnan ohjausjärjestelmänä (A business organisation as a management system). Tapiola: Weilin & Göös. American Accounting Association, Committee on Foundations of Accounting Measurement. 1971 Accounting Review XLVI (Suppl.). The Annual Report of the School of Economics. 1911–1912. Helsinki. Artto, E. 1968. Yrityksen rahoitus, systematiikka ja mukauttamistavat (The fi nancing of the fi rm, conceptual framework for adaptations of the monetary fi nancial process). Doctoral dissertation, Helsinki School of Economics, Series A:1, Helsinki. Brunsson, N. 1981. “Företagsekonomi som forskningsämne—Korrumperad opportunism eller samhällsvetenskapligt ideal.” In Företagsekonomi—sanning eller moral? (Business economics—truth or morality), ed. N. Brunsson. Lund: Studentlitteratur. Engwall, L., and Gunnarsson, E. (Eds.). 1994. Management studies in an academic context. Acta Universitatis Upsaliensis, Studia Oeconomiae Negotiorum 35. Uppsala: Studentlitteratur. Flower, J. (Ed.). 1994. The regulation of fi nancial reporting in the Nordic countries. Stockholm: Fritzes. Freeman, E. 1984. Strategic management: A stakeholder approach. Boston: Pitman Publishing. Grandell, A. 1944. Äldre redovisningsformer i Finland, En undersökning av den företagsekonomiska redovisningens utveckling i Finland intill 1800-talets slut (Older accounting models in Finland. A study on the development of commercial accounting in Finland until the end of the 19th century). Doctoral dissertation, Företagsekonomiska forskningsföreningens skriftserie 1, Helsingfors. Honko, J. 1955. Koneen edullisin pitoaika ja investointilaskelmat. Taloudellinen tutkimus (The economic life time of a machinery and capital investment calculations, a study in business economics). Doctoral dissertation, Liiketaloustieteellisen tutkimuslaitoksen julkaisuja 19, Helsinki. Honko, J. 1963. Investointien suunnittelu ja tarkkailu (Planning and control of investments). Porvoo: WSOY. Honko, J. 1969. Liiketaloustiede (Business economics). Tapiola: Weilin & Göös, Ekonomia. Jauri, E. 1948. Puoli vuosisataa suomalaista liike-elämää (A half of century of Finnish business life). Helsinki: Otava. Jägerhorn, R. 1965. Informationsvärdet hos fi nländska aktiebolags revisionsberättelser (Information value of audit reports). Doctoral disseration, Helsinki. Järvinen, K. 1923. Liiketalous, Liike-elämää VI (Business economics, business life VI). Helsinki: Otava. Järvinen, K. 1939. Liikeorganisatio (Business organisation). Helsinki: Otava.

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Jääskeläinen, V. 1966. Optimal fi nancing and tax policy of the corporation. Doctoral dissertation, Helsinki. Kaitila, E. 1945. Kustannusten riippuvaisuus suoritemäärästä (The relationship of costs and quantity of production). Doctoral disseration, Liiketaloudellinen tutkimus 1, Helsinki. Kaitila, I. V. 1921. Kirjanpidon ja bilanssiopin oppikirja (A textbook of bookkeeping and balances). Jyväskylä. Kaitila, I. V. 1928. Teollisuusliikkeen laskentatoimen perusteet, Osa I, Omakustannuslaskenta (Basics of industrial accounting, part I, cost accounting). Jyväskylä. Kaitila, I. V. 1940. Teollisuusliikkeen laskentatoimen perusteet. Kirjanpito (Basics of industrial accounting. Book-keeping). Doctoral dissertation, Liiketaloustieteellisen tutkimuslaitoksen julkaisuja 1, Helsinki. Kasanen, E., Lukka, K., and Siitonen, A. 1991. ”Konstruktiivinen tutkimusote liiketaloustieteessä” (Constructive Approach in Business Studies). The Finnish Journal of Business Economics 3. Kettunen, P. 1971. Rahoitus (Finance). Porvoo: WSOY. Kettunen, P. 1974. Yritysten tutkimisesta (To study fi rms). Jyväskylä. Kettunen, P. 1984. ”Suomalaisen liiketaloustieteen murrokset ja jännitteet” (The Origin and Development of Finnish Business Research). The Finnish Journal of Business Economics 2. Kettunen, P. 1986. “Muinaisuuden myyttisistä hahmoista pienten valkoisten kääpiöiden aikaan—Teoria ja käytäntö suomalaisen liiketaloustieteen historiassa” (From the Mythical Characters of the Past to the Time of the White Dwarfs—Theory and Practice in the History of Finnish Business Economics). Teesi 2. Kihn, L.-A., and Näsi, S. 2010. “Research Strategic Analysis of the Finnish Doctoral Dissertations in Management Accounting from 1990 to 2009.” The Finnish Journal of Business Economics 1: 42–86. Kihn, L.-A., and Näsi, S. 2011, August 22–24., “Innovative developments in management accounting research.” Paper presented at the Nordic Academy of Management (NFF) conference, Stockholm. Kovero, I. 1910. Bilanssioppi kauppaoppilaitoksia ja käytäntöä varten (A textbook on balances for commercial colleges and practice). Porvoo: Werner Söderström Osakeyhtiö. Kovero, I. 1911. Die Bewertung der Vermögensgegenstände in den Jahresbilanzen der privaten Unternehmungen mit besonderer Berücksichtigung der nicht realisierten Gewinne und Verluste. Doctoral dissertation, Imperial Alexander University, Helsinki. Kovero, I. 1911. Kirjanpito I, Alkeet ja yleiset muodot kauppaoppilaitoksia ja ominpäinopiskelua varten (Book-keeping I, introduction and common forms for commercial colleges and for self-learning). Porvoo: Werner Söderström Osakeyhtiö. Lehmann, M. R. 1926. “‘Die Wirtschaftlichkeitsmessung des Betriebes.” Zeitschrift für Betriebswirtschaft 3. Lehtovuori, J. 1969. “Kirjanpidon tehtävät” (Functions of Financial Accounting). In Yrityksen tulos, rahoitus ja verotus II, ed. M. Saario. Helsinki. Lehtovuori, J. 1972. Kirjanpidon perusteet yrityksen tiedotuspolitiikan kannalta (The foundations of accounting from the viewpoint of the information policy of an enterprise). Doctoral dissertation, Acta Academiae Oeconomicae Helsingiensis, Series A:9, Helsinki. Lehtovuori, J. 1973. Liiketaloustieteen metodologista taustaa (About the methodological background of business economics). Turun kauppakorkeakoulun julkaisuja AI-6, Turku.

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Lehtovuori, J. 1977, August 22–23. ”Liiketaloustieteen kysymyksenasettelut ja tutkimusstrategiat” (Research Problems and Methodological Strategies of Business Economics). Alustus suomalaisen liiketaloustieteen konferenssissa. Lilius, A. 1862. Käytännöllinen opastus Yksinkertaisessa kirjanpidossa varsinkin Tehdastelioille ja Ammattilaisille (A practical guide to single-entry book-keeping for the owners of industry and trade). Turku. Lukka, K. 1991. “Laskentatoimen tutkimuksen epistemologiset perusteet” (Epistemological Foundations of Accounting Research). The Finnish Journal of Business Economics 2. Lukka, K., and Kasanen, E. 1993. “Yleistettävyyden ongelma liiketaloustieteessä” (Generalizability in Business Administration). The Finnish Journal of Business Economics 4. Lukka, K., Majala, R., Paasio, A., and Pihlanto, P. 1984. “Accounting research in Finland.” In European Contributions to Accounting Research, The Achievements of the Last Decade, ed. A. O. Hopwood and H. Schreuder. Amsterdam. Majala, R. 1987. Kirjanpitokäytäntöjen vertailevan tutkimuksen käsitteellisen viitekehyksen kehittelyä (A conceptual frame of reference for comparative studies of international accouting practices). Turun kauppakorkeakoulun julkaisuja A5, Turku. Majala, R. 1992. “A Conceptual Frame of Reference for Comparative Studies of International Accouting Practices.” The Finnish Journal of Business Economics 4. Mäkinen, V. 1980. Yritysten toiminnan tutkimisen lähestymistavoista, Toiminta-analyyttisen tutkimusstrategian kehittelyä (Different approaches to study business activities. Outlining of the action-analytical method). Yrityksen taloustieteen ja yksityisoikeuden laitoksen julkaisuja, Sarja A2,Tutkielmia ja raportteja 17, Tampereen yliopisto, Tampere. Neilimo, K., and Näsi, J. 1980. Nomoteettinen tutkimusote ja suomalainen yrityksen taloustiede, Tutkimus positivismin soveltamisesta (Nomothetic research method. A study on positivism in business economics in Finland). Yrityksen taloustieteen ja yksityisoikeuden laitoksen julkaisuja, Sarja A2, Tutkielmia ja raportteja 12, Tampereen yliopisto, Tampere. Niskala, M., and Näsi, S. 1995. “Stakeholder theory as a framework for accounting.” In Understanding stakeholder thinking, ed. J. Näsi. Jyväskylä: Gummerus Oy. Näsi, J. 1980a. Liiketaloustiede soveltavana tieteenä, Perusongelmain hahmotus ja analyysi (Business economics as an applied science. Outlining and analysing the basic problems). Yrityksen taloustieteen ja yksityisoikeuden laitoksen julkaisuja, Sarja A2, Tutkielmia ja raportteja 8, Tampereen yliopisto, Tampere. Näsi, J. 1980b. Ajatuksia käsiteanalyysista ja sen käytöstä yrityksen taloustieteessä (Thoughts about conceptual analysis and its use in business Eeconomics). Yrityksen taloustieteen ja yksityisoikeuden laitoksen julkaisuja, Sarja A2, Tutkielmia ja raportteja 11, Tampereen yliopisto, Tampere. Näsi, J. 1981a. Liiketaloustiede, hallinnon identiteetti ja kehittyminen (Business economics, management and organisation: Its identity and evolution). Yrityksen taloustieteen ja yksityisoikeufen laitoksen julkaisuja, Sarja A2, Tutkielmia ja raportteja 23, Tampereen yliopisto, Tampere. Näsi, J. 1981b. Tutkimusten kokonaiskehysten logiikasta (On the logic of research frameworks). Yrityksen taloustieteen ja yksityisoikeuden laitoksen julkaisuja, Sarja A2, Tutkielmia ja raportteja 22, Tampereen yliopisto, Tampere. Näsi, J. 1982. Markkinointiajattelu 1970-luvulla (Marketing thought in the 1970s). Yrityksen taloustieteen ja yksityisoikeuden laitoksen julkaisuja, Sarja A2, Tutkielmia ja raportteja 28, Tampereen yliopisto, Tampere. Näsi, J. 1983 Tieteelliset tutkimusotteet ja suomalainen liiketaloustiede, hallinto, Viitekehyksen konstruointi ja historiallis-paradigmaattinen analyysi (Scientific

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research strategies in Finnish business economics, management and organisation. Construction and historical-paradigmatic analysis of the framework). Yrityksen taloustieteen ja yksityisoikeuden laitoksen julkaisuja, Sarja A2, Tutkielmia ja raportteja 24, Tampereen yliopisto, Tampere. Näsi, J. 1995. “A Scandinavian approach to stakeholder thinking.” In Understanding stakeholder thinking, ed. J. Näsi. Jyväskylä: Gummerus Oy. Näsi, J., and Neilimo. K. 2008. Mitä on liiketoimintaosaaminen (What is business competence). Juva: WSOYpro. Näsi, J., and Näsi, S. 1985. Suomalainen laskentatoimen tutkimus 1940-luvulta nykypäiviin, Väitöskirjatuotannon tutkimusstrateginen analyysi (Accounting research in Finland from the 1940s to the present. An analytical review of the research strategies in doctoral dissertations). Yrityksen taloustieteen ja yksityisoikeuden laitoksen julkaisuja, Sarja A2, Tutkielmia ja raportteja 39, Tampereen yliopisto, Tampere. Näsi, J., and Saarikorpi, J. 1983. Tieteelliset tutkimusotteet ja suomalainen liiketaloustiede, markkinointi. Historiallis-paradigmaattinen katsaus ja analyysi (Scientific research strategies in Finnish business economics, marketing. A historical-paradigmatic review and analysis). Yrityksen taloustieteen ja yksityisoikeuden laitoksen julkaisuja, Sarja A2, Tutkielmia ja raportteja 30, Tampereen yliopisto, Tampere. Näsi, S. 1990. Laskenta-ajattelun kehitys viime vuosisadan puolivälistä nykypäiviin, Suomenkieliseen laskentatoimen kirjallisuuteen perustuva historiantutkimus (The development of accounting thought from the middle of the last century to the present day). Doctoral dissertation, Acta Universitatis Tamperensis, A291, Tampere. Näsi, S., Laine, P., Mäkinen, V., and Näsi, J. 1993, August 18–20. A research strategic analysis of the Finnish doctoral dissertations in Accounting. Paper presented in Nordiska Företagsekonomiska Änmeskonferensen, Lund. Näsi, S., and Näsi, J. 1988. Accounting research in Finland from the 1940s to the present. Discussion paper 04–18–88. College of Business & Industry, Mississippi State University. Reprint: University of Jyväskylä, 1992. Näsi, S., and Rohde, C. 2007. Development of cost and management accounting ideas in the Nordic countries. In Handbook of management Accounting Research (Vol. 2), ed. Ch. S. Chapman, A. G. Hopwood, and M. D. Shields. New York: Elsevier. Pihlanto, P. 1988a. Laskentajärjestelmä ja “toinen ulottuvuus”: sosiologinen näkökulma laskentatoimeen (The “second dimension” in an accounting system: A sociological approach to management accounting). Publications of the Turku School of Economics and Business Administration, 1, Turku. Pihlanto, P. 1988b. ”Onko laskentatoimi (kirjanpito) vain rahaprosessin kuvausta?” (Is Accounting Merely a Description of the Monetary Process of Enterprise?). The Finnish Journal of Business Economics 4. Pihlanto, P. 1992. The action-oriented approach and case study method in management studies. Publications of the Turku School of Economics and Business Administration, A-3, Turku. Pihlanto, P. 1994. Humanistisen laskentatoimen hahmottelua, tiedeideaali ja ihmiskäsitys (Outlining humanistic accounting: The approach to science and assumption about human nature). Publications of the Turku School of Economics and Business Administration, A-4, Turku. Pihlanto, P., and Lukka, K. 1993. ”Martti Saario—suomalaisen laskenta-ajattelun kehittäjä” (Martti Saario—the Developer of Finnish accounting thinking). The Finnish Journal of Business Economics 3. Pitkänen, E. 1969. Tuotostavoitteiden operationaalisuus julkisessa hallinnossa (Operational output objectives in public administration). Doctoral dissertation, Publications of the Helsinki School of Economics, A:3, Helsinki.

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Rasila, V. 1982. “Liberalismin aika.” In Suomen taloushistoria 2, Teollistuva Suomi (The time of liberalism, in Finnish economic history 2, industrialising Finland). Helsinki: WSOY. Rhenman, E. 1964. Företagsdemokrati och företagsorganisation (Industrial democracy and business organisation). Stockholm: Thule. Rhenman, E., & Stymne, B. 1965. Företagsledning i en föränderlig värld (Corporate management in a changing world). Stockholm: Aldus/Bonnier. Riistama, V. 1971. “Laskentatoimen hyväksikäytöstä” (On the Use of Accounting Measurements). The Finnish Journal of Business Economics 2. Saario, M. 1945. Realisointiperiaate ja käyttöomaisuuden poistot tuloslaskennassa (The realization principle and the depreciation of fi xed assets in profit calculation). Doctoral dissertation, Liiketaloustieteellisen tutkimuslaitoksen julkaisuja 6, Helsinki. Saario, M. 1959. Kirjanpidon meno—tulo-teoria (The expenditure-revenue theory of accounting). Liiketaloustieteellisen tutkimukslaitoksen julkaisuja 28, Keuruu. Salmi, T. 1976. “Puheenvuoro suomalaisista opinnäytetöistä” (A Review of Finnish Dissertations). The Finnish Journal of Business Economics 1. Salmi, T. 1978. “Opinnäytetutkimuksen aiheen valinnasta ja kontribuution käsitteestä liiketaloustieteessä” (On the Finnish Concept of Scientific Contribution and Subject Selection in Doctoral Theses in Business Economics). The Finnish Journal of Business Economics 4. Schmalenbach, E. 1925a. Grundlagen dynamischer Bilanzlehre (3rd ed.). Leipzig: G. A. Gloeckner. Schmalenbach, E. 1925b. Grundlagen der Selbstkostenrechnung (2nd ed.). Leipzig: G. A. Gloeckner. Tainio, R. 1978. “Henkilöstöhallinnon tutkimusstrategiat vaihtuvuustutkimusten valossa” (Experiences from Labour Turnover Research and its Implications for the Choice of Research Strategies in the Area of Human Resource Management). The Finnish Journal of Business Economics 1. Tainio, R. 1979. Henkilöstöhallinnon tutkimusasetelmat (Research settings in personnel administration). Helsingin kauppakorkeakoulun julkaisuja D:34, Helsinki. Tainio, R., Ahlstedt, L., and Pulkkinen, K. 1982. “Business Economics—Administration in Finland: A Historical Review.” The Finnish Journal of Business Economics 1. Tamminen, R. 1992. “The Development of Inquiry Approach.” The Finnish Journal of Business Economics 1. Tamminen, R. 1993. Tiedettä tekemään! (How to make science!). Jyväskylä: Atena kustannus Oy. Vehmanen. P. 1992. “Johdon laskentatoimi ja rahoituksen laskentatoimi—ehdotus terminologian tarkistamiseksi” (Management Accounting and Financial Accounting. Some Terminological Considerations). The Finnish Journal of Business Economics 1. Vehmanen, P. 1994. “Toimintolaskenta yrityksen johtamisessa” (Activity-Based Costing and Management). The Finnish Journal of Business Economics 3. Vehmanen, P., and Koskinen, K. 1997. Tehokas kustannushallinta. Helsinki: WSOY. Virkkunen, H. 1951. Teollisuuden kertakustannukset, niiden degressio sekä käsittely kustannuslaskennassa (Onetime costs of the industry, their degression and handling in cost accounting). Doctoral dissertation, University of Helsinki, Helsinki. Virkkunen, H. 1954. Laskentatoimi johdon apuna, Systemaattis-teoreettinen tutkimus teollisuusyrityksen laskentatoimen haaroista ja tehtävistä erityisesti

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johtotehtävien kannalta (Accounting as the tool of management, a systematictheoretical study of the branches and functions of the industrial accounting from the point of view of the tasks of management). Liiketaloustieteellisen Tutkimuslaitoksen julkaisuja 18, Helsinki. Virkkunen, H. 1961. Teollisen kustannuslaskennan perusteet ja hyväksikäyttö I-II (The use of industrial cost accounting I-II). Kauppakorkeakoulun julkaisuja, sarja C:1:9, Helsinki. Virrankoski, P. 1975. Suomen taloushistoria kaskikaudesta atomiaikaan (Finnish economic history from burn-beating to the atomic age). Helsinki. Virtanen, K. 1979. Yritysoston suunnittelu prosessina (Planning of purchase of a fi rm as a process). Publications of the Helsinki School of Economics, A:31,Helsinki. Virtanen, U. 1949. Suomen teollisuuden kustannusten rakenne v. 1944 ja sen kehityksen pääpiirteitä (The cost structure of the Finnish industry in 1944 and main features of its development). Doctoral dissertation, University of Helsinki, Helsinki.

Legislation Laki kirjanpitovelvollisuudesta (Act on the Obligation to Keep Accounts) 14.2.1925. Laki tilinpäätösten julkisuudesta (Act on the Publicity of Financial Accounts) 20.4.1928. Laki tulo—ja omaisuusverosta (Income and Property Tax Law) 3.8.1920 and 5.12.1924. Laki tulojen ilmoittamisvelvollisuudesta kunnallisverotusta varten (Law on Obligation to Declare Income for Municipal Taxation) 9.4.1919.

7

Accounting and Business Economics Traditions in Sweden A Pragmatic View Sten Jönsson

INTRODUCTION The distinguishing character of business economics (företagsekonomi) in Sweden is its close affiliation with practice and practical problem solving. As in many other countries, the subject has developed through fragmentation, and its popularity among students, undergraduate as well as doctoral, is increasing at a stable rate. Although the top echelons of the major companies have traditionally been dominated by engineers, the trend has changed toward graduates in business economics during recent decades. Given a small home market, since the beginning of industrialization, Swedish industry has had to seek expansion through international markets. This has encouraged a steady flow of international influence on what are considered to be the most sophisticated ideas in business economics.

BUSINESS ECONOMICS IN SWEDEN IS ROOTED IN PRACTICE Even though there was a chair at the University of Uppsala called “Jurisprudentiae, oeconomiae et commerciorum professor,” from 1741 until 1774 (Gunnarsson 1994), business economics can be said to have started with the foundation of the business schools in Stockholm (1909) and Gothenburg (1923). Since there was no academic tradition in business studies in Sweden at the time, the fi rst professors had to be recruited from abroad. The schools in Stockholm and Gothenburg had one chair each in business economics, then called “Handelsteknik” (literally the techniques of trade). In both cases, the initial holders of the chairs were Germans. These professors did not stay for long, however, and returned to Germany in pursuit of their careers. Therefore, they did not have a great impact, except maybe on the choice of successors. It was the second holders of the chairs in Stockholm (from 1913) and Gothenburg (from 1926) who made an impact on the development of business economics and the link to accounting. Their long tenure as professors (38 and 41 years, respectively)—they were the only professors in business economics in Sweden for the major part of

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that period—gave them a central position in the development of academic teaching and institution building. Business education was located entirely in these two schools, and their authority also gave them access to and membership of committees charged with forging norms related to the modernization of industry and management. In fact the societal responsibilities of holders of such unique positions were quite demanding.

THE START OF BUSINESS ECONOMICS AS AN ACADEMIC SUBJECT The start of academic business education in Sweden (cf. Engwall 1992) is indicative of some of its specific traits and its relation to accounting. Before the twentieth century, business in Sweden was to a significant extent exploitation of natural resources. Forestry, copper, and iron ore were the topics discussed in trading houses in the big export harbors. The trade was learned by practicing in the offices of great continental houses, and bookkeeping was a trade. Even though there were interesting, early flow-oriented systems of accounts in some of the iron works as early as the eighteenth century, there was no theory or profession to care for the development of general principles. Business was based on access to natural resources and good connections abroad. It is interesting to note that when Carlson (1986) made a survey of the Swedish “captains of industry” mapping the experience abroad, for extended periods of studies or work, of 150 to 200 business leaders listed in the Swedish “Who’s Who” of 1880, 1930, and 1980, he found that the business leaders of 1880 had spent more time abroad than those of 1930, who, in turn, had more experience abroad than the leaders of 1980. This is interesting against the background of Swedish industry being more internationalized than that of most other countries. Major companies usually have close to 90% of their sales (and employment) abroad. The business community initiated the foundation of the two business schools, the state universities seeing no academic merits in taking up practical matters like bookkeeping on their agenda.

THE TURN OF THE CENTURY Several projects to start business schools were under way in the Scandinavian countries, but only the Stockholm School of Economics was able to get started before World War I. As mentioned, the first professors in the two business schools were Germans (Mahlberg and Walb). When the first professor in Stockholm (Walb) was to be replaced after only a couple of years, negotiations were initiated with Swedes, and the one who got the job was Oskar Sillén (Wallerstedt 1988). He had graduated from the business school in Köln and was a

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pupil of Schmalenbach’s. In order to offer him a decent salary—he had been second in command at the Berlin office of Separator, a leading Swedish company at the time—he was appointed manager of the new consultancy agency, “Industribyrån,” of the newly started Federation of Swedish Industries at the same time as he held the chair. That consultancy agency soon was the leading agency in Taylorist factory organization and rationalization in general. It was also a greenhouse for the emerging audit profession. Though Sillén started to write on cost accounting, his interests soon turned toward financial accounting and auditing, and he was the leader in the establishment of an academically trained auditing profession in the 1920s. He was the chairman of “Föreningen Auktoriserade Revisorer” (FAR), the association of chartered auditors, from its inception in 1923 to 1941. The other business school was set up in Gothenburg in 1923. It had one business economics chair, and its fi rst holder was recruited from Germany (Mahlberg). When he returned to a “post-inflation” Germany, the Gothenburg school was advised by Schmalenbach to approach a young associate professor, Albert ter Vehn, a pupil of Schmidt’s, who started his long period as professor of accounting in 1926 (he retired in 1967). He soon got involved in the debate on standards for cost accounting, and his greatest achievements were the contributions to conceptual stringency and to the structure of charts of accounts. Both of these are of great pragmatic value. The conceptual stringency, which was a distinguishing mark of Albert ter Vehn, no doubt was a result of his early research experiences in a hyperinflationary Germany. Both Sillén and ter Vehn were more interested in conceptual issues than in the nature of the fi rm. There is an unproblematic conception of the fi rm, directly inspired by Schmalenbach, as a background theme in their writing, but they did focus on the “technology” of accounting. Sillén dealt mainly with the principles of financial accounting, especially the different principles used for income smoothing purpose in a setting where companies are taxed on the basis of commercial accounts. Ter Vehn was at his best debating on principles of cost accounting. An illustrative example was his breaking of the Gordian knot in the stalemate on the issue of costing standards in 1934–1935. A standardization effort had been under way since 1927 under the auspices of the standardization commission (SIS), a state agency. Several drafts had been debated, and a confrontation had emerged between a “German” approach to cost calculation, which included current cost adjustments and was represented by ASEA and Ericsson, and an “American” approach, which wanted standard costing and to keep cost calculations for pricing purposes out of the accounts and was represented by SKF and Volvo. It was difficult to reach an agreement on standards when such strong companies argued their cases. The situation is summarized by the CEO of Volvo at the time, Assar Gabrielsson, in a memo to the SIS in a comment to the latest draft in April 1934: In the position taken by mr Liljeblad [representing ASEA, now ABB] and the committee there is a common theme of fear of miscalculation

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when prices fluctuate, inflation or deflation, and when prices of raw materials change. It is the period 1914–22, which has left its trace and generated an attitude, which is natural and understandable. This fear of Mr. Liljebald’s corresponds for me personally to another fear, which has been brought on me during the last two years [Mr. Gabrielsson was a member of the commission to investigate the Kreuger crash in 1932], the fear of “judgmental accounting” Professor ter Vehn interfered in this situation to clarify the differences in the positions taken and how these differences could be accommodated in one system. In order to do this, he needed a neutral language, and he used the graphical method of describing charts of accounts introduced by Schmalenbach (1927) and showed how the fears of the two sides could be overcome by using different models to achieve the adjustments to deal with standard versus real cost accounts, respectively. He was convincing because he backed up his conceptual discussion with good descriptions of the cost accounting systems of the four companies involved (ASEA, Ericsson, SKF, and Volvo). The practitioners could “see” the point of the different solutions. Both professors (Sillén and ter Vehn) were conceptually interested in the sense that they provided technical solutions to the problems of practice. It is of great significance for the understanding of the development of business economics traditions in Sweden to start from this institutional setting with only two schools and only two professors holding their positions for a long period of time (around forty years). The strong German influence during the fi rst fi fty years is a natural consequence of the fact that Germany was the dominating trade partner for Swedish industry at the time. During this period of academic stability (and limited capacity), Swedish industry developed rapidly and steadily. The depression of the 1930s was difficult for the economy of course, but the impact was moderated by a developing welfare state built on an economic policy favoring industrial investment (and large companies). Economic development was especially strong during the fi rst two decades after World War II, when the profits of growth were increasingly invested in welfare reforms. Next the activities of our accounting professors during these times of growth and social engineering reforms will be exemplified.

SETTING STANDARDS The chartering of auditors had been a problem since the end of the nineteenth century. Parliament had been approached without success. Auditing was not a prominent enough profession for the state to participate in its legitimation. Then, when the Stockholm School of Economics was started, as a business community initiative, it was only natural that the Stockholm Chamber of Commerce undertook to promote studies at the new school

190 Sten Jönsson by chartering its graduates as auditors. Several of these early auditors set up office in the “Industribyrån,” which was managed by Professor Sillén. Soon there was a break between those new auditors with business school education and those without. Professor Sillén led the more well-educated auditors in the formation of FAR in 1923. From this start and up to the 1940s, Professor Sillén was also the chairman of FAR. Although Professor Sillén resigned the leadership of Industribyrån after a five-year period, he continued to build an auditing fi rm and chair the profession beside his professorial duties. Professor Sillén was an institution builder, and he moved easily among academia, profession, and industry. For Professor ter Vehn in Gothenburg, the situation was different. He was twenty-six years old and a foreigner when he arrived, having distinguished himself in excellent papers and a thesis on profit and wealth in the hyper-inflationary conditions of Germany of the early 1920s. Now he involved himself in building the Gothenburg School, which was not doing well in terms of the number of students at the time. The school faced strong competition from a practical trade school a few blocks away. Gothenburg, a city dominated by trade and shipping at the time, did not seem to offer many job opportunities for people with a more advanced education. Albert ter Vehn had to concentrate on his teaching at first and on providing compendia of his lectures. His fi rst significant research endeavour on Swedish soil was a mapping (mentioned earlier) of the management accounting systems of four of our major corporations (ter Vehn 1936). With this background and his interest in conceptual clarification, he could participate forcefully in the debate on standard setting for cost accounting. This was also an institution-building effort. Both business economics (i.e., accounting) professors in the country thus worked to capacity in institution building during the formative years for Swedish industry before World War II. In the latter part of the 1930s, “business economics” was suggested as a common denominator for business studies. Accounting dominated even if distribution and retailing had started to develop. The two accounting professors had found their roles. They would, for example, agree on terms to denote concepts and use them in class. They greatly influenced, if not authored, professional norms in cost accounting, fi nancial accounting, and auditing. There simply was no room for academic research in the modern sense at the time. Nonetheless, the activities of these professors significantly contributed to the setting of standards not only for accounting practice, but also for the pragmatic approach and open access to company problems that Swedish management research has enjoyed since then. Two examples from the process of modernization of Swedish industry will illustrate this. For Professor Sillén, a strategic problem arose in 1932 when Ivan Kreuger’s industrial empire collapsed. Kreuger had built a business empire on fi nancial wizardry, including inventions of new fi nancial instruments.

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He had helped several nations fi nd solutions to the crisis of state fi nances after World War I, and he was rewarded among other things with monopoly rights for producing matches in several countries. The holding company of his empire, Kreuger & Toll, was a major security on the New York Stock Exchange (Flesher and Flesher 1986). When he was exposed, starting with a diligent auditor who showed that Ericsson had been depleted of cash and pursued the matter, the scandal was of enormous dimensions in the small country where he had been such a prominent industrialist. Flesher and Flesher (1986) demonstrate that the scandal initiated the formation of the Securities and Exchange Commission in the United States. For the part of Sweden, it may be exaggerated to claim that the government fell because of the Kreuger crash, but it is true that a long period of social democratic majority rule started in 1933, and a review of the Companies Act, to prevent further catastrophes, was initiated. The auditing profession was implicated, of course, since something was wrong when the tricks of Kreuger had not been exposed before. The new government initiated an economic policy, in dialogue with eminent economists, to fight unemployment through industrial growth, which included tax incentives for investments in industrial capacity and promotion of labor mobility toward internationally competitive industries. Part of this industrial modernization was the increasing application of Taylorist ideas in factory organization. Against this background, the following cases of industrial-academic cooperation in a standard setting should be appreciated. For the academically trained auditors in FAR, which Professor Sillén chaired, the problem in dealing with the Kreuger crash was that the profession was small (around fifty members), and auditing fi rms normally were one-man enterprises. The auditor of the Kreuger empire was expelled from FAR, but the work to improve practices could not be done by the profession alone. It had to be done jointly with a stronger party, the state. Sillén joined the governmental committee to review the Companies Act. Accounting practice had until then been regulated through legislation, and this trend was now strengthened. The strategic place to influence accounting practice was participation in the legislative process. In management accounting, the driving force behind development before World War II was the modernization movement, specifically the introduction of “scientific management.” While Swedish industry had a long tradition of international business, it was only after the engineering industry started to compete internationally that the issues of factory organization and costing became hot topics among engineers. The ideas came by different routes but were articulated and translated into Swedish practice by a fairly small network of opinion leaders. Some companies, notably Separator (later named Alfa Laval) and SKF, imported Taylorist ideas, and institutions of opinion leadership were established primarily in the “Industribyrån” of the Federation of Swedish Industries and in the professional association of engineers. The drive toward rationalization was accelerated by the dramatic business

192 Sten Jönsson downturn in the fi rst years of the 1920s. A call for standards of costing terminology in the late 1920s and later for costing procedures resulted in a standard cost concept as well as a model for full cost calculation in 1936. (It was in the debate between representatives for different approaches that professor ter Vehn [1936] demonstrated how some arguments were fl awed and how both sides could be accommodated reasonably well. German influence on cost calculation prevailed.) The success of standardization through committee work encouraged industrial associations to take a further step and develop a standard chart of accounts for specific industries. The most notable one was that of the Mechanical and Machinery industry. It had a very well-developed book of comments whose main author was Professor ter Vehn. This latter chart of accounts is designed to contain flexibility as well as having a fi rm foundation in a conceptually clear costing theory. The chart of accounts was widely accepted and was also used to structure cost accounting education in the business schools. It was from this symbiosis of theory and practice that the “scientification” of business economics started. There was a pronounced trust relation between industry and academia, and the meeting point was committee work on standards of good practice. Academics and “men of practice” debated the issues and found pragmatic solutions, which were implemented in practice and used in education. The most significant academic publications during this first period were Sillén’s books on full costing (1913) and on principles of asset valuation (1958, with Västhagen), ter Vehn’s collection of articles on the standardization of full costing (1936), and his comments to the new standard chart of accounts issued by the association of the Mechanical and Machinery industry.

GROWTH AND PROLIFERATION As business education expanded after World War II, it also became more specialized. The number of chairs in business administration (the literal translation of the Swedish term, introduced in the late 1930s, is “business economy”) started to grow in the 1950s. In the two business schools this expansion of the content of business economics was accommodated by division. To some extent, the cuts were made on the basis of available expertise, but the main development was fi rst to divide the business economics department into one division in accounting and costing and another with marketing and organization. These divisions were later divided into accounting and managerial economics and marketing and organization. By the mid-1960s, both schools had a business economics department with four chairs (accounting, marketing, organization, and managerial economics). The fi rst generation of professors in this new constellation again had to give priority to institution building. Students arrived in masses. Admission was free for all who were qualified. A certain amount of functionally

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oriented research appeared even if international publication in scientific journals was rare. In parallel to this development, business economics was introduced as a department in the universities. The holders of the new chairs had no easy task in establishing this new discipline in relation to the older social science disciplines with masses of students (which generated budget allocations), but teaching staff was inadequate, and there was little time for research. The obvious need to establish a research organization translated into a longing for academic respectability. An illustration of this is the internal debate in the Gothenburg School of Economics when faculty was faced with the proposition to merge with the university. The central argument for the majority to drive through the merger of the business school and the university, in 1971, was academic respectability. The capacity to live up to academic standards of research was limited, however. Doctoral students, under the new four-year doctoral degree— before 1971, a doctoral dissertation could be the work of a lifetime—were drawn into heavy teaching commitments. But it was the doctoral students who were fascinated by the new operations research ideas. Learning to use the tools and then applying them to all conceivable problems was, however, not fruitful. The empirical basis was usually too weak, and research suffered from inadequate mathematical training among the new researchers. However, the growth of young faculty with less developed ties to industrial policymaking provided the platform for more “academic” business economics research. In the fi rst years of the 1970s, doctoral programs could be stabilized after the period of hectic volume growth. Standard courses and organized tutoring were established, and a research-oriented generation of young faculty appeared. Looking back on the history of our discipline in Sweden, one discovers a break in the development, a generational shift, as it were, in the early 1970s. The explanation for this is the strain on resources caused by the rapid expansion of business education during the 1960s with a levelling out and a consequent emergence of a new research-oriented generation of faculty in the early 1970s. This generational shift also meant a defi nite break with German influence on business economics in Sweden. This kind of shift was gradual and hardly noticeable at the time, but in the light of history, it is dramatic. For the new generation of research-oriented business economists, the German influence was not noticeable since they had been trained on the basis of American literature. There were, however, through the 1960s, older generation professors who maintained vivid contacts with German academia. The “break,” thus, is not a sudden event but takes its course through the due replacement of holders of chairs. Institutionally, this break also manifested itself in a proliferation of chairs and a fragmentation of business economics in all directions. Some universities maintained chairs in “general” business economics, but the trend toward specialization was forceful. The

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start of the current debate on measures to promote re-integration of the sub-disciplines of business economics can be dated to the late establishment of a national “academy” of management only a few years ago. The “wild” expansion of the volumes during the 1970s and 1980s has left the business education disciplines with poor budgets in comparison with their international competitors. The problem for the government is that, due to the large volume of students in business administration, the total cost for improving the budget/student is quite high. This historical account shows fi rst that the early development of our discipline benefitted from an intense dialogue with industry representatives in problem solving and standardization. Here the accounting professors were the most prominent. Around 1960, a shift of attention occurred toward calculative methods (operations research), but soon organization studies took the lead, mostly inspired by Behavioral Theory of the Firm (Cyert and March 1963). Since the event of the Carnegie School organization or management studies has dominated the national discourse on management research in Sweden—accounting is no longer the prominent part of business economics. As I have noted, the changes in emphasis were hardly noticeable at the time but stand out in retrospect. However, there was one event that appeared important to us all at the time.

THE SHIFT The most explicit illustration of how the shift in orientation took place in Sweden is the importance that leading management researchers attached to the GSIA Carnegie-Mellon symposium in Gothenburg in the summer of 1968. This is evidenced by a survey of the current situation in management research done in the early 1980s (Jönsson 1984). A questionnaire was sent to seventy-seven business administration researchers in Sweden (all full professors, associate professors, assistant professors, and some lecturers known to be active researchers) in 1983, which generated fifty-three usable answers. Of these fifty-three respondents, thirty-seven had received their PhD in 1971 or later. Of the nineteen full professors in the sample, ten had been appointed in 1976 or later. This shows a relatively “young” academic population. The areas of strength in Swedish management research in international comparison were then said to be organization (twenty-six votes), management control (fi fteen votes), and industrial marketing (eleven votes). As to areas of interest for future research, there is a strong tendency in the suggestions toward institutional theory. The reason for mentioning this survey of management research is that a ranking of the most respected researchers was generated, and interviews with the top six researchers were conducted. Two commonalities were found between these leading researchers: (1) in their early research, they

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achieved results that were at odds with established theory in their area; and (2) several of them mentioned the GSIA symposium as the single most stimulating event in their academic career (Jönsson 1984). This symposium offered the opportunity to establish personal contacts with leading representatives of the Carnegie School (Simon, Cyert, Ijiri, Cooper, and Vroom, to name a few). These contacts have developed since then, especially through early contacts with the European Institute of Advanced Studies in Management in Brussels, but also through WissenschaftsZentrum in Berlin and the interest Henry Mintzberg showed while in Europe in the 1970s. For accountants, Anthony Hopwood, then at London Business School and later the London School of Economics and Oxford University, was an important door opener to the world. James March and Herbert Simon are the most respected researchers among Swedish colleagues. Their influence goes deep. This means that the shift that took place in the late 1960s was from a classical, “scientific management” conception of business economics to a “behavioral theory of the firm” view. This shift coincided to a large extent with a generational shift of leading researchers and thus was fairly radical. (There was, like in most other countries, a period of “management science” during the 1960s, but this was short and never established a dominating position.) This basis in the behavioral theory of the firm has developed toward institutional theory, and it has been driven by empirical observation, often in the form of case studies. The tradition of having good access to field research sites, and a pragmatic interest, has thus prevailed, but the theoretical orientation among leading researchers has shifted toward behavior, rule making, and institutionalization. A considerable number of field studies have been conducted in public sector organizations, where these types of phenomena (and deviations from rational decision making) are frequent. It should be pointed out that this empirical orientation toward deviations from rational behavior (even from bounded rationality) has limited the influence from economics on management research to a remarkable extent in comparison with the situation in most other countries. It is as if research has been driven by a quest to understand why competent managers do not behave like they should according to our textbook theories.

ACCOUNTING AND BUSINESS ECONOMICS This general development of business economics naturally has had its influences on accounting research in Sweden. First, it should be noticed that accounting traditionally has had the heaviest teaching load of the sub-disciplines of business economics. The capacity to foster researchers was limited by this fact and by the fact that, up to the end of the 1970s, only two accounting chairs existed in Sweden. By historical coincidence, these chairs had divided the area between them so that the Stockholm chair focused on

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fi nancial accounting and the Gothenburg chair on management accounting. Even if both departments had the full portfolio of research activities, and Stockholm had the resources to back it up, the profiles that emerged were the ones mentioned. It is also notable that budgeting and product costing were the responsibility of another department (than accounting) at the Stockholm School.

Financial Reporting As far as the regulation of fi nancial accounting goes, the tradition of academic membership in standard setting committees continued. A study, using social network theory of the elite structures forging accounting norms, found that the persons, only about a dozen, influencing the design of fi nancial accounting standards tended to center around the Accounting Committee of FAR and the Stockholm School of Economics (Jönsson 1988, 1994). The mapping of the elite was made twice—at the beginning and at the end of the 1980s—and the focal persons stayed the same even if there, at the end of the decade, seemed less of business journalists among the opinion leaders on good practices in fi nancial reporting and more of representatives of the stock exchange. Professor Johansson of the Stockholm School was the undisputed center of this network. He established himself as an (old school) authority on good accounting practice by leading the committee work on reporting standards for listed companies (Näringslivets Börskommitte 1968) and continued as mentor and rallying point for activist scholars who established themselves in business journalism, auditing, and standard setting. Research on fi nancial reporting has been limited in Sweden, though. This may be explained, at least partly, by the shift in the flow of research grants toward organization studies. Some good studies were presented. Bertmar and Molin (1977) analyzed measures on capital structure, growth, and return on investment, and Mossberg (1977) studied key indicators. Later the studies presented at the Stockholm school tended toward behavioral fi nance and the actors on the stock market. Marton (1999) did a price-winning study of how analysts in the international centers of fi nance analyze Swedish annual reports. Corporate governance was not a prominent topic. In Gothenburg, the other accounting department, beside studies of accounting system design, the 1970s had meant an orientation toward municipal budgets in the wake of the second oil crisis (Jönsson 1982). This focus also led to studies of how local politicians use accounting information (Brorström 1982; Olson 1983). These researchers, while pursuing academic careers, also had an impact on the regulation of public sector accounting. Accounting research as such has had a limited impact on financial accounting practice since there has been a strong tradition of legal regulation. Further, since the European directives and IASC standards came to dominate the attention of regulators, the stimulus for fi nancial accounting

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research that stems from a national debate on good accounting practice has more or less evaporated. The stock market was a fairly insignificant source of fi nancing up to the early 1970s, and the economic policy of the government included heavy reliance on tax incentives to promote industrial growth. Therefore, tax legislation was an important influence on fi nancial reporting practice at that time. During the 1980s, there were increasing problems, the regulators thought, with compliance with GAAPs on goodwill accounting, and initiatives were taken to change the institutional structure of accounting standard setting. The strategy was to involve the stock exchange with the purpose of using stipulations in listing agreements with the stock exchange to improve enforcement of compliance with standards. This was accomplished to a certain extent even if the board of the stock exchange chose not to participate as founders of the new Accounting Council (from 1989). Still the stock exchange is represented on the Accounting Council and takes an active part in the promotion of good accounting practice. The main policy of the Accounting Council is to minimize deviations from the IASC standards. This means that fi nancial accounting regulation has shifted focus from a national to an international one. The short description above also illustrates that accounting regulation is largely institutional and oriented toward clarification of how given accounting principles (as laid down by law or, later, by IASC standards) should be applied in the Swedish context. Financial accounting research did not play a significant role in either of these debates. The academic accounting knowledge was imported into the standard setting bodies by including professors as members of these bodies. This close connection has virtually disappeared today. This is due to the rulemaking moving so far away from the accounting action familiar to empirically oriented academics and toward the lobby-infested fi nancial centers of the world. Also the movement toward market values and revaluation as a basis for reported profit rather than efficient management has reduced the interest for doing research on fi nancial reporting. Sweden has a severe shortage of fi nancial accounting professors today. It does not look good.

Management Accounting There has been a significant interaction between the development of management accounting research in Sweden and business economics since the 1960s. A clear link can be found between the principles applied in the practical design of management control systems (Samuelson 1989) and research. This was an effect of the tendency to do research in terms of case studies of experiments with new designs or structures. Academics have participated in committee work initiated through industrial associations much in the same manner as before World War II. An added quality is that these committees have commissioned some research projects.

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As to product costing practices, there seems to have been a strong tendency toward continuity from the development of costing standards in the 1930s rather than influence from business economics. Marginal costing was debated and included in the practices of some industries (like steel) from the early 1950s, but here it seems like the marginalist ideas, brokered by academics, from the London School of Economics, were confi rmed by practical experience and accepted as relevant (Frenckner and Samuelson 1984; Jönsson 1991: 535f). The principle of different costs for different purposes has been kept visible all along, and even if absorption costing dominates in manufacturing industry, as much as 44% of larger companies used costing systems built to provide for variable as well as absorption costing (Ask & Ax 1992; see also Ask, Ax, and Jönsson 1996). This means that a distinctly pragmatic/rationalistic view has dominated practice all through the modernizing process. Research and theory participated by application to problems at hand. In the last few decades, academic management accounting research has taken on an increasingly behavioral flavor. As in most countries, the design of accounting information systems to take advantage of the improved (but still limited) capacity of computers became a dominating issue in the 1970s. The pioneering research behind the new wave of organizational experiments was distinctly behavioral (Östman 1973, 1977), and the orientation of the problem formulations was toward the use of accounting reports. This, in turn, was partly inspired by the activity-based costing approach that was primarily introduced to Swedish accounting scholars, during the early 1960s, by the writings of the Danish colleague V. Madsen under the name of variabilitetsregnskab (literally “variability accounting”). This approach was built on the argument that arbitrary allocations should be avoided and cost drivers identified so that accounting information could be made relevant to the user situation. Even though system design aspects were still in focus, the concern for use of accounting information shifted attention toward report generators and the design of accounting reports (cf. Polesie 1976; Hedberg and Jönsson 1978). The arguments for or against different approaches or solutions were behavioral in nature. This view of accounting information was well in line with the behavioral theory of the fi rm and its further development. It is also natural that a further step in management accounting research should take up the design of support for organizational learning on the operational level in manufacturing (Grönlund and Jönsson 1990; Jönsson 1996). This latter development was well in line with the concurrent development of experiments with new forms of work organization that had been conducted in Swedish industry since the 1970s (notably Volvo’s Kalmar plant; cf. Berggren 1990). A related context-dependent line of research in Swedish management accounting has been the one dealing with public sector management accounting. Here behavioral aspects in a political setting in conjunction

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with the redesign of accounting systems have been studied in longitudinal field studies (cf. Jönsson 1982; Olson 1983; Brunsson 1989). It has been the rule rather than the exception that studies have been carried out partly as action research projects. It is also common to base reports on large series of interviews conducted over long periods of time. In this way, these studies have contributed to a specific sensitivity to the role of the context for the use of accounting information. There is also a distinct appreciation of the pragmatic view of accounting systems among accounting scholars in Sweden. The ultimate test of accounting concepts or information systems is whether they work in a real-life setting. In this sense, it is reasonable to claim that a pragmatic view (James 1907/1974; Baldwin 1986) has been developed in Swedish accounting research as well as practice. This part of accounting research is more vibrant, and it feeds nicely from its interaction with institutional theory in organization studies. Unfortunately, recent trends in leading journals toward mass data studies of corporate governance and compensation has reduced the number of publication opportunities for new fi ndings in operations and management control studies.

SUMMARY: A PRAGMATIC VIEW DEVELOPED THROUGH DIALOGUE WITH THE PROBLEMS OF PRACTICE To understand the peculiarities of Swedish accounting research (and practice for that matter), one has to go back to the traditions built in the period between the World Wars. Practical problems were solved in committee work, and the recommendations were largely followed. Since academics participated in committee work, the connection between the theories of the time and practices were fairly good. Research has benefited from this close interaction in the sense that scholars have had almost free access to organizations and have been able to develop a sensitivity to the importance of the contexts in which accounting is done. There are of course drawbacks, perhaps the most significant being scepticism toward “pure” forms of theorizing and the ontological simplifications behind more “rigorous” formulations of accounting research problems. Therefore, one fi nds virtually no capital asset pricing model-based research in Sweden. The market assumptions are simply not valid in a small stock market where most actors have good knowledge of non-accounting information relating all listed companies. (Also share prices are increasingly influenced by the dispositions of large actors on the New York capital market, the Swedish market functioning as a satellite.) Business economics was initially regarded as a unified subject in Sweden, much as in Germany, even if influences have come almost exclusively from America during the last few decades. The core of this unified subject was costing and “scientific management.” Due to the pragmatic tradition, the shift toward a focus on the managerial activity of “organizing,” which may

200 Sten Jönsson now be seen as the core, using behavioral theory of the fi rm as a stepping stone, came rather naturally even if it seems radical in retrospect. The shift took place in the late 1960s, and even if the different sub-disciplines took off in different directions, in the meantime the common theme at present seems to be institutional theory. During this shift, the room for management science approaches or for influence from neoclassical economics has been minimal. This shift can be traced to a symposium between Scandinavian researchers and the Carnegie-Mellon faculty in the late 1960s. Accounting research has since then developed progressively toward theorizing the use of accounting information in context. All through this century, accounting academics have had close contact with the regulation of practice. Periodically, academics have had a dominating influence in this area. Such a responsibility may foster a need to avoid controversial issues or at least not to publicize them. This being part of the network influencing practices gave research a pragmatic orientation at the same time as it gave access to companies. When a new generation of academic researchers appeared in the latter part of the 1970s, the heritage carried over in the sense that research problems are formulated by researchers who are well informed about practices and who can count on good access to research sites. Applying a pragmatic view thus means both that researchers may focus on issues that are relevant to industry as well as academic research and that the fascination with universally valid results is less pronounced than in many other cultures. In a sense, the new interest in “globalization” in most subdisciplines of business administration has made the Swedish tradition in accounting research obsolete. The universally valid results that are supposed to come out of statistical analysis of large bodies of data do not seem to stimulate new departures in Swedish accounting research (so far). It might be significant that the largest number of papers in recent national conferences seem to deal with management accounting and organization in the health sector.

REFERENCES Ask, U., and Ax, C. 1992., Trends in the Development of Product Costing Practices and Techniques—A Survey of Swedish Manufacturing Industry. FE-report nr 333, Department of Business Administration, University of Gothenburg. Ask, U., Ax, C., and Jönsson, S. 1996. “Cost management in Sweden: From modern to post-modern.” In Modern cost management: European perspectives, ed. A. Bhimani. Englewood Cliffs, NJ: Prentice-Hall. Baldwin, J. D. 1986. George Herbert Mead—A unifying theory for sociology. Newbury Park, CA: Sage. Berggren, C. 1990. Det nya bilarbetet (The new approach to car building). Lund: Arkiv. Bertmar, Lars, and Molin, Göran. 1977. Kapitaltillväxt, kapitalstruktur och räntabilitet: en analys av svenska industriföretag (Capital growth capital structure,

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and return on investment: An analysis of Swedish industrial fi rms). Unpublished doctoral dissertation, Stockholm School of Economics, Stockholm, Sweden. Brorström, Björn. 1982. Planeringspolitik eller resultatpolitik: användning och utformning av kommunala bokslut (Plans or outcomes: The use and (re-)design of municipal annual reports). Lund: Doxa. Brunsson, N. 1989 The organization of hypocrisy: Talk, decision and actions in organizations. Chichester: Wiley. Carlson, S. 1986. “A Century’s Captains of Industry.” Skandinaviska Enskilda Banken Quarterly Review 2: 52–60. Cyert, R., and March, J. 1963. Behavioral theory of the firm. Englewood Cliffs, NJ: Prentice-Hall. Engwall, L. 1992. Mercury meets Minerva. Oxford: Pergamon Press. Flesher, D. L., and Flesher, T. K. 1986. “Ivar Kreuger’s contribution to US Financial Reporting.” Accounting Review 3: 421–434. Frenckner, T. P., and Samuelson, L. A. 1984. Produktkalkyler i industrin (rev. ed.) (Product costing in industry). Stockholm: Mechanical and Electrical Engineering Industries. Grönlund, A., and Jönsson, S. 1990., “Managing for cost improvement in automated production.” In Measures for manufacturing excellence, ed. Kaplan. Boston: Harvard Business School Press. Gunnarsson, E. 1994. “Anders Berch—de svenska ekonomiska vetenskapernas anfader” (Anders Berch—The Founding Father of the Economic Sciences). In Företagsekonomporträtt (Portraits of business economists), ed. L. Engwall. Stockholm: SNS. Hedberg, B., and Jönsson, S. 1978. “Designing Semi-Confusing Information Systems for Organizations in Changing Environments.” Accounting, Organizations and Society 3: 47–64. James, W. 1907/1974. Pragmatism. New York: New American Library. Jönsson, S. 1982. “Budgetary Behaviour in Local Government—A Case Study over Three Years.” Accounting, Organizations and Society 7: 287–304. Jönsson, S. 1984., Swedish Management Research Today. Working paper, Department of Business Administration, University of Gothenburg. Jönsson, S. 1988. Accounting Regulation and Elite Structures. Oxford: Wiley. Jönsson, S. 1991. “Role Making for Accounting While the State is Watching.” Accounting, Organizations and Society16: 521–546. Jönsson, S. 1994 “Changing Accounting Regulatory Structures in the Context of a Strong State.” Critical Perspectives on Accounting 5: 341–360. Jönsson, S. 1996. Accounting for improvement. Oxford: Pergamon Press. Marton, J. 1999. Accounting and stock markets: A study of Swedish accounting for non-Swedish investors. Gothenburg: BAS. Näringslivets Börskommitté. 1968., Utlåtande med visa rekommendationer för de börsregistrerade företagens informationsgivning (Statement with certain recommendations concerning the reporting of listed companies). Stockholm: Association of Swedish Industries. Olson, O. 1983., Ansvar och Ändamål—om utveckling och användning av ett kommunalt ekonomisystem (Responsibility and purpose—on the development and use of a municipal accounting information system). Lund: Doxa. Östman, L. 1973. Utveckling av ekonomiska rapporter (Development of economic reports). Unpublished doctoral dissertation, Stockholm School of Economics, Stockholm, Sweden. Östman, L. 1977. Styrning med Redovisningsmått (Control by accounting measures). Stockholm: EFI. Polesie, T. 1976. Ändamålsbudgetering (Budgeting by objectives). Lund: Studentlitteratur.

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Samuelson, L. A. 1989. “The Development of Models of Accounting Information Systems in Sweden.” Scandinavian Journal of Management 5: 293–310. Samuelson, L. A. 1990. Models of accounting information systems: The Swedish case. Lund: Studentlitteratur. Schmahenbach, E. 1927. Der Kontenrehmen. Leipzig: Gloecker. ter Vehn, A. 1936. Självkostnadsberäkningens standardisering (The standardisation of full cost accounting). Stockholm: Norstedts. Sillén, O. 1913. Grunddragen i industriell självkostnadsberäkning (Fundamentals of industrial full costing). Stockholm: Swedish Association of Industries. Sillén, O., and Västhagen, N. 1958. Balansvärderingsprinciper—med särskild hänsyn till resultatberäkning vid växlande priser och penningvärde (Principles of asset valuation—with special focus on profit measurement under conditions of changing prices and inflation). Stockholm: Bonniers. Wallerstedt, E. 1988. Oskar Sillén—Professor och praktiker. Några drag i företagsekonomiämnets tidiga utveckling vid Handelshögskolan i Stockholm (Oskar Sillén—professor and practitioner. Some aspects of the early development of Business Economics at the Stockholm School of Economics). Stockholm: Almqvist & Wiksell.

8

Accounting and Business Economics in Denmark Anne Loft, Jan Mouritsen, and Carsten Rohde

INTRODUCTION This chapter explores the development of management accounting as an academic discipline in Denmark, focusing on the period from 1920 to 1970, and in particular, studying these developments in the context of the wider academic and educational contexts of business economics. Denmark is one of the three Scandinavian countries, the others being Norway and Sweden. It is a small country in terms of both size and population; which stood at around 2.5 million in the late nineteenth century and has risen to around 5.5 million today. Well into the twentieth century, it had an economy primarily based on agriculture, albeit rationalized to a large extent from the 1860s onward with the formation of large cooperatives. Commerce and industry developed relatively late, and it was not until after World War I that it was possible to take an education in business, which went much beyond the basics of bookkeeping. Related to this late start and the size of the country, one of the distinct features of the developments in accounting that occurred from the 1920s onward has been the “import” of accounting ideas from abroad. In the period from 1920 to around 1950, the dominant influence was German. In the German perspective, management accounting was seen as an inherent part of the wider subject of business economics, and this relationship held for all of the period we are examining here. In the wake of World War II, the direct German influence waned, and the influence of ideas from AngloSaxon countries, most importantly the United States, expanded. However, the German ideas did not vanish but formed a kind of sedimented knowledge under the new developments coming in from the 1950s to the 1970s, for the most part from the United States. The Copenhagen Business School (CBS), established in 1917, and Aarhus University, which established a business economics faculty in the late 1930s, provided the institutional framework for the development of business teaching and research at a high level in Denmark. Prior to their activities, commercial subjects, including the all-important bookkeeping, were taught as technical skills. The development we trace here is their gradual

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transformation into academic subjects, and in particular developed into parts of a greater whole, business economics, within which accounting resided. Business economics consisted of a set of subjects that were expected to provide the student with the tools to go out into commercial life. Out in commercial life, the student was expected by his former teachers at the business school to purvey the latest techniques in business, including accounting, to his employers. Business economics embraced both theory and practice—with the goal of improving business practice through applying economic theory. In this chapter, the focus will be on the development of management accounting theory in the context of the wider academic discipline of business economics in which it developed. The theories in management accounting being developed in this context and in the period up to 1970 were primarily developed in the hope that their use could improve management in practice. It was only in the late 1970s in Denmark (and beyond the scope of this article) that research began to be carried out in accounting, which was aimed at contributing to academic knowledge and not practice. The accounting knowledge that emerged in the period from 1920 to 1970 reflected the importation not only of theoretical ideas from Germany but later also from the United States, all within the wider discipline of business economics, and of a program for changing the views and work of practicing accountants. In Denmark, it is notable that the work of developing accounting primarily concerned the development of management accounting and to a lesser extent fi nancial accounting. This appears to be connected to institutional differences and is part of our explanation of why it may be that accounting developed differently in this period in Denmark, not only from that in the Anglo-Saxon countries, but also from other countries whose accounting was inspired by the German model. These are also reasons why the study of developments in Denmark is valuable, and can contribute to why and how different systems of management accounting emerged at this time. In doing this, we attempt to show that there are rich and complex histories to be told of accounting beyond the bounds of Anglo-Saxon countries, furthering the earlier work on “accounting in context,” carried out, for example, by Napier (1996) and Hopwood (1983, 2000). After an historical introduction, the focus in this chapter will be on the accounting developments from 1940 to 1970. After the Second World War, American ideas became influential in Denmark. However, “imported”’ ideas were not taken up lock, stock, and barrel by Danish accounting academics, but were used as inspiration. Two Danish “traditions” in management accounting thought developed, one of those in Copenhagen and personified by Professor Palle Hansen at CBS, and the other by Professor Vagn Madsen at Aarhus. These traditions will be given particular emphasis here. One important ingredient in understanding this development would seem to be the Danish language. These were theoretical and practical contributions in Danish, primarily for Danes but also accessible to Swedes,

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Norwegians, and Finns. Little was translated into English or German— and thus was not subject to the kind of “normalizing” isomorphism that occurs when there is a common language in use—for example, in United Kingdom and the United States. One important cultural element here is the role of professors. In the analysis, we may appear to focus heavily on the activities of certain professors, such as Palle Hansen. However, our research suggests that these persons played a crucial role in defi ning and developing accounting in theory and often also in practice in Denmark. Professors were powerful and expected to “embody” their subject both internally in academia and in society. In Danish, this is referred to by the special phrase “professor-rule” (professorvælde).1 It was abolished in 1970 when a new dramatically more democratic constitution was introduced for universities. Another cultural matter is that of the nature of the accounting profession in Denmark. The profession is an “auditing profession” in the sense that only qualified professionals working in public accounting practice can be full members (with some exceptions, such as teaching in universities). 2 As a result, the professional association of accountants does not have management accounting within its jurisdiction; this is in the jurisdiction of the university-level institutions. The chapter continues with the second section, which is an historical introduction to accounting and business economics in the period up to 1940. Following this, the third section deals with management accounting in Copenhagen in the period from 1940 to 1950, and the fourth section focuses on the period from 1950 to 1970. The fifth section examines management accounting in Aarhus from 1940 to 1950, and the sixth section deals with 1950 to 1970. The chapter closes with the Conclusion.

HISTORICAL INTRODUCTION: MAKING BUSINESS SCHOOLS AND BUSINESS ECONOMICS IN COPENHAGEN AND AARHUS: 1914–1940 In the late nineteenth century, trade and commerce were growing in Denmark, but still on a small scale and mainly in Copenhagen. A School of Commerce was established, which in 1891 began to teach bookkeeping, a course that became very popular. However, the School of Commerce did not offer high-level courses like those that could be taken at the business schools in Germany3 (Vibæk and Kobbernagel 1980). This changed in the wake of World War I. Denmark remained neutral, and Danish trade with Germany expanded rapidly, especially in the food sector. Danes involved in organizing the trade realized that their business knowledge was inadequate. In 1917, a department for the study of business at a more advanced level was set up within the School of Commerce. In 1919, this became the Copenhagen Business School (Handelshøjskolen i København). Another possible influence was the existence of the Stockholm School of Economics (Handelshögskolen

206 Anne Loft, Jan Mouritsen, and Carsten Rohde i Stockhom), which was established in 1909, based on the German model (see Jönsson 1996). The names of the institutions reflect their German inspiration—as translated they stand for “Business-High-School.” In the beginning, Copenhagen Business School (CBS) was a private institution, but it gradually obtained more and more state funding, and its qualifications and degrees became recognized by the State, which gradually funded a larger and larger portion of its activities and instituted more controls through the Ministry of Education. In 1965, it became an independent institution with the same status as the Danish universities. It was in the context of CBS that accounting theory began to develop in Denmark during the 1920s and 1930s (developments in Aarhus came later).The development of the subject of business economics in Denmark at this time was intimately connected with the rise of CBS. Copenhagen University did not teach commercial subjects, and although it had an important economics faculty, it did not teach the new subject of business economics. CBS became the “university” for business subjects. The Business School’s higher diploma gradually became the qualification expected by commerce and industry, and thus ideas were spread to practice. As practitioners often became involved in teaching and examining on a part-time basis, and lecturers and professors in consultancy work, theory and practice could relate to each other. These particular networking partners—accounting teaching, accounting as part of the emerging field of business economics, and accounting practice—were to be important to later developments. In the second largest city, Aarhus in Jutland, a School of Commerce was operating by 1920, but it was not until the latter part of the 1930s that higher-level teaching like that at CBS was carried out in. In Aarhus, it was the University that dealt with both subjects of economics and business economics.

ACCOUNTING AND BUSINESS ECONOMICS 1920—1940: THE GERMAN INFLUENCE There were two key persons at CBS involved in the development of accounting in these years. The fi rst of these to be employed was Hans Christian Riis, a translator who became a teacher of bookkeeping and, when he was employed by CBS, a lecturer in accounting. There was little teaching material in Danish, and this led, in 1923, to Riis publishing a textbook for accounting students titled the Study of the Balance Sheet (Statuslære), which dealt with how to account for and make a correct valuation of each type of assets and liabilities and ended with a short description of profit and loss accounts. It was heavily influenced by German authors, especially the work by Rehm, Die Bilanzen der Aktiengesellschaften, published in 1914. Management accounting (in an elementary form) was also taught by Riis, who published a book on it in Danish in 1932 titled Costs and Their

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Treatment in Book-Keeping and Costing in Commercial and Industrial Companies. This book, like his other works, was inspired mostly by German sources, which he translated into a simpler form as practical knowledge to be passed on to the students at CBS (at this time, it appears little that was suitable was published in Denmark, and advanced books on commerce were mainly in German, which the students were expected to be able to read). Riis also contributed on the institutional front by forming a “Commercial Knowledge Study Club” to spread knowledge from CBS to practice and producing the Commercial Knowledge Journal (Handelsvidenskabelig Tidskrift). In the long run, the publications of the club became an especially important conduit for accounting knowledge and at the same time added to the importance of CBS as the main institutional source of accounting knowledge. There were changes in the name of the journal, but from this point in time onward in CBS, professors have run a journal containing articles on management accounting in Danish for practitioners. In 1932, the importance of accounting was recognized in the formation of regnskabslaboratoriet (Vibæk & Kobbernagel 1980: 212). This directly translates as the “accounting laboratory.” According to Worre (1994/1995: 73), the usage of this term reflects the fact that this was the “fi rst professional research institute in the field of business administration in Denmark” (original in English). The term “research” indicates the work done to establish the best accounting knowledge for businesses to use, which involved the studying of accounting systems and development of more useful ones. The other central person in this period was Max Kjær-Hansen, and while Riis was influential, it was Max Kjær-Hansen, an economist educated at Copenhagen University, who had the academic overview necessary to develop the subject of business economics in Denmark and to see accounting in its context in this framework. First employed at CBS in 1924, he took leave from the school for a year in 1926 to study business economics under Professors Eugen Schmalenbach and E. Geldmacher at the Handelshochschule in Cologne, a place that became a center for the study of business administration during Schmalenbach’s reign as professor from 1904 to 1930 (Büsse von Colbe 1996: 415). Inspired by his visit to Cologne, on his return, he wrote a textbook in Danish titled General Business Economics (Almindelig Bedriftsøkonomi), where the concept of “business economics” is defi ned for the fi rst time in Danish (Kjær-Hansen 1928a). In the introduction to the book, he starts by defi ning the difference between economics (nationaløkonomi) and— in a Danish context—the “new and not well-known subject of business economics” (bedriftsøkonomi). He describes how, while economics deals with the economics of society as reflected in production, turnover, and distribution, business economics deals with the individual cell in economic life, the single company. Business economics (Bedriftsøkonomi) is defi ned by him as an interdisciplinary knowledge with the main weight on (1) organization, (2) techniques of calculation, and (3) bookkeeping.

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Under “techniques of calculation,” it is especially costing (kalkulation 4) that is in focus and, under bookkeeping, the keeping of books, the preparation of the balance sheet, and business statistics (including such matters as numbers of employees, etc.). He emphasizes how essential a knowledge of business economics is to the running of a modern company—that it is no longer sufficient to run a company on the basis of prescriptions passed on from father to son, but requires theoretical knowledge (Kjær-Hansen 1928a: 7–8). In the book, he builds on the terminology and ideas of the Cologne school, and in his work on accounting, he directly uses Schmalenbach’s terminology but is also inspired by other German developments. Especially those made by Dr. H. Nichlish concerning the preparation of balance sheets. He also was clearly familiar with scientific management, as being developed in the United States. In 1928, besides publishing General Business Economics, he also published a book titled Modern Business Problems (Moderne Erhvervsproblemer). His book seems to be the fi rst serious attempt in the Danish literature to build a bridge between theory and practice in economics in general (Kjær-Hansen 1928b). In the book, he criticizes Danish economists for being too theoretical in their approach and not attempting to connect theory and practice. It covers a variety of subjects, from scientific management and company fi nance to the problems concerning industrial concentration (e.g., the creation of international cartels). He gave special attention to sales and marketing analysis, which in his opinion had at that time not been considered in enough detail, and from around 1930, he devoted most of his attention to the subject of marketing, effectively leaving accounting. A third person, who had some influence on accounting in this period, albeit through his more general work on business economics, was Dr. Julius Hirsch, a German Jew from Berlin who fled to Copenhagen in 1933 and became CBS’s fi rst professor in 1936. He focused much of his attention on industry standards, and in the period from 1936 to 1940, he published a series of articles on industry standards in the Commercial Knowledge Journal and a book titled Industry Standards: A Basic Description (Industriens Normtal: En Grundlæggende Redgørelse). The book was published in Danish in 1939, in German the same year, and in English in 1940; as this suggests, he was international in orientation. He settled in Denmark, but he was forced to flee during World War II when the Germans started to round up Jews in Denmark, and he did not return. However, his work on cost accounting influenced that of Palle Hansen, whom we will return to later in the chapter. By 1940, the original developers of accounting in its business economics context had left the field—Riis died, Hirsch was forced to flee, and Kjær-Hansen decided to focus on marketing. A field of accounting knowledge, German inspired and practically oriented, had been established at CBS. This was oriented directly to teaching and indirectly to practitioners. This knowledge fi rmly placed it as a core subject in business economics, far

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beyond and more important than the traditional bookkeeping taught when CBS opened more than two decades previously. This was the year that CBS got its own impressive building and no longer had to share the premises of the Commercial College, an event that cemented it into the Copenhagen educational and commercial scene. Palle Hansen replaced Riis after his death in 1938, and a new era was beginning, but fi rst other developments will be considered.

COPENHAGEN: THE DEVELOPMENT OF MANAGEMENT ACCOUNTING 1940–1950 A gradual process of theoretical knowledge development in business economics had begun in the 1930s, and the question arose of what the relationship was (or should be) between the discipline of economics and cost accounting. H. Winding Pedersen was important in starting the exploration of this issue, although he was only active at CBS from 1943 to 1948. In the second edition of his book Costs and Pricing Policy (Omkostninger og Prispolitik) published in 1949, a chapter dealing with cost allocation and costing was included. This included an analysis of the relation between theoretical business economics and management accounting’s perception of cost accounting and costing. Pedersen writes that: With the allocation of costs to products carried out in this type of accounting, certain authors specify, as a guiding star, that the allocation to each product and each unit must be precisely that part of the fi rm’s total costs which has been caused by the particular product or unit. In other words, it is assumed that an objectively correct allocation of total costs—or at any rate the predominant part of them—is possible. And the majority of the authors who do not expressly say so seem, at any rate, to tacitly believe that this assumption is true. However, economic theory asserts that it is not possible, neither in common production nor in joint production, to make an objectively correct allocation of all costs to each particular product or calculate the “true” costs of each single product unit. In other words: The allocation made in practice will, also in joint production, be arbitrary to some extent. (Pedersen 1949: 243–244) Pedersen thus took up directly the debate with the accountants in his work on business economics. Hirsch and Pedersen made different contributions to the development of business economics at the CBS, the former in a practical sense responding to the perceived needs of practitioners, and not just in Denmark, the latter pushing the border of the territory of business economics (and, as relevant here, management accounting) more in the direction of economics. However, Pedersen’s move back to Copenhagen

210 Anne Loft, Jan Mouritsen, and Carsten Rohde University in 1948 acted to confirm the academic division of labor in the capital city, which appeared to be practical business economics knowledge at CBS and theoretical economics at the University. The person who would be most significant to the development of accounting practice in Denmark after World War II was Palle Hansen, 5 who was employed as lecturer at CBS in accounting in 1938, replacing Riis after his death. Before Palle Hansen started at the CBS, he had worked in practice as a professional accountant, having qualified as a state certified public accountant It was a background that seemed to influence his work through the years—he always had a business rather than an academic focus. Julius Hirsch’s work was important as a starting point for Palle Hansen. Hirsch had identified one of the major challenges to business economics as being how to make it relevant to practice (Hirsch 1937). Hansen took this theme up in his article “Stages in the Road to Accounting” (1939), an article that became the forerunner for his textbook, The Industrial Chart of Accounts (Den industrielle kontoplan), published the following year (Hansen 1940). Hansen discusses the development of accounting with focus partly on the content of the chart of accounts and partly on the special problems of costing associated with industry. This work focuses especially on the question of precise and credible tracking of the indirect costs to products via cost centers. He was at this point clearly influenced by Schmalenbach’s work on the theory of the “Chart of accounts” (Der Kontenrahmen) (1927), which is described in a major section in the book. But also the fi rst statutory chart of accounts, which had been established by Reichskuratorium für Wirtschaftlicheit in Berlin in 1937–1939 and the work done by the Swedish Association of Industries in 1939 of Unified Principles of Product Costing” (Enhetliga Principer för Självkostnadsberäkningar) (see also Jönsson 1996) are described in separate sections in the book. He worked further with these ideas, and his fi rst major work, published in 1945, was a cost-accounting textbook titled Cost Accounting for Industry (Industriens interne regnskabsvæsen) (Hansen 1945). The book starts with a relatively complete description and classification of costs, which places particular emphasis on a distinction between the costs that may be characterized as either fi xed or variable in a given accounting period. The inspiration for the discussion comes from business economics, and here especially H. Winding Pedersen, whom he thanks in the foreword of the book for a valuable critique of the section on costs behavior (Hansen 1945). Despite the influence of business economics, Hansen still traces and allocates all the indirect costs via cost centers to products. He does, however, point out the principle that costs with different degrees of variability should not be mixed together in the same account. At the same time, he uses standards to make standard cost control an integral part of the accounting model. Hansen is thus at this period influenced by the importance of the developments in theory of cost (omkostningsteorien) made by economists, especially H. Winding Pedersen.

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COPENHAGEN: PALLE HANSEN AND ZAKKEN WORRE 1950–1970 Hansen developed his ideas considerably in the 1950s. He seems to have been particularly inspired by American ideas about accounting following his visit to the United States in 1954, which was supported by the technical assistance program of the Marshall Plan. This plan, initiated by George Marshall, the U.S. Secretary of State, in 1947, had the aim of improving the productivity of European industry.6 Hansen was chosen by the “Ministry of Trade’s Productivity Committee” (Handelsministeriets produktivitetsudvalg) to lead a Danish team on a six-week visit to the United States. The visit to the United States under the Marshall Plan seems to have reinforced the tendency after the war to look to American rather than German literature for inspiration. The objective of the study visit was: To carry out technical studies of the cost calculating systems and budget control methods applied by American corporations and, against this background, present a report which could bring inspiration to Danish manufacturing companies for the handling of these problems thus promoting efficiency in Danish industry. (Ministry of Trade’s Productivity Committee 1957: 6) When the trip was made, it was generally admitted that it was only to a modest extent that Danish industry had started using budgeting and costing methods, as a recent study had shown that “only 1% of Danish industrial companies with more than 100 persons employed had developed aids to management in this area” (Ministry of Trade’s Productivity Committee 1957: 6). One of the subjects to be studied was the function and education required of the “controller.” The visit was organized by the Council for International Progress in Management (CIPM), New York, in coordination with the Danish Foreign Ministry and the Productivity Committee of the Ministry of Trade. Hansen led the team, which included Bjarke Fog from CBS and various persons from industry and commerce. The team visited, among others, the American Institute of Accountants, the Controllers Institute of America, the National Association of Cost Accountants (whose annual congress they attended), and twenty-five companies, including International Business Machines (later known as IBM), the U.S. Steel Corporation, and the Maiden Form Brassiere Company. Hansen was particularly influenced by the debate going on concerning the relative benefits of full costing and contribution margin analysis.7 He became convinced that the contribution margin method, which he translated to Danish as bidragmetoden, was the way forward (Ministry of Trade’s Productivity Committee 1957).

212 Anne Loft, Jan Mouritsen, and Carsten Rohde On his return to Denmark from the United States, he immediately started to organize courses in the contribution margin method of cost accounting for both accountants and managers, although some time was to pass before he began to write books and articles on the subject. His courses were based on the philosophy that traditional cost accounting models were too sophisticated for most Danish businesses, which by international standards were fairly small in size. His aim was that accounting systems would be made more flexible to enable better control of costs and profitability in companies. At the same time, they should build on the principles that were in line with those of managerial economics (Worre 1994/1995). Hansen was a man of practice who had a mission of reforming practice. Beginning with lecturing and consulting, in 1957, he started a journal aimed to bring his ideas to an even wider audience. The journal was given the title Financial Company Management”8 (Økonomisk Virksomhedsledelse) and was described as an “idea journal on management and profitability.” Many of the articles reported developments in American business practice for a Danish audience under the rubric “explained–analyzed–evaluated from,” followed by the title of the work (e.g., “Good communication— ground rules and forms,” which was based on an article by J. M. Juran on “Industrial Diagnostics” published in The Management Review in June 1957). It is clear that Hansen and his staff must have spent considerable time and effort going through American Management literature to fi nd material that they thought would be relevant to their readership.9 Other articles were written by the editor or by his staff, or by Danish businessmen reporting on how they had dealt with a particular problem. In the fi rst volume (and also later) were a set of special pages by Hansen himself, which he titled “The Profitability Method,” which included “at one and the same time a philosophy and principles for economic analysis, planning and control, and a technique to enable the practical application of the principles” (Økonomisk Virksomhedsledelse) (Hansen 1957: 1). The philosophy he put forward rested on an acceptance that (1) analysis gives the best base for developing good business ideas, (2) their application represented through economic calculations (planning) gave the responsible employees concrete information on goals and the best background for coordinating efforts, and (3) confronting the realized results with those planned gave fast and clear guidance on errors and omissions in the carrying through of the ideas and revealed a possible lack of realism in analysis and planning. Realism was crucial, and it was necessary for economic calculations to be simplified. Traditional accounting calculations were often presented in such a complicated way that the management of the company could not use them. The important thing was fi nancial ratios (nøgletal)10 for management, which would reflect important aspects of the company’s fi nancial activities. In addition to this, there was also a need for management to get better information on fi nancial data. What especially characterized profitability analysis was the graphical illustration known as the

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“profitability curve” (overskudskurven) (Hansen 1957: 5–6). This plotted the profit for different levels of sales, starting with the fi xed costs as the losses figure if there were no sales. In this fi rst volume of the journal, his contribution margin method is served up in a popular form through a case that he used many times in teaching, that of “Joe Bottler.”11 This was based on a modified and adapted version of material published by the American Bottlers of Carbonated Beverages in their Manual for Profit Planning (1950). Joe Bottler was a farmer who discovered mineral water on his land and went into production bottling it. The case takes the reader through all the elements of contribution margin accounting while relating the accounting aspects in a practical way to the general decision making of the business. This is accounting and business economics performed at a practical level. Hansen’s system built on the notion that any accounting system should be based on the principles of managerial economics. Following this principle, he classified costs into variable costs and capacity costs. As concerns variable costs, the aim was to control them using two different techniques: fi rst, to use ideas and methods of standard cost accounting to enable a basic cost and efficiency control; second, having chosen the areas where marginal contribution is to be calculated, the techniques of profitability analysis came into use.12 Hansen makes a distinction in his profitability analysis between periodical profitability analyses and non-periodical ad hoc analyses, which he calls “inspiration analyses.” The periodical profitability analyses are characterized by the fact that the marginal contribution of segmental (i.e., relating to a segment of the market, e.g., an area or a particular customer) and capacity costs can only be set against one another in the cases where it can occur without arbitrary allocation. This does not apply to the non-periodical ad hoc “inspiration analyses,” where the primary goal is to give inspiration to management so they can make decisions relating to future production. In these “inspiration analyses,” marginal contribution relating to segments of the market can be set against capacity costs (even if this involves arbitrary allocation) as long as the resulting analysis can serve management. Apart from playing an important role in management accounting, he is also a dominating figure in fi nancial accounting. Following on from the approach he uses in management accounting, he advocated that the contribution margin method should be used in fi nancial accounting. So through his efforts, the contribution margin principle became generally used in both the preparation of cost and management accounts and the annual fi nancial accounts. However, this changed with Denmark’s membership of the European Community, as after the implementation of the Fourth Directive through the Financial Statements Act of 1981, the marginal method could not be used for fi nancial statements (Elling and Hansen 1984). According to Elling and Hansen, the change caused considerable problems as it was cumbersome and costly to introduce the absorption costing principle as

214 Anne Loft, Jan Mouritsen, and Carsten Rohde “most Danish companies had no experience in allocating fi xed production costs by functions and products” (Elling and Hansen 1984: 41–43). Hansen had a major effect on Danish accounting, bringing first German and later American ideas to bear on the problems of accounting in Danish businesses. Through his extensive course and consulting activities, he can be said not only to have imported ideas and techniques, but also exported them, especially to other Scandinavian countries (e.g., to Finland as described in Virtanen et al. 1996). Not surprisingly, he dominated the accounting department at the CBS, and a circle of young lecturers assisted in the work of “Palle’s circus,” as it was humorously referred to. This role took most of his time and energy, and he did not play a big part in the general intellectual life of the school. While he was well respected in business life, some at the CBS did not consider him academic enough. According to one commentator, he was sometimes made fun of, especially for his extensive use of one simple example, that of Joe Bottler (see Larsen 1992). However, his extensive activity outside the CBS made him an important person to Danish business.

Zakken Worre The second important personality in management accounting in Copenhagen was Zakken Worre.13 He based his work on a further development of Hansen’s ideas on marginal contribution. While Hansen was a generalist in accounting, writing about both fi nancial and management accounting, Zakken Worre was identified almost entirely with management accounting. In 1958, he completed a PhD titled “Key Factors in the Economic Adaptation of Companies” (Nøglefaktorer i Virksomhedens Økonomiske Tilpasningsproces); it was not actually published until eight years later in 1967.14 Worre identifies the relation between revenue and costs as having been at the core of managerial economics. However, this has not hindered the treatment of the problem in different works. He writes that, In one of the schools of managerial economics (driftsøkonomi)15 the treatment of problems is based on a very abstract and simplified model, very different from the form in which the data material of a company is found. At the other extreme, is found a long series of more technical accounting descriptions of the possibilities for processing the data of a company, often quite far from the information goals, which the data processing should have met. The middle ground between the two extremes has first seriously been represented in the managerial economics literature in the last 10–15 years. (Worre 1967: 5–6) Thus, he places himself between the classical technical accounting tradition and the abstract modelling of economists. The thesis took as its basis the managerial economists’ discussion of cost concepts, with the aim of using

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these in relation to the company’s different segments. This is done through a presentation of the connection between the possibility of allocating costs and allocating revenue within each market segment. He demonstrates that the marginal contribution method, and with it the understanding of the possibility of allocating costs, is the key to the adjustment of capacity, and thus the capacity costs, to the level of activity in the company. Besides examining the use of cost classification as a tool for decision making, Zakken Worre in 1958 began to interest himself in budgeting as a management tool to link a company’s strategic plan with its economic consequences through a series of financial periods. This led in 1970 to a major work, The Control Orientated Accounting in the Melting Pot (Det Styringsorienterede Regnskabsvæsen i Støbeskeen) (unpublished) (1970a). Here Worre takes as his starting point Herbert A. Simon’s (1960) work on the complexity of decision processes. This leads to a distinction between accounting as an ex post discipline, and decision making, including budgeting, as an ex ante discipline. However, he places decisive weight on the fact that ex post registrations form the inspirational basis for ex ante decision-making models. At the same time, he points out that the hierarchy of decisions, from the large irreversible ones down to the small reversible ones should be reflected in the way revenue and costs of the company are registered. This has consequences for the way in which the registration system (chart of accounts) should be constructed. Firstly, he notes how the “department” dimension of the traditional division of costs into production factor, department, and objective is problematic. This is due to the fact that the department dimension should cover the data registrations that characterize the course of the single process while being connected to the concept of “responsibility.” This leads to the division of the cost center dimension into a process classification, which aims to sort the costs that describe the course of the processes; and an information entry classification, which is connected to an organizational entity and/or persons, which forms the basis for control and communicating economic events. The aim of recording this information is to enable a discussion of these economic events rather than simply allocate responsibility for them. In his opinion, the problem is that many different people and actions often affect economic events; thus, the most important task is to start a process of discussion in the company, rather than a formal process of making one person responsible. Second, Worre substitutes the concept “costs” with the concept “cost data.” In doing this, he expands the concept to include not only cost in terms of “amount,” but also the other elements related to it, such as quantity data (mængdedata), capacity use data (kapacitetstræksdata), and load data (belastningsdata), which can describe and explain the change in costs. At the same time, he replaces the concepts of direct posting (direkte kontering) and indirect posting (indirekte kontering). The intention is to create a registration system where costs are stored so that they represent “whole resource units” without arbitrary allocation. This ensures that

216 Anne Loft, Jan Mouritsen, and Carsten Rohde data can flexibly, and without “noise,” be aggregated when needed for decision making. This thesis, which originally was intended to consist of three sections, remained unpublished, although the fi rst two parts were fi nished. Nevertheless, it has had a big impact on further research in accounting in Copenhagen and began to be referred to as “the management control orientated accounting” (det styringsorienterede regnskabsvæsen). Following this, Worre attempts to test enterprises’ ideas and conclusions in relation to different problems and different types of enterprise, the results of which were published in a series of articles (Worre 1970b, 1971, 1972). At the same time, he worked further with the idea of budgeting as a decisive management accounting and management tool in companies. The synthesis of this was published in two textbooks: Budgeting from a Leader’s Perspective (1978a) (Budgeting i Chefperspektiv) and Activity Budgeting (1978b) (Aktivitetsbudgettering). Worre was heavily influenced by contemporary American thought, in particular the stream of research within the behavioral theory of the fi rm (especially Simon 1948, 1957, 1960; March and Simon 1958; Cyert and March 1963). The reference list of his major work, The Control Orientated Accounting in the Melting Pot (1970a), illustrates this. Just over half of the books and articles cited in the literature list, forty-two out of eighty-two, are by American authors. This American influence seemingly came entirely through Worre’s reading of their articles and books; he did not study in the United States, nor did he communicate with American academics or practitioners. The number of citations of American authors needs to be contrasted to the fact that there is nothing at all cited written in the German language.16 It seems that the German influence had long been cemented into Danish accounting thought, and any influence that remains comes only in a secondary form through Danish and Swedish authors, in particular through Palle Hansen.

AARHUS UNIVERSITY 1940–1950: ERIC SCHNEIDER AND THORKIL KRISTENSEN In 1936, a Faculty of Business and Law had been established at Aarhus University. Aarhus is Denmark´s second city, and is situated in Jutland. At the time which we are writing about, it could only be reached from Copenhagen after a lengthy journey. In the period between then and 1948, two notable academics concerned with accounting were employed at Aarhus University, albeit both for quite a short period of time: Erich Schneider and Thorkil Kristensen. As in Copenhagen they taught accounting in the context of business economics, but the emphasis here will be on their academic work. Thorkil Kristensen17 was employed at Aarhus University from 1938 to 1945, and during his professorship there, he wrote two books concerning

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accounting and business economics. The fi rst was Fixed and Variable Costs in the Economics of a Company (Faste og Variable Omkostninger—I en Virksomheds Økonomi) (Kristensen 1939). The aim of this book was to contribute to business economics research by examining the nature of costs and their implications for the actions of the company. It included discussions of the contents and influence of fi xed and variable costs, and the relationship between a company’s costs and its production, pricing and fi xed-asset policies (anlægspolitik). He was particularly concerned with the problem that many practitioners were preoccupied with at the time, which was how to calculate the cost of producing one particular product in a company that produced two or more products. His second book, Theory of the Balance Sheet (Statusteori) (Kristensen 1943), was inspired by economic theories, especially income and capital theory (indkomst og kapitalteorien). The second person active in this period at Aarhus was a German academic, Erich Schneider,18 from the University of Bonn. He was appointed as the fi rst professor in business economics at Aarhus. In 1939, he published a textbook in German on industrial accounting with the title: Einfürung in die Grundfragen des Industrielle Rechnungswesen (Schneider 1939). This book was used in teaching; however, eventually it was published in lightly revised form in Danish in 1945 with the title Industrial Accounting: An Introduction to the Basic Problems (Industrielt Regnskabsvæsen: En Indledning til Grundproblemerne) (Schneider 1945). In this book, Schneider analyzes several models of product costing that could be used in calculating profitability using job order costing (ordreregnskaber). The fi rst is an allocation model without the use of standard costs. The problem of this model is, in his opinion, that the order (the object) is placed at the center of the value creation process. Thus, the cost centers become merely collecting points for actual costs for the purpose of attributing them to orders. Schneider expresses the consequences of this approach as follows: The calculation of profit does not penetrate through to the true sources of the profit and thus offers no basis for influencing the profit by timely intervention in the way in which the production areas are operating. (Schneider 1945: 134) In the second model, standard costs are incorporated. He summarizes this model as follows: By means of costing ex post using budgeted material prices, and time cost rates for the assessment of the quantities and time actually spent, it is possible to carry out an analysis of the internal operating profit, however so that the profit components reflect the department’s way of working only in the case of the purchasing department. (Schneider 1945: 156)

218 Anne Loft, Jan Mouritsen, and Carsten Rohde But also in this type of job order costing (ordreregnskab), he is of the opinion that it is generally forgotten, that the place of work is a “place of performance,” and the performance is of great importance for the results. The third model he presents is focused on profitability calculation via departmental accounts (cost centers). In this model, he also incorporates cost budgets as a managerial commitment in the setting of standards for indirect costs, thus integrating the budget control in the variance analysis. In a comment on job costing and departmental accounts, Schneider writes: The adopted plan becomes the operating program for the next period and acts as a goal for the fi rm’s work. In the departmental accounts the plan and control of the plan—ex ante and ex post—are therefore joined together in a way that is consistent with the nature of the plan. The plan and the norms derived from it as an expression of management’s aim and goals are thereby given the central position in accounting. In job costing, on the contrary, the past—what has happened—is the focal point of the review. Departmental accounts are future-oriented, job costing systems are past-oriented (Schneider 1945: 193–194) He went on to write about fixed and variable costs—putting forward a view of which Palle Hansen was very critical. What emerges from the books by both Thorkil Kristensen and Erich Schneider is that they viewed accounting as a central element in business economics, and they believed that accounting itself could not be understood or developed without a business economics framework. While both of these professors left in the latter part of the 1940s, their influence in Aarhus continued beyond their departure.

AARHUS UNIVERSITY 1950–1970: VAGN MADSEN The developments in Aarhus were rather different from those in Copenhagen, and a rivalry came to characterize the relationship between the groups of researchers on each side of Denmark. After Erich Schneider’s departure, one of his pupils, Vagn Madsen, took over his role, obtaining the position of professor in 1953. His contributions to accounting signify a long and varied tour of reflection concerning most parts of what today constitutes the disciplines in the area of business studies. Madsen’s (1959) concern was to try and construct an integrated accounting system that would be able to cater for all the issues covered by the then threefold variation of accounting systems: the order accounting system, the organizational entity accounting systems, and the contribution accounting system.19 Madsen suggested that each of these is a response to a practical problem in one of three different types of fi rms (here Madsen produces a kind of contingency argument of a much later era). The order accounting

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system is primarily relevant in small fi rms that typically produce only a small number of units of products. The concern here is to establish an accounting system that can trace all costs to products. The organizational unit accounting system is concerned with responsibility and standard costs, and it is primarily relevant in large continuous production fi rms where control of costs is pivotal. Last, the contribution accounting system is seen as being oriented toward the large bulk of fi rms that are involved in continuous decision making about prices, in a situation of competition where managers constantly have to evaluate the consequences of different actions. Accounting could support all these tasks, and an appropriate accounting system should enable this. Therefore, rather than building an accounting systems for each task (as would be the proposed solution from the perspective of ideal accounting systems), Madsen proposed to construct an accounting system that could help all these tasks. His variability accounting systems were set up to do exactly this. The variability accounting system invented a new task, more fundamental than the ones mentioned earlier: the entry/registration accounting system, which was basically a database of undistorted accounting entries organized in such a form that it would enable the production of all possible ideal accounting systems. Accounting systems should be developed so that all conceivable kinds of purposes could be served concerning calculation, decision making, and budgeting. Madsen maintained that it was not for accounting to decide on principles of calculation; this depended on the situation where accounting information might play a role. Madsen was knowledgeable of the then emerging field of business economics and he agreed with a great deal of it. However, in general he disagreed with the way business economics was used in contribution accounting systems’ alter ego (Madsen 1959: 122 ff.), which he did not like. It was criticized for being too concerned with the direct link between sales volume and variable costs, thus not only omitting a large pool of fi xed costs, but also trivializing management problems to those associated with decisions on volume. More importantly for Madsen’s view on business economics, however, was that for the marginality principle to be effective, managers had to know the opportunity cost of different decisions. Opportunity costs depend on market demand and capacity utilization, and as these vary over time, opportunity costs are basically dependent on time. They are therefore provisional and transient. Madsen went on to try to establish a theory of registration or an entry/registration accounting system, which was given the name variability accounting system. The purpose of this system was as follows: The system to be developed is called entry/registration accounting system because its purpose it to provide information without arbitrary allocations. The information is used to evaluate actions; the particular evaluation of actions is alternative-evaluation, which is outside the

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Anne Loft, Jan Mouritsen, and Carsten Rohde accounting system. To be useful for these calculations, the information in the accounting system is used in quite different ways in the different situations, and therefore what is crucial is the variability of the cost. We will underline the importance to be attached to variability by also calling this accounting system the variability accounting system. (Madsen 1959: 131)

Madsen wanted to craft an accounting system with no allocation and with no specific use in mind. He wanted to create an accounting system useful for all kinds of calculations that were, however, to be located outside the accounting system itself. How is it possible to create a generically useful accounting system with no specific regard for particular uses?20 To him, there was no a priori categorization of costs in fi xed/variable or direct/ indirect; in this he was inspired by both Erich Schneider and B. E. Goetz (1949), whom he had met in the United States. Madsen argued that categorization of costs must depend on the situation or in other words, distinctions such as fi xed/variable are not per se interesting to accounting. In contrast, he suggests that: The variability accounting systems’ main task is an entry/registration accounting system, but in relation to what should costs be registered? It must be in relation to the factors with which cost vary. (Madsen 1959: 132–133) To Madsen, these factors were to be found in specifying organizational entity and purpose as dimensions of the chart of accounts. Each entry in the chart of accounts had to be categorized according to organizational entity and purpose, the purpose being related to products (or elements in the production process) or sales (or elements in the sales process). Madsen here provides a theory of the fi rm that juxtaposes concerns for organizational behaviour, production processes, and marketing activities. Madsen’s angle is that all informational work in a fi rm is, or can be, related not only to possible practices of management control, but also to the then emerging theories of the fi rm organized in diff erent disciplines of the fi eld of business economics, in a general usage of the term. It would be wrong to suggest that Madsen had come up with a proposition to integrate these disciplines, and his concern was rather to address the problems of business rather than the problems of the theory that would make this conclusion logical. His dimensions are complex and beyond treatment here. It is notable, however, that his ideas have been applied in accounting systems in many Danish firms, mostly indirectly through the efforts of his former students at the university; he did not directly install costing systems in the way in which Hansen did in his extensive consultancy practice. It is interesting that while Swedish accounting systems in the 1950s were often organized around an accounting

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system with substantial allocation in the so-called “BAS” accounting sheet (Samuelson 1990), such a move was never undertaken in Denmark.

CONCLUSION With this chapter, we aim to contribute to the growing literature on the development of accounting outside the Anglo-Saxon sphere. Here the focus is placed on the development of management accounting in Denmark in the context of the wider field of business economics. From the 1950s to the 1970s, the strength of the relationship between accounting and business economics was strong, hereafter to gradually weaken. Management accounting in Denmark today is no longer clearly identified within the framework of business economics. Each of the subjects used to make up business economics now has its own clearly defi ned academic field. Today the student (and practitioner) must bear more and more of the responsibility to understand how the different fields of business knowledge can work together to create, in theory and practice, a successful business organization. From 1920 to 1970, two different notions of accounting were in play— the German and the American—and two different institutionalized modes of developing accounting appeared—one in Copenhagen, the other in Aarhus. The struggles between them were only visible in the working through of intricate theoretical, educational, and practical concerns, and not by public debates or heated exchanges of words in the professional or business press. Often conflict manifested itself in ignoring the opposition. Accounting was heavily involved in programs of teaching business economics, and the two different notions of accounting, which developed in Copenhagen (with American influence) and Aarhus (with German influence), were reflected in what was taught in each place. The accounting curricula were specialized, and hardly any overlaps appear—they were studiously insulated from each other. At the same time, accounting was also judged by the particular relevance of its message, and in both Copenhagen and Aarhus, practicality was an argument for the contribution margin report and the variability accounting registration system. Both were used in practice. This history shows how the development of accounting is intertwined with a series of social and institutional pressures. The ideas and ideals of accounting that travelled from Germany and America were translated and supplemented by “their” professors and their students, becoming objects with relations to business economics (and its professors), to teaching, and to practice. It was far more complex than a mere dissemination of German/American ideas. The Danish flavour was clearly discernible in the two completely new variants of accounting that were developed in the two institutions. This is why the development of accounting was a local affair but never wholly an academic one, and it was never a pure one because it could not be separated from debates about the nature of business economics more generally.

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NOTES 1. Legislation was enacted in 1970, which replaced professor rule by collegial leadership; this has recently been replaced by what we could call “managerial” leadership. 2. Thus, a person wishing to become a management accountant does not train to be a professional accountant in the way in which many Anglo-Saxon aspirant accountants do. Management accountants typically have taken the fiveyear bachelor/master’s degree at Copenhagen Business School (CBS) or one of the other university institutions that provide this education. 3. Known in German as wirtschaftshochschule or handelshochschule, the latter translating to English as “business-high-school.” 4. He defi nes costing (kalkulation) as the calculation of all the expenses that occur in a company when a particular product is made or a particular piece of work is done. He describes it as having three aims: to create the basis for price setting, enable control of production, and enable the calculation of profitability (Kjær-Hansen 1928a: 108). 5. Palle Hansen was born in 1911; he retired in 1981 and died in 1991. He became quite well known internationally, especially after the publication of his work written in English, The Accounting Concept of Profit (1962). 6. On the Marshall Plan in general, see, for instance, Hogan (1989). Bjarnar and Kipping (1998) focus specifically on the parts of the transfer of U.S. management models to Europe under the plan. See also Djelic (1998). 7. It may be that these ideas originally came to the United States from the United Kingdom, in particular from the London School of Economics, where the accounting professor R. S. Edwards, inspired by the economist Lionel Robbins, developed the notion of contribution margin accounting in 1937–1938, attempting to “reform accounting practice in the name of economic theory” (Napier 1996: 465–466). 8. In the 1970s, it changed its name to “Management and Profitability” (Lederskab & Lønsomhed). It continued to be published until 1986. 9. Naturally all articles were published in Danish because most businessmen of the time would be more familiar with German than with English. 10. In another article in this issue, three important key figures were dealt with in connection with the rationalization of a company, namely, return on sales (overskudsgrad), asset turnover (formuens omsætningshastighed), and return on investment (afkastningsgrad). 11. Most of those taught by him remember this case, which he used in both his Business School teaching and consultancy work. 12. Other publications he is known for on the contribution margin method include the Handbook on Budgeting (Håndbog i Budgettering), which he edited (Hansen 1975), and Profit Center Organisation (Profitcenterorganisation) (Hansen 1980). 13. He was born in 1927 and died in1997, just a few months before he was due to retire at the age of 70. He became professor at CBS in 1978. 14. According to the author, this time lapse was due to it originally having being seen as the start of a larger work (Worre 1967: 5–6). 15. Clearly he is using the word driftsøkonomi in a more limited sense here than some of the earlier writers, and it is rather misleading to translate it as “business economics” in this context. 16. It is clear from some of Worre’s other works that early in his career he had read Schmalenbach in German. 17. Thorkil Kristensen (1899–1989) was educated at Copenhagen University in economics. He was member of the Danish parliament in the period 1945-47 and again in 1950-53 where he was Minister of Finance. In the latter part of his career, he became (in 1960) the fi rst General Secretary of OECD.

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18. Schneider settled in Aarhus, but when the war ended in 1945, he had to leave because the five-year occupation of Denmark by Germany had left strong negative feelings toward Germans (Hylleberg 2000). In 1946, he became professor at Kiel University, where he came to be highly influential (see Busse von Colbe 1996: 418). 19. For details on and interpretation of the Variability Accounting System, also see Israelsen (1993, 1994). 20. Obviously, Madsen did have assumptions about the subject matter of accounting that were derived partly from his understanding of business economics and partly from his significant practical experience. Therefore, in practice, his accounting system was not quite without dispositions. For example, he wanted to help managers control the fi rm, he was interested in practical affairs, and he was convinced of the role of fi nancial arguments in arranging the fi rm’s activities. He therefore subscribed to the then emerging theory of business economics that positioned the fi rm in an economic environment rather than seeing the fi rm as a set of technical factory operations.

REFERENCES American Bottlers of Carbonated Beverages. 1950. Manual for profit planning. Washington, DC. Bjarnar, O., and Kipping, M. 1998. “The Marshall Plan and the transfer of US management models to Europe: An introductory framework.” In The Americanisation of European business: The Marshall Plan and the transfer of US management models, ed. M. Kipping, O. Bjarnar. London: Routledge, pp. 1–17. Büsse von Colbe, W. 1996. “Accounting and Business Economics Tradition in Germany.” European Accounting Review 5(3): 413–434. Cyert, R. M., and March, J. G. 1963. A behavioral theory of the fi rm. Englewood Cliffs, NJ: Prentice-Hall. Djelic, M. L. 1998. Exporting the American model: The postwar transformation of European business. Oxford: Oxford University Press. Elling, J. O., and Hansen, C. K. 1984. “EEC accounting harmonisation: Implementation and impact of the fourth directive.” In E.E.C. accounting harmonization, ed. S. J. Gray and A. G. Coenenberg. Amsterdam: North Holland, pp. 29–42. Goetz, B. E. 1949. Management planning and control. New York: McGraw-Hill. Hansen, P. 1939. “Stadier på Regnskabsvæsnets vej-med særligt henblik på den industrielle kontoplan.” In Handelsvidenskabeligt Tidsskrift, 3. Aargang, Hæfte 13–18, ed. J. Hirsch, Z. D. Lando, and V. Holck. Copenhagen: Handelsvidenskabelig studieklub ved Handelshøjskolen i København, pp. 173–220. Hansen, P. 1940. Den Industrielle Kontoplan. Copenhagen: Einar Harcks forlag. Hansen, P. 1945. Industriens interne Regnskabsvæsen. Copenhagen: Einar Harcks forlag. Hansen, P. 1957. Lønsomhedsmetoden—filosofi , Principper, teknik. Copenhagen: Økonomisk Virksomhedsledelse. Hansen, P. 1962. The accounting concept of profit. Amsterdam: North-Holland Publishing Company. Hansen, P. 1975. Håndbog i Budgettering. Copenhagen: Institut for Lederskab og Lønsomhed. Hansen, P. 1980. Profitcenter-organisation med rigtige interne afregningspriser. Copenhagen: Institut for Lederskab og Lønsomhed. Hirsch, J. 1937. “Driftsøkonomien og det praktiske Erhvervsliv.” In Handelsvidenskabeligt Tidsskrift, ed. J. Hirsch, Z. D. Lando, and H. C. Riis. Copenhagen:

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Handelsvidenskabelig studieklub ved Handelshøjskolen i København, pp. 1–24. Hirsch, J. 1939. Industriens Normtal: En Grundlæggende Redegørelse. Copenhagen: Einar Harcks Forlag. Hogan, M. J. 1989. The Marshall Plan: American, Britain and the reconstruction of Western Europe 1947–1952. Cambridge: Cambridge University Press. Hopwood, A. G. 1983. “On Trying to Study Accounting in the Context in Which It Operates.” Accounting Organisations and Society 8(2–3): 287–305. Hopwood, A. G. 2000. “Understanding Financial Accounting Practice.” Accounting Organisations and Society 25(8): 763–766. Hylleberg, S. 2000. Schneider in Dänemark: Betrag zu der Festveranstaltung für Erich Schneider. Christian Albrechts Universität, Kiel 7.12.2000. Available at www.econ.au.dk/vip_htm/shylleberg/webpage/lectures/Schneider_v4.PDF. Israelsen, P. 1993. Activity—Versus variability based management accounting. Copenhagen: Jurist-og Økonomforbundets Forlag. Israelsen, P. 1994. “ABC and Variability Accounting; Differences and Potential Benefits of Integration.” European Accounting Review 3(1): 15–48. Juran, J. M. 1957. “Industrial Diagnostics.” The Management Review, June. Jönsson, S. 1996. “Accounting and Business Economics Traditions in Sweden: A Pragmatic View.” The European Accounting Review 5(3): 435–448. Kjær-Hansen, M. 1928a. Almindelig Bedriftsøkonomi. Copenhagen: Det Schønbergske Forlag. Kjær-Hansen, M. 1928b. Moderne erhvervsproblemer. Copenhagen: Det Schønbergske Forlag. Kristensen T. 1939. Faste og variable omkostninger—i en virksomheds økonomi. Copenhagen: Einar Munksgaard. Kristensen, T. 1943. Statusteori. Regnskabsinstituttet Ved Den, Studenterraadet Århus. Larsen, B. 1992. “Handelshøjskolen og 68-oprøret.” In Kampen for en højere læreanstalt. En mosaik omkring Handelshøjskolen 1917–1992, ed. O. Lange. Copenhagen: Handelshøjskolens Forlag, pp. 37–46. Madsen, V. 1959. Regnskabsvæsnets opgaver og problemer—i ny belysning. Copenhagen: Gyldendal. March, J. G., and Simon, H. A. 1958. Organizations. New York: John Wiley & Sons. Ministry of Trade’s Productivity Committee (Handelsministeriets produktivitetsudvalg). 1957. Budget-og Omkostningskontrol i U.S.A. Copenhagen: Udgivet Ved Udenrigsministeriets Foranstaltning. Napier, C. 1996. “Accounting and the Absence of a Business Economics Tradition in the United Kingdom.” The European Accounting Review 5(3): 449–481. Pedersen, H. W. 1949. Omkostninger og Prispolitik (2nd ed.). Copenhagen: Høst & Søns Forlag. Rehm, H. 1914. Die Bilanzen der Aktiengesellschaften und Gesellschaften m.b.h, 2. Völlig umgearbeitete Auflage, Münch: Berl & Lpz. Riis, C. H. 1923. Statuslære. Copenhagen: Det Schønbergske Forlag. Riis, C. H. 1932. Omkostninger og deres Behandling ved bogføring og Kalkulering i Handels- og Industrivirksomheder. Copenhagen: Det Schønbergske Forlag. Samuelson, L. A. 1990. Models of accounting information systems—The Swedish case. Lund: Studentlitteratur. Schmalenbach, E. 1927. Der Kontenrahmen. Leipzig: Gloeckner. Schneider, E. 1939. Einführung in die Grundlagen des industriellen Rechnungswesen. Copenhagen: G. E. C. Gads Forlag. Schneider, E. 1945. Industriel Regnskabsvæsen.Copenhagen: G. E. C. Gads Forlag.

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Simon, H. A. 1948. Administrative behavior. New York: Macmillan. Simon, H. A. 1957. Models of man—social and rational—mathematical essays on rational human behaviour in a social setting. New York: John Wiley & Sons. Simon, H. A. 1960. The new science of management decisions. New York: Harper & Brothers. Vibæk, J., & Kobbernagel, J. 1980. Foreningen til Unge Handelsmænds Uddannelse 1880–1980, Nyt Nordisk, Copenhagen. Virtanen, K., Malmi, T., Vaivio, J., and Kasanen, E. 1996. “Drivers of Management Accounting in Finland.” In Management accounting: European perspectives, ed. A. Bhimani. Oxford: Oxford University Press, pp. 54–73. Worre, Z. 1967. Nøglefaktorer i virksomhedens økonomiske tilpasningsproces. Copenhagen: Nyt Nordisk Forlag Arnold Busk. Worre, Z. 1970a. Det styringsorienterede regnskabsvæsen i støbeskeen. Copenhagen: Copenhagen Business School. Worre, Z. 1970b. “Realiteter og skinproblemer omkring interne afregningspriser. Faglige Artikler 9: 147–171. Worre, Z. 1971. “Standardomkostningsregnskabet for materiale-og lønomkostninger.” Faglige Artikler 10: 7–62. Worre, Z. 1972. “Regnskabsvæsenets opgaver i en virksomhed med produktion til ordre og land produktionstid.” Faglige Artikler 11: 11–43. Worre. Z. 1978a. Budgettering i chefperspektiv. Copenhagen: Civiløkonomernes Forlag. Worre, Z. 1978b. Aktivitetsbudgettering. Copenhagen: Civiløkonomernes Forlag. Worre, Z. 1994/1995. “The Evolutionary Development from Pure Imitative Cost Accounting to a Danish Concept of Management Accounting.” Informatik & Økonomistying 2: 71–101.

9

Accounting and Business Economics Emergence and Consolidation as Autonomous Disciplines in Spain Vicente Montesinos

INTRODUCTION This chapter attempts to analyze the main factors and most relevant events of the development of accounting and business economics in Spain. The period taken into consideration in our analysis includes the years between the fi rst scientific approaches in accounting in the nineteenth century and the consolidation of business economics as an autonomous and a separate scientific and academic discipline in Spain (in the late 1970s and early 1980s). Thus, we will present the origins and main reasons explaining the current situation of accounting (Contabilidad) and business economics (Economía de la Empresa) in Spain, considering their common roots and their present status as separate autonomous disciplines. The chapter consists of four main sections. The first section sets the historical scene for the emergence of a scientific discipline of business economics, identifies the main factors determining this emergence and the scientific evolution of business economics, and looks at the influence of accounting on this process. This section also examines the relationship between accounting and business economics until the latter became a separate subject. The second section considers the state of accounting education and research in the 1960s and 1970s, when important economic, social, and political changes took place in Spain with the beginnings of transition from the Franco dictatorship to a democratic system. The third section studies the impact of Spain’s membership of the European Union and the adaptation of Spanish financial accounting systems and structures to the European directives and practices. The fourth section reviews the current state and evolution of accounting and business economics teaching and research within the higher education sector in Spain.

THE EMERGENCE OF BUSINESS ECONOMICS AS A SEPARATE ACADEMIC SUBJECT

Historical Background Although between the sixteenth and eighteenth centuries Spain achieved a high level of economic development and had powerful military forces,

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extensive dominions, and rich natural resources compared with other European countries, its technical and scientific literature did not evolve to the same standard as that of those countries. The development of accounting is traditionally linked to the emergence of a mercantile spirit and economic growth, but Spain often preferred military ventures to trade or manufacturing (see Giner Inchausti 1995a). Thus, the industrial revolution came to Spain during the nineteenth and early twentieth centuries virtually without any preceding bourgeois revolution. By this time, the fields of accounting, organization, and administration were strongly influenced by the French Napoleonic tradition, evident in legal institutions. The pragmatic doctrines implicit in this tradition led to a focus mainly on the techniques of accounting record-keeping rather than on principles or theories (Degranges and Jaclot were the most influential French authors). In the nineteenth century, modern Italian doctrines (especially the Cerboni’s logismografi a), implying a more evolved theoretical position, began to gain prestige among narrow groups of academics, though they became more widely accepted in the twentieth century, when the works and ideas of Besta, Zappa, and Masi were introduced by the most prestigious Spanish academics. However, there was virtually no distinctively Spanish accounting doctrine or literature in the nineteenth century since the few authors writing in this period merely presented ideas that had been developed by non-Spanish writers.1 Until the 1980s, Spain experienced a cultural and scientifi c lag as a result of political isolation both within Europe and worldwide. This was a consequence partly of Spain’s neutrality in both World Wars but more signifi cantly of the almost forty years of the Franco regime following the 1936–1939 Civil War. Because this regime was inward-looking, Spanish academics had few opportunities for international relationships and exchanges of experience. The main influences on Spanish academics were Italian authors, as well as those in Central and Northern Europe. Further influences came from pragmatic French and North American authors, particularly those concerned with bookkeeping and formal account presentation. These influences persisted during the 1950s and 1960s, in particular through Spanish translations of works by Ceccherelli, Masi, Schmalenbach, Schneider, Batardon, and Paton. Direct access to scientifi c literature in other languages was limited because of language diffi culties, international isolation until the late 1970s, and the particular academic focus in the Schools of Commerce (Escuelas de Comercio), looking for an immediate application of the studies, within the concrete legal and tax framework of Spanish economic and commercial activities; the fi nancial resources for libraries in these schools were scarce in these years too. Because of these circumstances, the introduction of new ideas and theories depended on few people, who selected the works to be translated and subsequently published. This inevitably led to considerable gaps and limitations of perspective (Montesinos 1978: 171–172, 377–380).

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The Role of the Schools of Commerce Between 1786 and 1804, organizations of merchants and businessmen (consulados and juntas de comercio) developed courses in “Commerce” and “Political Economy” in several cities as a consequence of the projection of the ideas of the “Enlightenment” in Spain, the free trade system (introduced in 1778), and a more professional and commercial focus of education, instead of pure humanistic tradition. However, it was not until 1857 that governmental centers for commercial education, the Schools of Commerce (Escuelas de Comercio), were founded by a Royal Decree and set up in the main Spanish cities. The most prestigious schools were those of Madrid, Barcelona, and Bilbao (see Luna Luque 1991: 12–22). Until 1943, economic and business subjects were addressed only in the Faculties of Law and the Schools of Commerce. In the Faculties of Law, a token presence was offered by courses and professorships in “Political Economy.” More important were the Schools of Commerce, whose studies were distributed over three levels: peritaje mercantil (elementary), profesorado mercantil (intermediate), and intendente mercantil and actuario de seguros (advanced). The curriculum emphasized accounting and management themes, but also covered law and general economics. The subjects in the Schools of Commerce were taught in a practical way, and the degrees were highly regarded socially. Specialists in fi nance and cconomics in private and public entities active in accounting, taxation, business administration, or fi nancial management, were graduates of these courses. The relatively insignificant and uncreative academic research activities were carried out by professors in these schools, who usually combined their teaching and research duties with professional practice, largely because of the poor rewards available to academics.

The Creation of the Faculties of Economic and Business Sciences The fi rst Faculty of Political and Economic Sciences (Facultad de Ciencias Politicas y Económicas) was established in Madrid in 1943, with specific branches in economic theory, economic policy, and public and private economics. This governmental decision was an attempt to address an important lag in the field of economic education in comparison with other countries in Europe; the centralized political system led to the Faculty being set up in Madrid, Spain’s capital city. Until the 1960s, only two more Faculties were established in 1953 in Barcelona and Bilbao, to further the regional economic development of Catalonia and the Basque country. However, the early curricula of the Faculties did not cover accounting or business economics, and no professorship was established in the area. The Faculties largely ignored the Schools of Commerce with respect to syllabus design and the provision of teaching staff. Training in accounting and business administration remained the responsibility of the Schools of Commerce.

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In 1953, as a result of the absorption of the advanced courses of the Schools of Commerce (and thus the introduction of “commercial” subjects), these Faculties became Faculties of Political, Economic, and Commercial Sciences (Facultades de Ciencias Politicas, Económicas y Comerciales), with three specific branches: general economics, business economics, and actuarial science. Accounting and business economics became more important, but still had a reduced share of the curriculum in comparison with general economics and law subjects. Three professorships were funded for the teaching of accounting and two for teaching business economics. This reform had a deep effect on the Schools of Commerce, since their advanced courses were absorbed into the teaching of the Faculties (Fernández Peña 1989, 1992), and the greater prestige in teaching within the subject areas of accounting and business economics moved from the Schools of Commerce to the Faculties. The balance between accounting and business economics shifted, since the latter was the generic label for the specific branch in which both subjects were studied within the Faculties. In 1970, the title and curricula of the Faculties were again modified, and they became Faculties of Economic and Business Sciences (Facultades de Ciencias Económicas y Empresariales), with economics and business sciences constituting two fully separate academic branches. Educational developments since 1970 are considered later in this chapter.

The Emergence of Business Economics Until the mid-twentieth century, business economics did not exist in Spain as an autonomous discipline, although problems of business economics were included in other areas of study, such as accounting, business organization and administration, and fi nancial management. Microeconomic theory, usually studied within University Faculties of Economics, had a significant influence on the subsequent development of business economics (Economía de la Empresa) as a separate discipline. 2 The main aspect of microeconomic theory was the economic theory of the fi rm, but this was combined with subjects more traditionally developed in the Schools of Commerce, especially the classical theory of organization and accounting. Thus, business economics combines a pragmatic aim with an economic technique that, as stated by Fernández Pirla (1961: 10), implies the “application of certain scientific-economic principles to business performances.” The most relevant parts of business economics from a theoretical point of view in its fi rst stage were investment and fi nancial analysis (which were particularly influenced by German authors), the organization of business production, and the use of operational research (Anglo-Saxon, French, and Italian authors had an important incidence in these areas). Market analysis had in this fi rst period a limited development. Business economics sprang up with a more operational aim than general economics and included internal business behavior as one of its objects

230 Vicente Montesinos of study. It also analyzed agents internal to businesses, their relationship networks, and the ways in which they managed resources. An important influence on the attempt to reach an economic view of business enterprises came from Manuel de Torres (1949, 1955), and his work contributed to the integration of economic analysis into an economic accounting theory. 3 The position of de Torres was consistent with the Central European doctrine characteristic of the time,4 which was known in Spain through the Spanish versions of works of authors such as Pedersen, Schneider, and Schmalenbach. However, it was José María Fernández Pirla5 who had the most significant influence on the foundation and subsequent development in Spain of Economía de la Empresa as an independent academic discipline within the overall framework of Economic Sciences.6

The Relationship Between Accounting and Business Economics in Its Initial Stage There was a close link between accounting and business economics in the early stage of the latter discipline. One important reason for this was that the core of studies on which the discipline of Economía de la Empresa was based was shared for many years by several academic subjects, including accounting. Another significant link was the location of accounting studies in the same academic centers (Faculties and Schools of Commerce) as business organization and administration, within a framework in which centers rather than departments were the basic units of the educational system. Moreover, in many cases, the same academics taught both accounting and business organization and administration. This made possible the treatment and analysis of these subjects by the same specialists, so both subjects came close to each other despite the different names of the disciplines. The role of Fernández Pirla as teacher of a whole generation of accountants and economists deserves special mention. His name is intimately linked not only to the birth of Economía de la Empresa as a separate academic discipline in Spain, but also to the introduction and consolidation of an economic approach to the study of accounting, in contrast to the purely legal or technical-recording positions. The subject matter of business economics consisted of all the economic processes within a business unit, while accounting was seen as an economic science useful for the measurement of these processes. However, the close personal bonds between business economics and accounting characterized by Fernández Pirla tended to dissipate, and the scientific and personal links between the subjects became logically weaker than in the initial period, when Economía de la Empresa sprang up as a separate academic discipline. Accounting and business economics in more recent years have had a range of close areas of contact and common elements, but these have not perhaps been as deep and wide as would be desirable.

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ACCOUNTING AND BUSINESS ECONOMICS IN THE PROCESS OF INTERNATIONAL INTEGRATION: FROM OEEC AND IMF TO EU

Political and Economic Background from the Late 1950s to the Mid-1980s After the end of World War II, Spain remained politically and economically isolated from Western Europe and excluded from the main projects for European Integration, as the European Economic Community (EEC) and the European Free Trade Association (EFTA). This isolation, trade quotas, and the system of bilateral agreements made hard a normal development of Spanish economy, and deep reforms were required. Even though it was not possible to integrate Spain in the European democratic political institutions, in January 1958, Spain became an associate member of the Organisation for European Economic Cooperation (OEEC)7 and joined the International Monetary Fund (IMF) and the World Bank in 1959. With the support of IMF, a Stabilization Plan was unveiled on June 1959, with fiscal and monetary measures looking for the control of inflation, liberalization of foreign trade, and obtaining foreign investment. In the following years, the growth of foreign capital investment, the great increase in tourism, and the support of international fi nancial entities and institutions allowed the Spanish economy to reach a level of development never known before. Social and cultural changes complete the preconditions for joining European institutions, just waiting the change of political system in the country, that fi nally took place after Franco’s death in 1975, as a result of a political transition where a wide agreement among social, economic, and political forces made possible the institutional reforms leading to a democratic system comparable with the other Western democracies in Europe. A new constitution was passed in 1978, and fi nally in 1986, Spain and Portugal joined the European Union (EU).

Research Approaches in Business Economics and Its Distance from Accounting The institutional admission of Economía de la Empresa as a separate academic subject, associated with specific funding of professorships and, as a consequence, differentiation between academic accountants and business economists, led in this period to a degree of distance on the part of business economics. Scientific collaboration with accounting researchers was minimal, and topics previously regarded as falling within the traditional field of accounting (such as fi nancial and investment theories, depreciation analysis, and measurement theory) were included in business economics syllabuses and research works. The trend toward overspecialization reduced the opportunities of using within accounting research methodological tools

232 Vicente Montesinos of analysis coming from organization and fi nances, which would bring a pragmatic view and contribute relevant information to a common field of observation. More recently, the distance between the two disciplines has narrowed, as empirical analysis of business fi nancial structure, the behavior of agents in organizations, and market efficiency has been developed by researchers in both areas, sometimes using identical methodologies. This period constituted a phase of growth of business economics as a separate academic subject. From its beginning, several scientific approaches arose and co-existed with a purely pragmatic-economic view. Early contributions were significant steps in the development of the discipline from a Spanish point of view, even if they were less important from an international viewpoint. The main research approaches adopted within business economics in Spain during this period were as follows:8 • Economic theory of the fi rm: The studies of Economía de la Empresa appear in Spain to be closely linked to the economic theory of the fi rm (Salas Fumás 1990), and both classical and neoclassical theories of production, fi nance, and markets were adapted and remade. The “settlement of the laws of equilibrium” in the fi rm, from a microeconomic point of view, became the formal subject matter of study (Fernández Pirla 1961: 9–10). For many years, most publications focused on fi nances, and little attention was paid to production and market matters and hardly any to management issues. • Formal-mathematical: During the 1960s and 1970s, the use of mathematical and statistical tools, such as linear and dynamic programming, queues, and networks, had a significant impact on business economics. These influences sometimes led to a confusion between the discipline itself and the techniques it used (see e.g., Alcocer Chillón and López Moreno 1968). • Human relations: The works of authors such as Simon and Cyert and March introduced from the 1970s human and social factors into business studies (e.g., Ortigueira Bouzada 1979). This widened the traditional borders of business economics through non-economic reflections and analysis.9 However, in the 1980s, the interest in social aspects and the reform of the fi rm diminished, with a return to more purely economic attitudes. • Contingency: This approach implies the introduction of a systems theory methodology, along with a multidimensional widening of the initial economic subject borders (e.g., Bueno Campos 1974). • Theory of management decision making: This approach emphasizes the use of the most appropriate framework for decision making by management and other agents (see e.g., López Moreno 1971; Vegas Pérez 1971). To be able to reach decisions, it is necessary to have the appropriate information, which must be searched for and subsequently presented according to the principles of the economics of

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information (Salas Fumás 1987). Academic accountants have also made contributions within this approach (Cañibano Calvo 1973).

Developments in Spanish Accounting Theory During the 1950s and 1960s, the conceptual approach followed by the most prestigious Spanish authors in accounting (in particular Rodríguez Pita 1956; Fernández Pirla 1957) was strongly influenced by Italian accounting doctrine, in particular by the works of Besta, Zappa, and Masi. The latter’s patrimonialismo10 continued to influence the teaching of accounting in Spain during the 1960s and 1970s. With regard to cost accounting, the German doctrine was significant during these decades, especially through the works of Schneider (1954). However, the Italian theoretical influence began to weaken among academics, who looked in other directions. Geographical and cultural closeness, economic and commercial links, and scientifi c leadership were determining factors for the change, and Germany, France, and United States were the most influential countries in the Spanish evolution. One of these new directions was France, where the 1957 Chart of Accounts (Plan Comptable) was regarded as a benchmark by academics and practitioners in Spain. The works of French authors such as Lauzel and Cibert were translated into Spanish or directly read in the original language. An important step toward the modernization of the fi nancial information presented by Spanish fi rms enterprises was the passing of the 1973 Plan de Cuentas (Chart of Accounts), which required fi nancial statements to be presented more according to accounting principles than to tax rules, even though tax influence still remained relevant. While the 1973 Chart gave rise to much descriptive and analytical literature, it inhibited a critical turn of mind in accounting research, especially within the field of fi nancial accounting (for a description of 1973 and 1990 Spanish Charts of Accounts, see Chauveau 1995). The second direction in which accounting researchers moved was toward a more formal-mathematical approach. The publications and axiomatic methodology of Mattessich, Devine, and Ijiri had a considerable influence. Cañibano Calvo (1974: 41) considered mathematical and logical formalization as the main feature of the research program adopted by academic accountants during this period, who were leaving behind the legal and economic programs. Some Spanish academics (Bueno Campos 1974; Montesinos Julve 1975, 1978; Cañibano Calvo 1979: 201 et seq.) began to be concerned with the objectives of accounting information and the users’ decision-making needs, especially after the issue of A Statement of Basic Accounting Theory (ASOBAT) study by the American Accounting Association in 1966. This methodological concern, as well as the deductive methodology used by formal-mathematical approach authors (see Calafell Castelló 1967; García García 1972), gave rise in Spain to the development

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of a theoretical system based on deductive reasoning and a pragmatic approach based on the setting up of a set of agreed general principles to be fully developed through concrete standards and rules. The publications of Moonitz (1961), Sprouse and Moonitz (1962), and Edwards and Bell (1961) were leading scientific sources for the low number of academic accountants concerned with research activities during these years.

Approaching International Standards: The Role of the AECA Following the death of Franco in 1975 and the general desire in Spain to come close to Europe, North America, and other Western countries, Spanish academic accountants developed a concern for studying European standards and the international accounting framework (see Montesinos Julve 1980; Tua Pereda 1980). Most of these studies were largely descriptive, although they also included a critical review of the state of the art. Authors were mostly concerned with the origin and features of European accounting standards, as well as the pronouncements of the IASC and their comparison with GAAP and with contemporary studies in the most advanced countries, especially the United States. The aim of researchers was to point the way toward an efficient update of the accounting model in Spain (see Gonzalo Angulo and Tua Pereda 1988). In 1979, the year after the new constitution was passed, the political and economic scenario was ripe for the setting up of the Asociación Española de Contabilidad y Administración de Empresas (AECA: Spanish Association of Accounting and Business Administration). This is not a professional organization, but an association whose most important objective is to contribute to the development of studies and research in accounting and business administration. Its members are mainly professional staff in auditing and consulting fi rms, as well as in public administration, lecturers, and researchers in accounting and business economics. Even though AECA is not able to issue compulsory standards, in this period it took the responsibility of defi ning a new conceptual framework for the complete set of accounting standards in Spain. Thus, in 1980, a basic statement on accounting principles was issued (Asociación Española de Contabilidad y Administración de Empresas 1980) as a framework for a set of concrete statements on accounting principles and standards. All these documents, although not legally compulsory, helped in the drawing up of the reforms of the Plan General de Contabilidad, as those passed in 1990 (adapting national standards to Forth European Directive) and in 2007 (adapting standards to European Regulations and IFRS). The accounting pronouncements of the Association are well considered by both academics and practitioners as a useful tool for interpretation of legal standards as well as an additional source of reporting criteria. Additionally, AECA publishes research studies and organizes national and international seminars, meetings, and conferences.

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Common Ground Between Accounting and Business Economics Although, as has been noted, a degree of distance developed in these years between Contabilidad and Economía de la Empresa, both subjects had the same field of observation—the enterprise—and often utilized similar methods. However, this did not necessarily lead to common work or reciprocal influence. For example, despite the increasing interest in formal-mathematical approaches in accounting and the application of operational research techniques in business economics, the research objectives within the two disciplines remained different, and there was little recourse to each other’s results. An area where mutual influences developed was the application of a systems approach and the stress on information systems and decision making. The work of Bueno Campos (1972, 1974), a professor of Economía de la Empresa, was widely used by accountants, while professors of Contabilidad, such as Cañibano Calvo (1973), contributed to business economics. In the field of economics of fi nance and fi nancial analysis, relevant cooperation took place in empirical studies aiming to describe and analyze the financial structure of Spanish fi rms (Cuervo and Rivero Torre 1986). Finally, the sociopolitical and institutional emphasis within accounting formed the basis for the work of some business economics professors on human resources (García Echevarría 1971, 1978; Ortigueira Bouzada 1978). This work was later developed by academic accountants such as Cea García (1982) and Lizcano Alvarez (1987). Finally, AECA was a useful forum for experts on accounting and business administration to discuss and exchange experiences and theories relating to organization and systems, business fi nances, valuation assessment, and management accounting.

JOINING THE UNITED EUROPE AND CLOSING THE CENTURY: FROM CONCERN FOR STANDARDS TO CRITICAL ANALYSIS

Theoretical Research and Professional Trends in Accounting Through the years after Spain joined the EU in 1986, many factors influenced accounting practice, such as the obligation on directors to fi le the annual fi nancial statements of companies in a public Commercial Registry, the requirement for companies to submit their annual fi nancial statements and management reports to audit, and the attempt to move closer to disclosing the type and amount of fi nancial information presented by entities in other European countries. An important area for academic research in accounting was fi nancial reporting comparability in the EU, accounting systems development, and the measurement of European harmonization (Condor López 1992; García-Benau 1995).

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During this period, significant changes occurred in attitudes toward financial reporting, from initially positive ones to a concern for relevance and reliability (Tua Pereda 1990; Condor López 1991; García-Benau and Humphrey 1992). Academics and practitioners have been close to each other, and empirical studies have indicated the absence of a gap between accounting theory and practice (see García-Ayuso and Sierra Molina 1994). Similarly, unlike the case in other countries, no gap was found between auditors’ professional activities and users’ expectations (García-Benau et al. 1993). However, this situation was changing rapidly, with gaps emerging not only between academics and practitioners (García-Benau et al. 1996) but also between audit users’ expectations and auditors’ practices, the latter gap emerging as a consequence of important financial scandals such as those of Banesto, PSV, and Torras Group (see e.g., García-Benau and Humphrey 1995). In the last years of the century, academic accounting researchers in Spain moved rapidly through a range of different approaches. Initially, normative research, characterized by an interest in the reform of the accounting model and its harmonization with the European framework, dominated: Between 1982 and 1991, about 30% of research published in Spain was devoted to accounting standardization and the Plan General de Contabilidad (see García-Ayuso and Sierra 1994). AECA pronouncements and the work of academics made up a sort of conceptual framework that enabled the 1990 reform of the Plan General de Contabilidad. There was, however, no specific conceptual framework document accepted by all interested parties. Such a document did not appear until 2002, when a White Book on the accounting reform was published by the Instituto de Contabilidad y Auditoría de Cuentas (ICAC), and 2007, when a new Plan General de Contabilidad was passed, with a Conceptual Framework as its most relevant component.11 Together with the normative approach to the research of accounting regulation, during the last decade of the century, positive studies were developed, mainly by academics but also by practitioners. The objectives of these studies were to gain a good knowledge of reality and explain it by means of empirical analysis following the methods discussed by Watts and Zimmerman (1986, 1990) and Zeff (1972, 1978, 1984). The main difficulty in adopting this approach in Spain was that statistical information and appropriate databases were scarce, and economic agents were not always willing to respond to researchers’ questionnaires. However, with the requirement for audited accounts from large and medium-size corporations and the mandatory deposit of annual fi nancial statements in the Commercial Registry, data series compiled on a uniform basis began to be available. The results of empirical studies, focused mainly on capital markets, were published in the most prestigious Spanish journals (see e.g., Tua Pereda 1991; Gabás Trigo and Pina Martínez 1991; Rubio and Salvador 1991; Regojo 1993; Sánchez Segura 1993; Giner Inchausti 1995b). While positive accounting research had a significant impact in this period, the critical approach (following Cooper and Hopper 1990; Tinker 1985; Hopwood 1985) was still at an incipient stage. An early example of

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the application of a critical approach is provided by the study of Ruiz Barbadillo (1994) into the sociopolitical determinants of accounting standards. Other areas of study include human resource accounting, accounting applications of agency theory, behavioral and psychological aspects in accounting, and environmental accounting. Here some interchange between the disciplines of accounting and business economics seems relevant, as issues such as the “ecological” audits and accounting, the agency costs, and more participative management models in business enterprises are all matters of decisive relevance to both disciplines. Among those areas in which a more social than an economic approach was followed are environmental accounting and auditing (e.g., Carmona et al. 1993; Céspedes 1993) and the analysis of accounting in organizations and the influence that social, technological, and cultural changes have on accounting (e.g., Carmona Moreno 1989, 1993; Ruiz Barbadillo 1994, 1995). Reflection on the historical background of accounting can also contribute to the critical view by aiming to yield a better understanding of the present situation and its possible future development through an analysis of social, political, and economic factors in former times (see Montesinos Julve 1978; Hernández Esteve 1981; Donoso Anes and García-Ayuso Covarsi 1993; González Ferrando 1993).12 Other important directions in Spanish accounting research include the development of international links. Few of these existed in the past, but since the mid-1980s, it became common for Spanish academics to spend time in foreign universities and attend international congresses and workshops; in contrast, international comparative analysis became a powerful tool for both theoretical research and practical studies. Research in management accounting was heavily motivated by the AECA’s Management Accounting Commission, which published many documents relating to the general framework of management accounting, cost accounting, budgets, and cost classification, as well as specific industry documents on management accounting in banks and insurance companies. Finally, the governmental accounting had important research, institutional, and educational development during these years. PhD theses and research papers were developed on this subject, and the fi rst Plan General de Contabilidad Pública was passed 1981 (with a revised version in 1983), Academics and practitioners were involved in the formulation and implementation of this Plan, and an associated conceptual framework for governmental accounting (e.g., Vela Bargues 1992, 1994; Pina Martínez and Torres Prada 1992; Montesinos Julve and Vela Bargues 1994, 1996).

The Evolution of Business Economics: Moving Closer to Accounting? Since its appearance as a separate academic discipline in Spanish universities, Economía de la Empresa continued to adopt economic theory of the fi rm as its core approach. Although management decision-making theory is

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often seen from an economic perspective, it has extended into a much larger framework, including the theory of information and business communication. Beside the classical economic approach, a political-institutional view of the fi rm has emerged from the modern theory of organizations, incorporating a wider environmental frame and a larger number of variables, with a special emphasis on relational aspects and explicit or implicit contracts, which settle the rules for the relations between principals and agents within market mechanisms. This approach emphasizes business institutional aspects and a contract analysis of economic and social relations. The theory of transaction costs tracing back to Coase (1937) provides conceptual support and at the same time is an important benchmark for this approach. However, in more recent years, agency theory, as a coherent development within this approach, has had a significant influence on accounting and business economics.13 Even though a strictly economic view is the basis of business economics in Spain, the view becomes watered down in a multidisciplinary approach through the introduction of non-economic elements, such as those taken from operational research, psychology, and the theories of administration and organization, systems, human relations, information and communication, contingency, and agency.14 The beginning of the 1980s saw a turn toward a purely economic basis for the discipline, with special emphasis on matters such as the economics of transaction costs, internal and industrial organization, and even classical issues such as the economics of fi nance, production, and demand. In contrast, changes in the structure of Faculties of Economics in the 1980s had an impact on the definition of research areas and either created or lowered barriers among different disciplines. One tendency of this structuring has been to divide accounting more rigorously from business economics and place it with fi nancial economics. Despite this, the adoption of common methodologies helped to bring Contabilidad and Economía de la Empresa closer together, particularly around the area of fi nancial analysis involving accounting information, the consideration of behavioral and organizational aspects of accounting, the adoption of agency theory or transaction cost analysis within accounting research, and the general application of quantitative analysis. Accounting research also comes closer, through this process, to disciplines such as microeconomics, econometrics, and information theory (see e.g., Rubio 1989; Amat Salas 1992). If we take an additional step in order to specify the point of contact among accounting, business economics, and similar disciplines, we could emphasize the cases of prediction and analysis of fi nancial market behavior through the use of accounting information (see e.g., Gabás Trigo and Apellániz Gómez 1994; Mora Enguídanos 1994; Apellániz Gómez and Labrador Barrafón 1995) and the impact on management accounting of the new production and the new information and artificial intelligence technologies (Montesinos Julve et al. 1994). What is special about this

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conceptual closeness among accounting, business economics, and other disciplines in Spain is that it takes place despite the low degree of contact between accounting and business economics academics, as if there were a convergence toward common objectives and methods of people walking on different roads. However, recent research brings us closer to seeing accounting and business economics as essentially a single discipline, and this will surely demand more intensive personal and professional contact for the sake of economy and efficiency. In attaining greater integration, the AECA could undoubtedly perform a decisive role. .

EDUCATION AND RESEARCH IN ACCOUNTING AND BUSINESS ECONOMICS

The Growth of the Faculties of Economic and Business Sciences Until the mid-1960s, the only universities in Spain with upper-level education in accounting and business sciences were Madrid, Barcelona, and Bilbao. In the late 1960s, new Faculties were created in universities such as Málaga, Valencia, and Santiago de Compostela. This process of expansion accelerated in the following years, and there are now more than fi fty Faculties of Economic and Business Sciences operating in Spain. With the renaming of the Faculties in 1970, they have come to include more accounting and business economics in their curricula. Within business economics itself, fields such as business organization and management, fi nance, and marketing are becoming more differentiated. Although both general economics and business administration and management courses may be studied in the same Faculties of Economic and Business Sciences, the universities have different degrees, such as economics, business administration, and accounting and fi nance, with diversified possibilities for master’s degrees and doctorates. In the labor market and from a professional point of view, however, the graduates are interchangeable and regarded generically as “economists.” They are guided professionally toward careers in audit and information systems, organization, marketing, fi nance, international economy, fi nancial systems, and so on. There is a special examination to become an auditor and to be included in the Ministry of Finance’s Official Register of Auditors (ROAC: Registro Oficial de Auditores de Cuentas), which is managed by the ICAC. The bulk of study and research in accounting and business economics takes place in the Faculties of Economic and Business Sciences. However, these subjects are also included to some extent in the curricula of other university centers with different scientific or professional orientations, such as engineering (especially industrial engineering and computer science), labor relations, public management, and law.

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Accounting and Business Economics in the Legal Framework of Higher Education After the University Reform Act (LRU: Ley de Reforma Universitaria) of 1983, at a time when student enrollments in Spanish universities were increasing dramatically, a substantial change began to take place within Spanish universities that deeply affected the careers and prospects of academics. The 1983 reform increased the autonomy of each university designing its own syllabus and having a more active role selecting its academic staff. Public universities gained capabilities in allocating funds, and the responsibility for universities was transferred to regional governments, and it became easier the creation of private universities. Academics in Spanish universities have traditionally had limited occupational mobility, and this is still the case in most universities. Selection for academic positions requires a doctoral degree with other legal requirements, and the universities have an important influence on the appointments of academics that are selected among candidates accredited for any post. In 2001, a new University Regulation was passed in order to adapt Spanish higher education to the European Space for Higher Education, according to the Bologna Declaration, and in 2010, all the Spanish universities have adapted their diplomas and curricula to these requirements The reform consists in three levels: bachelor’s, master’s, and doctorate. The last thirty years of reforms in universities have had a significant impact with regard to the publication of research results and on the nature of scientific endeavour. In fact, before the 1983 reform, the main medium for communicating research had been the book rather than the scientific journal. The most important and ambitious research works were funded and published by public bodies such as the ICAC. Journals rarely used blind and independent reviewing, nor did they encourage debate and critical comment on published papers. Now the academic reviews are gradually adopting a blind refereeing process, especially in the case of the Revista Española de Financiación y Contabilidad–Spanish Journal of Finance and Accounting, published by the AECA, that has been selected for coverage in the SSCI since the first 2008 issue and the Revista de Contabilidad–Spanish Accounting Review, published by the Asoción Española de Profesores Universitarios de Contabilidad (ASEPUC). Other journals have had a more practical and professional orientation (e.g., Partida Doble) or adopted an intermediate position between academic and professional interest (such as Técnica Contable). As the balance of academics in accounting and business economics changes, so there is greater interest in research and a relative reduction in the involvement of academics in professional and practical activities.

Private Universities and Business Administration Schools In addition to the fi fty publicly funded universities, there are 28 private universities in Spain. Also, in Spain there is a prestigious tradition of business

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administration studies in private institutions, in some cases owned and managed by religious institutions.15 These institutions particularly seek to emphasize the links between academic training and the business and fi nancial world. This has implied a stress on the technical and applied character of the subjects they teach, a methodology based on the analysis of cases, and special attention given to student practical training in business enterprises as a means of gaining employment after graduation. These centers have not emphasized theoretical research and concern for methodology. Graduates of the private business administration schools have been well accepted in both business enterprises and public administration in Spain. The private schools offer postgraduate studies in economics and business, and several of them (e.g., ESADE, IESE, ICADE, and the IE Business School) have been ranked among the best business schools in the world.

CONCLUDING REMARKS Early practical influences on accounting, organization, and administration came from the French Napoleonic tradition, which tended to emphasize legal factors and concentrate on issues of bookkeeping and the presentation of accounts. The earliest theoretical ideas adopted by Spanish accounting academics were derived from Italian doctrines of the nineteenth century. However, there was no specifically Spanish theoretical development, and the impact of the Spanish Civil War and the subsequent Franco regime, which was not only sympathetic to the Axis powers during World War II, but subsequently followed isolationist policies, meant that it was difficult for Spanish academics in the disciplines of accounting and business economics to follow the evolution of modern international technical and theoretical trends. In spite of this isolation, however, the translation into Spanish of important works by Central European, Italian, French, and North American authors provided support for the existence of an accounting “field of thought.” With the creation of the Faculties of Political, Economic, and Commercial Sciences, Economía de la Empresa emerged as a separate academic discipline. However, although both, accounting and business economics, found their intellectual roots in the ideas of Italian (Economia Aziendale and Patrimonialismo) and German (Betriebswirtschaftslehre) works, the institutional separation of the two disciplines weakened the theoretical and practical links between them. Despite this, both accounting and business economics researchers often adopted the same methodologies and theoretical innovations, so that the development of positive empirical studies in business fi nancial structure, the introduction of organizational and behavioral aspects of management, and the emphasis on information systems may be observed within both disciplines. Institutional factors such as the limited number of professorships, academic inbreeding, a degree of intellectual isolation on the part of academics, and distance on the part of business

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economics to accounting inhibited contacts and cooperation between the disciplines. The reform of the university system in the 1980s, with an increase in the number of posts and the creation of several professorships in the same department, improved career prospects and encouraged academics to build scientific contacts outside Spain, publishing in international journals, and creating major research projects. The need to harmonize Spanish fi nancial reporting as Spain has come to participate actively at a European level has been the main factor shaping much of the more normative Spanish accounting research. As this stage reached maturity, it was possible to consider empirical analysis of how the new fi nancial statements affect business enterprises and users of accounting information. The greater international dimension to Spanish accounting research is encouraging a critical reflection on the social, political, and institutional factors that determine the appropriate modifications and developments of the current accounting model. Accounting was closely bound up with business economics when it fi rst emerged as an academic discipline. However, these initial circumstances did not continue. One reason for this was the search for a distinctive corporate identity and for higher scientific status by business economics academics. Another reason was a tendency on the part of accounting academics to a degree of scientific self-isolation, with undue emphasis being placed on technical analysis of accounting methods and official standards at the expense of a deeper economic perspective. In late twentieth-century years and in the current century, the tendency toward positive and critical research in accounting, coupled with the search for decision-useful information, is contributing to the establishment of a closer cooperation between the two disciplines—that is to say, a cooperation consistent with their common scientific tradition.

NOTES 1. This does not mean, as Most (1973: 133) claims, that Spain lacks an accounting heritage: Evidence of the early emergence of accounting in Spain is given by Cuartero (1964: 39) and includes the fact that the Pinzón brothers kept double entry accounting records in 1490–1492; Christopher Columbus travelled to America accompanied by an auditor; according to Schmalenbach (1953: 12), the voyage of Magellan and Juan Sebastián Elcano is an example of venture result determination; and the allusion of the sixteenth-century English author Oldcastle to “accounts in the Spanish style” and the praise of Ympyn for Spanish accounting practice (Jan Ympyn was an Antwerp merchant whose book was originally published in 1543 in Flemish language and then translated into French and into English; as noted by De Roover, the value of this treaty lies in the fact that, through it, double entry became known in Western Europe). 2. Economía de la Empresa was born in Spain as a unitary discipline (like Economia Aziendale in Italy) when the Faculties of Political, Economic, and Commercial Sciences were founded, as a different scientific term to those used

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3. 4.

5.

6.

7. 8. 9.

10.

11.

12.

13.

14.

243

before by the Schools of Commerce. Several disciplines have subsequently emerged, especially since the 1970 reform, from the original Economía de la Empresa, including fi nancial economics, organization, and marketing. Economic accounting theory focuses on economic features of the phenomena to be recorded and disclosed in an accounting system, more than on bookkeeping and recording techniques. In this sense, according to Bueno Campos et al. (1981: 64), “normative and positive Central European works, in particular those written by German authors, have initiated the so-called Economic Theory of the Firm or Business Economics field. If we add to this the contribution of organizational works on the part of the North American Taylor and the French Fayol, as well as the positivism of the main North American and German schools of thought founded afterwards, we will have fi rm bases to initiate the elaboration of the concept of Business Economics.” Born in Madrid in 1925. PhD in Economics and Political Science and PhD in Law by the University Complutense of Madrid. Professor of Business Economics at the University Complutense of Madrid and former president of the Spanish Court of Auditors. The fi rst edition of Fernández Pirla’s book (1961) was titled Business Economics. In the third edition (1967), he put more emphasis on the quantitative techniques in the service of the enterprise that cannot be considered as strictly economic aspects, and the book was titled Business Economics and Management. Since 1961, Organisation for Economic Co-operation and Development (OECD) Interesting studies on this subject have been developed by Salas Fumás (1990) and Gago Rodríguez (1991: 8–82). The report issued by the Sudreau Committee (1975) had a significant influence on the study of the reform of the fi rm. This committee studied how the French business enterprises could be reformed to foster the workers’ and shareholders’ involvement in business activities and projects. They recommended the disclosure of social indicators and the search for a more open reporting policy for business entities. Ragioneria (accounting) in the works of Masi focused on the description, valuation, and recording of the elements of business ownership. Masi had a clear position in favor of the scientific autonomy of accounting, whereas Zappa regarded accounting as a part of Economia Aziendale (see chapters 3 and 16, this volume). EU Regulations adopted IFRS in 2002 to be applied since 2005 to listed corporations. These Regulations are based on IASB conceptual framework, approved by the IASC Board in 1989, and adopted by IASB in 2001; however, this framework is not explicitly included in European regulations. Within the historical sphere, we should especially underline the contribution of Esteban Hernández, awarded with the Hourglass award and member of the Spanish Academy of Doctors, as well as the work of the AECA through its Accounting History Commission. García Echevarría (1975) can be considered a pioneer of the political-institutional approach. Other authors working in this line of research include Bueno Campos et al. (1981), Durán Herrera (1985), and Fernández Blanco (1989). According to Bueno et al. (1981: 65), “Business Economics concerns itself with the knowledge of economic reality of business enterprises. However, it is an unquestionable fact that this reality encompasses very different perspectives; nevertheless, it can be argued that conceptual elaboration which is

244 Vicente Montesinos carried out to collect all of these phenomena is performed in accordance with economic principles.” 15. For example, the University of Deusto (in Bilbao, run by the Jesuits), ICADE (in Madrid, also run by the Jesuits), and IESE (in Barcelona, run by Opus Dei).

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246 Vicente Montesinos García Echevarría, S. 1975. Política Económica de la Empresa. Madrid: ESIC. García Echevarría, S. 1978. “El balance social en la gestión empresarial.” EsicMarket: 13–21. García García, M. 1972. “Modernas tendencias metodológicas en Contabilidad.” Revista Española de Financiación y Contabilidad: 23–44. Giner Inchausti, B. 1995a. “The history of fi nancial reporting in Spain.” In European fi nancial reporting: A History, ed. P. Walton. London: Academic Press, pp. 203–219. Giner Inchausti, B. 1995b. La Divulgación de la Información Financiera: Una Investigación Empirica. Madrid: ICAC. González Ferrando, J. M. 1993. “La contabilidad de la casa real del principe Don Juan, heredero de los Reyes Católicos.” Revista Española de Financiación y Contabilidad: 757–790. Gonzalo Angulo, J. A., and Tua Pereda, J. 1988. Introducción a la Contabilidad Internacional. Madrid: Ministerio de Economía y Hacienda. Hernández Esteve, E. 1981. Contribución al Estudio de la Historiografía Contable en España. Madrid: Banco de España. Hopwood, A. G. 1985. “The Tale of a Committee That Never Reported: Disagreements on Intertwining Accounting with the Social.” Accounting, Organizations and Society: 361–377. Lizcano Alvarez, J. 1987. La Dimensión Integral de la Empresa: Un Modelo Contable. Madrid: Universidad Autónoma de Madrid. López Moreno, M. J. 1971. “El problema conceptual en la Economía de la Empresa.” Boletin de Estudios Económicos de la Universidad Comercial de Deusto: 873–897. Luna Luque, F. J. 1991. “La Enseñanza de la Contabilidad en España.” In IV Encuentro Profesores Universitarios de Contabilidad. Santander: Caja Cantabria, pp. 3–50. Montesinos Julve, V. 1975. “La Contabilidad en la formación y manifestación de las expectativas empresariales.” Seguros: 259–287. Montesinos Julve, V. 1978. “Formación histórica, corrientes doctrinales y programas de investigación en Contabilidad.” Revista Técnica Contable: 81, 135, 171, 219, 253, 285, 351, 373 et seq. Montesinos Julve, V. 1980. Las Normas de Contabilidad en la Comunidad Económica Europea. Madrid: Ministerio de Economía y Hacienda. Montesinos Julve, V. (research director), Escuder Vallés, R., García Benau, M. A., Giner Inchausti, B., Ripoll Feliu, V., Sánchez Tomás, A., Serra Salvador, V., and Vela Pastor, M. 1994. Estudio sobre la Implantación de la Contabilidad de Gestión en España. Madrid: AECA. Montesinos Julve, V., and Vela Bargues, J. M. 1994. “Performance measurement in the public sector: Some implications of Spanish accounting regulation.” In Perspectives on performance measurement and public sector accounting, ed. E. Buschor and K. Schedler. Berne: Haupt, pp. 397–416. Montesinos Julve, V., and Vela Bargues, J. M. 1996. “Governmental accounting in Spain: Evolution and reforms.” In Research in governmental and nonprofit accounting (Vol. 9), ed. J. L. Chan, R. H. Jones, and K. G. Lüder. Greenwich, CT: JAI Press, pp. 219–238. Moonitz, M. 1961. The basic postulates of accounting. Accounting Research Study No. 1. New York: American Institute of Certified Public Accountants. Mora Enguídanos, A. 1994. “Los modelos de predicción del fracaso empresarial: una aplicación empírica del logit.” Revista Española de Financiación y Contabilidad: 203–233. Most, K. S. 1973. “The Planning Hypothesis as a Basis for Accounting Theory.” Abacus: 128–133.

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10 The Three Main Schools of the French Financial Accounting Doctrine A Historical Survey Jacques Richard INTRODUCTION Accounting, as it is now recognized by a large part of the community of accountants, is a sociopolitical technique highly dependent on the economic and social systems. France, in this regard, has always belonged to the capitalist economic system since the latter has appeared but has been governed by diverse political regimes and has also used different types of capitalist accounting adapted to its economic and social stages. So in order to know and value the contribution of French accountants to the development of capitalist financial accounting doctrine, we need first to have a theory of the development of capitalist systems, second a typology of political regimes, and third a classification of the capitalist financial accounting systems. Concerning the fi rst point, I will rely on the works of historians such as Braudel (1985) and Fevbre (1952), and of economists and lawyers such as Hilferding (1910) and Berle and Means (1932), to distinguish four general stages of the development of capitalism: entrepreneurial merchant capitalism, entrepreneurial industrial capitalism, shareholder industrial capitalism, and shareholder fi nancial capitalism. Many capitalist countries have gone through these four stages, and France (see below) is one of them. Different countries have had their own rhythm, and we will show that France has been relatively long in reaching the last stage.

The Merchant Phase of Capitalism From about the thirteenth century, with the appearance of big fairs such as the Troye’s Fair, to the end of the seventeenth century, at the time of “Sun King Louis 14,” there is a strong development of big merchants (known as négociants in the seventeenth century) motivated by a “morale of profit” (morale de profit) (Fevbre 1952: 287) and able to fi nd this profit on behalf of “unequal exchanges” (échange inégal) (Braudel 1985: 57). These négociants play an important role in the affairs of the monarchy; one of them is the famous Jacques Savary (see later). As the monarchy is itself fully involved, albeit indirectly, in merchant activity (see below), we can, backing

250 Jacques Richard on Braudel (1985: 44), describe this period, at least its last part, as a time marked by some “merchant capitalism.” This form of capitalism is mainly characterized by entrepreneurship: entrepreneurs manage themselves their merchant fi rms. It is also characterized by the predominance of self-financing due to scarcity of credit and fear of bankruptcy. During the eighteenth century, there is a “proto-industrialization,” with some industries using the putting out system and even some signs of big concentrated factories; one of the most famous examples is the foundation in 1782 of the “Fonderie royale du Creusot.” This fi rm will be bought later in 1836 by the famous Schneider family and became one of the jewels of French industrial capitalism. But as underlined by most historians, France, contrary to England, has not known a true industrial revolution during the eighteenth century: To fi nd this revolution, one must wait until the beginning of the nineteenth century (Braudel 1985: 68).

The Industrial Phase of French Capitalism I will thus consider that for France, the second stage of capitalism, meaning the “entrepreneurial industrial capitalism,” is globally the nineteenth century. This type of capitalism is characterized by the following features: Industrial capitalists, as their commercial counterparts, are true entrepreneurs (they manage their fi rms themselves), and, according to Plessis (1996), they mainly rely on self-fi nancing and capital funding. For example, as shown by Lemarchand (1993b: 304) and Fabre (2008: 304–306), SaintGobain and Schneider, even in the last part of the century, have practically no debt. The two main differences with the preceding stage are that the industrial capitalists rely on hiring salaried people to generate their profit and have the possibility of switching to limited liability.

The Shareholder Phase of French Capitalism The third stage of French capitalism is to be found during the fi rst seventy years of the twentieth century. It is characterized by a greater proportion of firms that rely on financing by stock markets. This trend already begins in the last ten years of the nineteenth century and the fi rst years of the twentieth century. So the number of quoted companies is passing from only 182 in 1891 to 336 in 1913, with a rise of 84% (Gallais-Hamonno et Hautcoeur 2007: 445). This is a clear sign of the evolution of the French capitalism toward a shareholder capitalism; as it is known, this evolution has been mentioned as early as 1917 by the German businessman Rathenau and justified with factual data by Berle and Means (1932). All of these authors underline the rise of the proportion of small “absentee owners” in the big companies, but there is a difference of opinion between them: Rathenau (1917: 60) thinks that the absentee owners make an alliance with the managers against the undertakers to get more dividends to the detriment of self-financing. On the contrary,

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Berle and Means (1932: 4), despite quoting Rathenau, focus on the independence of managers and the separation of ownership from control and speak of a managerial capitalism. Due to the rise of distribution of dividends that can be observed in the French big companies during the period (Hautcoeur 1994) it seems to me that, concerning France at least, Rathenau’s thesis is more convincing, all the more than the accounting literature provides some arguments to sustain his view (see below). This is the reason why I will speak of “shareholder capitalism.” In contrast to the preceding one, this capitalism is less entrepreneurial and more hostile to self-financing. But in the case of France, where the “welfare state” and social law have played a particular role up to the 1980s, the French shareholder capitalism could not totally upset the entrepreneurial conception.

The Financialization of the French Capitalism The last stage of the French capitalism has been described byAglietta and Rebérioux (2004: 13–16). They consider that there has been a drastic change in the governance of French big companies in the 1980s in favour of a management oriented toward the search of short-term and high profits for shareholders. The authors give five main reasons for this change: fi rst, the privatizations in that period have reduced the role of the state in industrial management (Aglietta and Rebérioux 2004: 17); second , the control blocks detained by the government and private “hard-core” investors “exploded” (Aglietta and Rebérioux 2004: 84); third, there is a development of the emissions of shares on the stock market and a greater dispersion of capital (Aglietta and Rebérioux 2004: 76);fourth, there is a penetration of foreign investors, especially of Anglo-Saxon pension funds; fi fth, there is a tendency to apply the principles of the “shareholder value” and the criteria of “economic value added” as promoted by Stern , Stewart and Chew (1995). In summary, all of these changes lead to the appearance of a “fi nancial capitalism” (a concept proposed in 1910 by Hilferding). To conclude this description of the stages of development of its capitalism, France has gone through the same four stages as the Anglo-Saxon countries but at a lower pace. One of the main reasons for this “lateness” relates to political factors, which leads us to our second point.

The Role of State Intervention in French Economy and Accounting It is traditional to oppose countries where the economy is mainly regulated by the market-the famous Adam Smith’s invisible hand-to those where the state takes part in this economic activity by planning and by managing state enterprises. Contrary to what is generally believed, France has had long periods of liberalism, notably during the major part of the nineteenth century and the fi rst forty years of the twentieth century. But it is also true that it has had periods of state intervention that could be interpreted as

252 Jacques Richard state capitalism, to use a concept as developed by Buick and Crump (1986). The forms and goals of this state capitalism can be diverse with more or less authoritarian character. In the case of France, there have been four main periods of some form of state capitalism since the sixteenth century: the period of King Louis 14, the period of the French Revolution and the Napoleonic Empire, the period of Vichy, and the two periods when De Gaulle took power. The Sun King’s time was marked by a policy of state intervention to bring revenues to the crown and foster the economic development. It was notably led by Jean-Baptiste Colbert (1619–1683), general comptroller of Finance, who promoted big maritime merchant state companies such as the Compagnie des Indes, big industrial manufactures such as Gobelins and commercial regulation; the kingdom also fostered applied sciences notably by helping the scientific and technical schools such as the famous school of “Ponts et Chaussées” (founded in 1747). In line with this philosophy, a systematic partition began to exist between the universities, mainly oriented toward law, philosophy, and fi ne arts, such as the Sorbonne, and so-called “Grandes Ecoles” (dealing with applied sciences or technique and notably accounting), such as the ESCP (Ecole Supérieure de Commerce de Paris) founded in 1819 and the HEC (Hautes Etudes Commerciales) founded in 1881, which is even today a specific feature of the French system of education. It is also a time when it became a systematic habit to associate private capitalists to the public management of France; thus, Jacques Savary, the big merchant, was invited by Colbert to write in 1673 an Ordinance regulating commercial law and accounting, which is taken to be one of the fi rst if not the fi rst accounting regulation in the world . After the French Revolution, at the time of Napoleon, we also fi nd a period of strong regulation concerning the industrial and commercial affairs with the creation of the famous Commercial Code of 1807, but the spirit is a quite different one. As explained by Jean Hilaire (1986: 89–91), this period is marked by the recent scandals and bankruptcies at the time of Directoire and the economic crisis of 1805. Thus, there is some necessity for Napoleon to “moralise the commerce” (Hilaire 1986: 67–89); in this context, the merchants and industrialists, as the specialists of commercial law, are excluded from the commissions preparing the future commercial code, and the task is given to lawyers, who are specialists of civil law animated with a spirit of repressing bankruptcy (Hilaire 1986: 90–91). Unlike the Savary’s time, the legislative power, notably in the matter of accounting, is not in the hands of merchants or industrialists but rather lawyers defending the interests of creditors. Astonishingly, this power of lawyers, and this kind of commercial legislation, will basically remain influent until the end of the nineteenth century and even, albeit somewhat changed, until 1939 in a context of a long period of political liberalism (short Blum’s government period excepted in 1936–1937).

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If we pass over the Petain’s government—a factual dictatorship inspired by the Nazis—the short fi rst Gaullist period from 1944 to 1946 is marked by big nationalizations and some state planning; but de Gaulle’s resignation in 1946 stops this evolution, and France returns to a more liberal policy until 1958. After his return, de Gaulle realizes a kind of state capitalism where private enterprises must respect some “indicative planning.” His departure in 1968 rings the bell of the return of France to a more liberal policy, which is more and more influenced by the Anglo-Saxon conceptions except during the Mitterand’s fi rst period of power in the early 1980s (see appendix). To answer my initial question, I need a last third brick—a classifi cation of the theories of capitalist accounting. Owing to the specific subject, I will rely here on a classifi cation elaborated on the basis of the works of French and German “classics.” As shown by Richard (2005b) for France and Ding, Richard, and Stolowy (2008) for five main countries, it can be assumed that capitalist doctrine of accounting has evolved in three stages from 1800 to the twenty-fi rst century: (1) a fi rst “static” stage, where the accounting doctrine is dominated by the assumption of bankruptcy (or liquidation) and the use of exit market values; (2) a second “dynamic” stage, where the doctrine follows the going concern principle along with the use of cost valuation (before realization of sales); and (3) a third “actuarial “ stage, where accounting goes on applying the going concern principle but value assets theoretically on the basis of future discounted cash flows. To take account here of our longer period, I have incorporated a preliminary stage that is named as “static-dynamic” (see below for its justifi cation). As shown by Biondi (2003), this recourse to a continental European theory of accounting is particularly adapted, due to its sociohistorical emphasis, to explain the evolution and crisis of capitalist accounting in Europe. I am now in a position to synthesize the preceding developments in Table 10.1, which can be used to explain and justify my analysis. Until the end of the twentieth century, what have been the most wellknown French innovations in the field of fi nancial accounting? To judge from the comments of the international literature—a criterion I will admit is a debatable one—it seems that only the productions of three groups of French theoretical and/or practical writers have succeeded in retaining the attention of the world up to now: Jacques Savary at the time of Colbert, the “Napoleonic commercial lawyers” at the time of the Empire, and the French school of planning at the time of de Gaulle’s fi fth Republic. It is striking that all these periods coincide with times of state capitalism. On the contrary, the contributions of French authors during the periods of “laissez-faire” seem to have gone in oblivion abroad. This judgment of history is globally a correct one, and I will focus here on the three selected contributions.

254 Jacques Richard Table 10.1

Relationship between types of capitalist governance and accounting Type of Capitalism (since 1643) Entrepreneurial Entrepreneurial merchant industrial capitalism capitalism (1643–1800) (1800–1900)

Type of Governance State capitalism (monarchy) Louis14 (1643–1715) Louis 15 (1715–1774) Louis 16 (1774– 1789)

Shareholder Industrial Capitalism (1900–1970)

Shareholder Financial Capitalism (1970–)

Mixed dynamicstatic accounting

State capitalism French revolution (1789–1804) Napoleon’s empire (1804–1815)

Static accounting

Liberal capitalism (1816–1940) (except for Blum’s government: 1936–1937)

Static accounting (1816–1900)

Mixed staticdynamic accounting (1900–1940)

State capitalism (authoritarian) Petain’s government (1940–1944)

Mixed staticdynamic accounting

State capitalism (democratic) First de Gaulle’s government (1944–1946)

Mixed staticdynamic accounting

Liberalism (1947–1958)

Mixed staticdynamic accounting

State capitalism (democratic) Second de Gaulle’s government (1958–1968)

Mixed staticdynamic accounting

Liberalism 1969–2004 (except for Mitterand’s period 1981–1983)

Dynamic accounting (since 1982)

Liberalism (European integration) 2005. . . . .

Mixed dynamic and actuarial accounting

JACQUES SAVARY’S CONTRIBUTION: THE EARLY DIVIDE BETWEEN DYNAMIC AND STATIC ACCOUNTING AND ITS CONCILIATION In France, Savary is not considered an important author mainly because his contribution to the accounting practice is deemed to be inferior to preceding works (Meuvret 1971). Thus, Lemarchand (2005: 25) seems to be hesitating about the merits of Savary, noting that the perfect merchant (le parfait négociant) “is not a real novelty.” However, Lemarchand (2005: 26) says that Savary is “one of the very rare French authors to be quoted in

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the Anglo-Saxon classical works of history of accounting.” As a matter of fact, well-known American historians such as Littleton (1933, 1941) and Chatfield (1977) have recognized Savary’s contribution to the progress of accounting knowledge and practice. More recently, Parker (1966: 260) said that Le parfait Négociant “is the fi rst book in which the problem of valuation is discussed at any length.” In Germany, Savary, systematically quoted by scholars, is considered a forerunner of the dynamic school of accounting and influential for the development of the fi rst worldwide example of a dynamic accounting regulation: the Prussian General Law of 1794 (Oberbrinckmann 1990: 63).1 In fact, there is a double mystery about Savary. First, his contribution is differently recognized. Second, there is a controversy about it: while Chatfield (1977: 72) deems that Savary is an initiator of the lower of the cost or market valuation principle, the German classical school largely thinks that he is promoting a dynamic conception based on the exclusive use of cost valuation without reference to market prices. We will now examine these questions. The fi rst main point about Savary, which has not been seen by Littleton or Chatfield, is that he distinguishes two different balance sheets or at least two different parts in one balance sheet, according to the interpretation: The fi rst one is said to be the balance d’inventaire (balance of the inventory), and the second one is the l’état de bien (state of the property). The second point that has equally not been seen is that he uses two different kinds of valuation for these two (parts of) balance sheets: a dynamic (cost) valuation for the fi rst one and a static (market price) one for the second one. The “dynamic” balance sheet is mainly composed, on the assets side, of inventories, claims, and cash: the means of action for the merchant. According to Savary’s original edition (1675: 325), they must be valued at their purchase cost (prix coûtant) so that “by selling them afterward one can fi nd profit in the inventory taken the following year.” Savary (1675: 325) only accepts three exceptions to the principle of cost valuation: 1. If the “newly purchased merchandise” has “decreased in price in the factory or the wholesalers.” 2. If “this is merchandise which is commencing to deteriorate, or going out of style, or is such that one judges he could fi nd at the factory or wholesalers at 5% less.” 3. If it is “spoiled merchandise, old fashioned, out of selling.” Thus, for the “newly purchased merchandise,” Savary is not interested in their exit market value but in their production cost (replacement cost), and the reduction of the cost of old merchandise is always justified by some physical or moral obsolescence and not by the fluctuations of the market price. The conclusion seems to be clear: Savary is not a partisan of the lower of cost or (exit) market rule; it appears that he sticks to a strict appliance of the cost rule.

256 Jacques Richard But as said, Savary proposes a second (part of) balance sheet; he says that, “after having presented the balance of inventory to satisfy to the Ordinance, he (the merchant) will have to put on the debit side all his furniture, diamonds and silver plate, if there is any, and his fi xed property , then sum up the whole to see what is the amount of his total property (“bien” in French); then he will put below and deduct the whole amount of passive debts; what will be left after this deduction will represent his net property (“ce qu’il aura de bien au juste”)” (Savary 1675: 327). After that, Savary gives an example with figures: the striking point here is that the furniture and the house are not valued on the basis of their cost but on behalf of their “estimation” (Savary 1675: 348). Our interpretation of the two-sided system is described in the following. In the fi rst part of la balance d’inventaire, Savary will measure the management performance of the merchant on the basis of a historical cost (dynamic) accounting system and appears to be a forerunner of the principle of entity; in the second part, he will propose some help to measure the capability of the merchant to reimburse his debts by adding some private assets presumably valued at their actuarial value (as was a common type of valuation, as used by Irson [1678] and Massabiau [1764]): This is what is known as a static balance sheet since the beginning of the twentieth century in continental Europe. So to fight the evil of failure, Savary seems to use two kinds of weapons. The fi rst weapon is a prophylactic one; it means a kind of dynamic balance sheet to be aware of the performance. The second weapon, a sort of possible remedy, is a special balance sheet to simulate the effects of bankruptcy. Maybe this mixed accounting was a response to the hesitation between cost and value that characterized this period of capitalism going up to the famous Straccha’s time (Ter Vehn 1929 and Lion 1928) This dual sophisticated construction based on two types of values for two accounting objectives has raised many comments in the future but was never well understood and followed: The time had come for a battle between value and cost.

THE FIRST ACCOUNTING WAR AND THE VICTORY OF NAPOLEONIC LAWYERS DURING THE 19TH CENTURY In the 1980s, in an article devoted to the dangers resulting from the appliance of the fourth directive and especially directed against the fuzzy principle of true and fair view, one leading German accounting theorist defended the traditional German accounting law and reminded the reader that this traditional law “is an European one, more precisely a continental European one marked by the old French balance sheet law that Napoleon had imposed even out of France” (Moxter 1982: 1030). Indeed, during the most part of the nineteenth century, on the continent,

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the conception of fi nancial accounting, at least in the field of doctrine and legislation, has been directly influenced by the works of Napoleonic lawyers. As explained by the German historians of accounting, Oberbrinckmann (1990) and Barth (1953), in 1857, at the time of the preparation of the fi rst German Commercial Code, there was a confl ict opposing the Prussian delegates and those of other German states. The Prussian delegation defended a conception of accounting based on a historical cost approach in line with the Prussian ALR, inspired by Savary. On the contrary, the other German delegations defended an approach based on the ideas of the Napoleonic lawyers, as expressed in their Commercial Codes. This “accounting war” ended in the defeat of the Prussian delegation and the victory of the “Napoleonic” conception of accounting; this event was the consecration of the French influence in accounting for the biggest part of Europe and most of Latin America. The fundamental question is then the following one: who were these so influential Napoleonic lawyers and what was their conception of accounting? Their main work is the famous Commercial Code published in 1807. It is admitted that this Code largely relies on the preceding Ordinance of 1673 as conceived by Savary (Lemarchand 1993a: 335). Thus, the article 9 of Livre II takes up the obligation to make an annual inventory. In the corpus of the Code, nothing is said concerning the valuation of the inventory, and one could believe that the philosophy proposed by Savary has remained unchanged. But the novelty lies in another part of the text: there is an Annex to the Code (Code de Commerce 1808: 297), which proposes a model of inventory to satisfy to the new article 9, and in this inventory all the assets are valued on the basis of their price (cours) at the time of inventory. This is apparently a true revolution as far as there is no more reference to a cost valuation. This revolution is confi rmed and explained by the commentary of the Code made by J. B. de la Porte the following year; this lawyer makes clear that there is a new philosophy as compared with Savary’s conception of inventory: “it is wanted that accounting system could reflect not only the situation of the merchant but also his personal wealth ;it is one more guaranty for his creditors” (Code de Commerce 1808: 117–118); in contrast to Savary’s inventory, the goal is no longer to measure the business performance but the wealth of the owner so as to check his ability to meet his commercial obligations. This explains why the personal property is obligatorily taken into consideration; it also explains why the valuation is made on the basis of market prices and not of costs, as underlined by de la Porte (Code de Commerce 1808:122): “The fair estimation of the goods must be made not on the basis of the purchase cost but on the basis of what they can truly be worth,” implying that “some goods could rise while others could diminish” with the movements of market prices. We have here all the elements of the static theory: this accounting is first destined to protect creditors and, second, based on the use of market prices, will compare the bulk of assets with the debts so as to verify the merchant’s ability to meet

258 Jacques Richard his obligations in the case of bankruptcy: some form of stress tests, to use a modern language. This conception was seemingly accepted by some leading authors in accounting as shown by the declarations of Monginot (1826: 72): “The merchant must establish the inventory . . . by estimating the goods and the property at a moderate price in order to give them only the value that he could obtain according to the spot price.” But this ideology of accounting will mainly be found in all the writings of French commercial lawyers afterward during the nineteenth century, notably in the works of Pardessus (1815), Locre (1829), Molinier (1846), Bedarride (1854), and Vavasseur (1883). It was transmitted to the German lawyers, who integrated it in the German commercial Code of 1857 and used it until 1884. Furthermore, the major change during this period was another product of French commercial lawyers. In the 1860s, in a context of fi nancial scandals and strong development of the companies with limited liability, they invented the principle of prudence, at least in the field of law, according to which it is forbidden to register potential profits; this principle was introduced fi rst by the jurisprudence (Cour of Cassation, 28/6/1862, Dalloz, 62,1,307); it was in order to prohibit the distribution of “fictitious dividends” that could indeed no longer be recovered owing to the limited liability of the new capitalists. This was not a renunciation to the static approach but its modification to take account of a new capitalism based on limited responsibility; afterward the principle of prudence was inserted in the 1867’s companies law; this French initiative will serve as an example for the rest of continental Europe (Barth 1953: 6). To build their theory, the French lawyers were strongly influenced by the Roman company law, according to which it is not possible to measure a profit before the end of the company and the liquidation of all assets (Fremery 1833). Up to the end of the nineteenth century, they refer to this conception of liquidation, which implies, as stressed by Barth (1953: 144), the recourse to market values. Even at the beginning of the twentieth century, it is possible to fi nd an author such as Bastide (1903: 32), who describes the inventory as a “kind of partial liquidation.” This theory is related to the hypothesis of bankruptcy or liquidation, which explains that the German classic school has named it as “static” (“stare” in Latin means “to stay”); it should be noted that Moxter (1984: 6) distinguishes two static theories: one that relies on the hypothesis of liquidation (Zerschlagungsstatik) and another one that relies on the hypothesis of continuity (Fortführungsstatik). The second static accounting theory was invented by the German Veit Simon (1884). But, as underlined by Richard (2005b 2005c), Veit Simon’s theory has nothing to do with the Napoleonic static accounting, which is based on an assumption of liquidation and the spot value of assets taken in isolation. Simon, on the contrary, adopts the going concern assumption, considers the enterprise as a whole, and recognizes assets on the basis of expected future benefits. In this way,

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Moxter, using the same term of static for two totally different accounting theories, has contributed to a confusing debate. 2 The Napoleonic static accounting implied, most of time, that specialized fi xed assets were valued at their scrap value and intangible investments, as having no value in the case of bankruptcy, and were treated as immediate losses (Ding et al. 2008); the consequence was that heavy losses appeared at the time of investments while profits were delayed (Richard1993, 2005b). This situation was not a problem for most entrepreneurs of the nineteenth century, whose activity relied on self-fi nancing and who wanted, like the famous prudent banker Germain, moderate dividends (Praquin 2003). As shown by Lemarchand (1993b), many of them even exaggerated the initial losses by eliminating the whole value of fi xed assets. Lemarchand (1993b) has explained this practice by different reasons: the need to rely on selffi nancing; an attitude of prudence; and also the influence of another type of accounting, the cash flow accounting inherited from the public finance accounting. Relying on French authors such as Courcelle-Seneuil (1872: 272), Amiaud (1920: 8), Chaveneau (1922), and historical studies (Ding et al. 2008; Richard 2005b; Fabre 2008: 351), I think that the static accounting initiated by the Napoleonic lawyers has also played an important role in the “under-evaluation” of assets in the nineteenth century and even, for intangibles, in the French “General Accounting Plans” up to the 1980s. There is no main contradiction with the Lemarchand’s thesis as far as static accounting was an instrument of prudence especially after the 1860s. The predominance of the static view in the doctrine of fi nancial accounting has lasted until the 1890s; but during this period and later, it sometimes appeared in big enterprises a second accounting system often made by engineers for product cost determination with a more dynamic emphasis. For Nioche and Pesqueux (1998), this split was due to a cultural factor: French owners ought to be archaic people imbued of private property and individualism with a primary emphasis on balance sheet; they should refrain from and “reject” engineers who were more oriented toward modernism. This thesis is debatable; fi rst, it implies that many European owners would have contacted archaism and this for a long time; as said by Richard (1995: 117), Mellerowicz’s cost accounting (Kostenrechnung) shows that “formal dualism” was a common practice in Germany. In fact, there was no archaism; the simple reason of dualism in France during the nineteenth century was the difficulty to meet two different objectives with a single accounting system: Static accounting, or every prudent type of accounting, was made to make “stress tests” and/or to allow for self-fi nancing by lowering dividends and not to measure operating performance. Later, at the time of reporting for taxation and shareholders, another reason should be the business secret as shown by Richard (1982) and Touchelay (2011). A proof of the absence of archaism is given by Edwards (1937), Nikitin (1992), and Lemarchand (1993a, 1993b): The French cost accounting literature in the fi rst half of the nineteenth century was at least on the

260 Jacques Richard same footing as the English one; it only needs to refer to works written by Payen (1817), Cazaux (1824), Degrange (1824), and Guilbault (1877). These cost accountants were developing for industrial fi rms some aspects of the dynamic accounting that were initially promoted by Savary for merchants. For example, Degrange (1824: 18–31) exemplifies the circulation of costs inside the production process in a brilliant way. But these authors were nevertheless mixing values and costs in a way that prove that the static stance remained a dominating constraint even for them. This is particularly the case for Cazaux (1824: 4), who, at the beginning of his work, underlines that the loss of (market) value of the land must be taken in account to calculate the net income. In conclusion, for this stage of French capitalist accounting, it can be said that during the nineteenth century France played a major role in the development of both fi nancial and management accounting science and/or practice; unfortunately, this was not the case after that.

THE CONTRIBUTION OF FRANCE TO THE DYNAMIC ACCOUNTING REVOLUTION France was ahead and dominant for the theory of static accounting; it was also present for the development of dynamic one but not so dominant. The fi rst signs of a clear doctrine in favour of the dynamic stance appear relatively early in France. As shown by Lemarchand (1993a: 436–437), in the middle of the century, Monginot (1854: 128) in his Nouvelles études sur la comptabilité commerciale,industrielle et agricole declares that “the estimation of equipment is subordinated to diverse circumstances: if the factory is on the verge of liquidation the equipment must be valued along its possible sale price; but if, on the contrary , the equipment is continuing its exploitation, the equipment must be estimated as a value in use because so long as the tools can be employed they render as much services as new tools.” As Lemarchand (1993a: 437) underlines, “this is a clear enunciation of the implications of the going concern hypothesis.” In the following years, in total contradiction with his ideas expressed under the static influence about thirty years before, Monginot (1854: 128) declares that it is possible “to depreciate each year the equipment along a proportion to the depreciation it suffers from its use in order to avoid a too heavy burden on one single accounting period”; this invitation to a dynamic conception of depreciation is completed thirteen years later as he declares that “to take account of the depreciation of the equipment . . . we debit the profit and loss account of a percentage of the total price and we credit the account depreciation” (Monginot 1867: 135) . But, as shown by Richard (2005b, 2005c, 2006), Germany played a leading role in the matter of legislation as in the matter of theoretical discussion.

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In the matter of legislation, the main elements of a dynamic type of depreciation can be found in the eighteenth century in the general Prussian Code (ALR1794). In the matter of theory, a spectacular discussion about the pros and cons of the static and dynamic types of depreciation took place in the early 1870s. At that time, a rapid pace of industrialization appeared in this country marked by the creation of giant companies, including railway ones; these companies highly relied on fi nancing by small shareholders who wanted immediate and regular profits, but this was at odds with the static accounting that dominated the German Code of commerce since 1857. In the static accounting, investments, notably tangible ones, begin with losses, as said before, and incomes are fluctuating with market prices. To solve this contradiction, brilliant “modern” lawyers and accountants were summoned to fi nd a solution; these men, such as Keyssner (1876) ,Von Strombeck (1878), and Scheffler (1879), were the forgotten founders of the classic balance discussion (Schneider 1974). They compared static and dynamic accounting in a true theoretical stance, which is unique in Europa and gave way to the law of 1884 that allows big companies to choose a dynamic type of depreciation (Richard 2005b).They thus laid the theoretical and practical foundations of a true fi nancial accounting theory (Richard 2012) that will be used afterward by the “three S” masters of the German classical school: Veit Simon (1886) , the spiritual father of the going concern hypothesis; Schmalenbach (1908–1919), the developer of the dynamic accounting; and Schmidt (1921), the founder of replacement cost accounting (Richard 2005c:73). As recognized by Hatfield himself (1919: VI) this school of thought was leading the world at the end of the nineteenth century and during the fi rst part of the twentieth century. At the same time, the theoretical discussion in France, in the fi eld of fi nancial accounting, was poor if not absent; Chevandier de Valdrome was the only one, after Monginot, to give a mere description of a systematic dynamic treatment of depreciation in the 1870s. The famous Leautey and Guilbault’s work (1885) has long been prized, but today their novelty is contested (Labardin and Nikitin 2010); they were clear defenders of a dynamic approach based on permanent inventory (1885: IX, 152–153), but their theoretical background was poor, and they came after the battle. At the beginning of the twentieth century, three events show the beginning of a trend toward some dynamic accounting. First, under the influence of shareholders, the jurisprudence admits the validity of the dynamic depreciation (Cour deRouen, 10 Mars 1909; Journal des Sociétés 1909, p.109). Second, the tax law of 1917 also admits the dynamic depreciation and limits the use of static depreciation (Prospert 1934: 75). Third, the decret law of August 8, 1935, also in line with the rising influence of shareholders, prevents the use of asset undervaluation (Voutsis 1965: 26).

262

Jacques Richard

These three events testify to a breach in the matter of tangible assets of the dynamic stance; but for intangibles, nothing is changed, so we can speak of a period of mixed static and dynamic accounting that will last up to the 1980s. This evolution also concerns the theory with the works of Charpentier (1906), Faragi (1906),Verley (1906), Dreyfus (1912) , Magnin (1912), and Chaveneau (1922); symptomatically, these works of a good quality, especially that of Verley, as underlined by Lemarchand (1993a: 585), all emanate from lawyers formed by the universities: the traditional technicians of accounting formed in the French technical schools were out of play except for Faure (1909), Dumarchey (1914), and Delaporte (1927). But all of these works, as shown by Richard (2005b), were late and largely inspired by the German scholars and laws: They cannot then account for innovation and testify for some backwardness of France with regard to the development of ideas in the matter of dynamic accounting and management. 3 Some members of the French business and managerial elite in the interwar period were conscious of this backwardness and wanted to “modernize” France’s methods of management (Kuizel 1981; Standish 1990: 343). After the defeat of France and the creation of the Vichy regime in July 1940, this elite did not hesitate to work with the Nazi’s authorities to apply modern German techniques in France. Notably, Detoeuf, one leading businessman, and Chezleprêtre, a high officer of the Ministry of Finance, accepted with “enthusiasm,” with the support of chartered accountants such as Caujolle (Standish 1990: 348–350), to create the fi rst accounting plan in France. As far as this plan resembles the Goering’s Plan of 1937, since 1945 there is a big debate to know if it was a real innovative French Plan. It was shown that it was inherited and largely copied from the famous Schmalenbach’s monistic and circuit plan,4 a true singularity of the German school, and could hardly have been less than an adaptation of a German innovation despite some interesting changes (Richard 1993a, 1993b). Because of the defeat of Germany and the resistance of employers (see below), it was practically not applied. But its role for the future French experience in the matter of accounting plans ought to be fundamental: It permitted the French regulators to get used to building national accounting plans (Touchelay 2011). This idea of a national accounting plan was resumed in 1944, in the context of nationalizations and economic planning by the Gaullist government, backed by the communist party and the National Council of Resistance; but de Gaulle was dismissed as early as January 1946. A Committee for the Normalization of Accounting (CAN)5 was launched in April 1946; this committee published a new accounting plan in 1947. This plan was prepared after a model made in 1944 by the National Committee of French Organization (CNOF) as shown by Fortin (1986). It was different from the Goering’s Plan by relying on the principles of dualism (which distinguishes fi nancial accounting from cost accounting) and a balance sheet classification (Richard 1993, 1995).

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This kind of dualistic plan was not a novelty in the world: it has been shown that Bredt (1938) in Germany and Käfer (1943) in Switzerland have notably proposed similar models and that it is probable that these former models have influenced the CNOF’s accounting plan (Richard 1993, 1995: 113). This thesis is reinforced by a recent study showing that, in the early 1930s, Fourastié, one influential economist who opposed the idea of a monistic plan as proposed by Detoeuf, had known about these dualistic German and Swiss plans (Boulat 2010). According to Fortin (1986 and 1991 ), the choice of the dualism would have been done to maximize both the standardization of fi nancial accounting and the flexibility of the cost accounting system. But as I said earlier, in line with German and Swiss observers, it was mainly thought to preserve the secret of business in a social and political context as employers were afraid of being controlled by the state and the committee of workers (Richard 1995: 110–114). Touchelay (2011) seems to confi rm this point. As shown by Fortin (1991), fi nding a plan suitable for national accounting was not the primary goal of the committee; it explains why the classification of expenses by nature was a traditional one in line with business practices of the time. As far as valuation is concerned, there was also no significant change: it was the same mixture of static and dynamic values as before (Richard 2005b). As a conclusion, despite its renown, this French plan also was not a novelty from the point of view of accounting knowledge; the true innovation was to be found later with de Gaulle’s return to government. De Gaulle came back to power in 1958 and stayed as a president until 1969 (see appendix). In line with his Colbertist philosophy, he was a true defender of the regulation of a capitalist economy by state planning: He described this kind of planning as “an ardent obligation.” It was during his presidency that the French state planning found its maximum of intensity and appliance in the economic and social fields. During the fourth plan (1962–1965), under the leadership of Massé, a well-known economist and statistician, an important conceptual effort was accomplished by some authors to develop national accounting and to transform private accounting for planning purposes. As shown by Verdier (1983), the main role in this endeavour was played by “three Johns”: two macroeconomists, Jean Meyer and Jean Boutan, and the accountant, Jean Delsol. Curiously, these real founders of a new style of accounting are not quoted in books devoted to the French school of accounting doctrine,even in France. In 1962, Jean Meyer publishes a book—written on the basis of a doctoral dissertation—comparing business and national accounting, and shows that French business accounting does not permit to get information on the contribution of the fi rm to the national wealth. It is notably because the classification of expenses and revenues is not adequate. Three years after Jean Delsol, one of the rare French accountants who holds a doctorate in economics, proposes to integrate the structures of the national

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accounting in the business accounting so as to give a valuation of concepts of production, added value and its distribution, and capacity of self-financing (before depreciation); he also proposes a statement of funds (Delsol 1965). But the concrete realization of this proposal is made in 1967 by the macroeconomist Jean Boutan in an article published by the INSEE. He shows precisely how to transform the accounts of the old Plan Comptable of 1957 into a new one where the enterprise is an agent working for the national economy and lays here the basis for the future French accounting plan of 1982. He splits and reorganizes the traditional profit and loss account into four main accounts: production, distribution, allocation, and fi nancing. The production account registers on the credit side the whole of gross production (it means sales plus stored production). It is to be noted here that stored production is valued at cost along the principles of a dynamic approach: there is no place for fair value accounting and expected profits. On the debit side, only the expenses (at the exclusion of depreciation) resulting from consumption for production of purchases to others enterprises are to be found. The balance is the gross added value; it means the contribution of the fi rm to the real increase of the nation’s wealth. This kind of account was a revolution: it was the fi rst time that revenues were seen as encompassing stored production as it is the case in national accounting; it was also the fi rst case where added value, as a contribution by all the types of resources (human and fi nancial) to the global wealth, was to be systematically visible in the accounts of all capitalist fi rms of a country. It should be noted that in Soviet accounting, added value was not given by the accounts but by statistical data (Richard 1982). The distribution account takes on the credit side the gross added value and mainly deducts on the debit side the expenses for distribution of wages and the “economic” depreciation so as to obtain the net operating income. Three remarks are important here. First, as is the case with any capitalist system, the revenues of employees are treated as expenses: The Gaullist’s France was not a socialist country. Second, depreciation here is calculated along economic principles, not legal (static) or fiscal ones: This is a clear choice for a dynamic approach, which is also new in France. Third, depreciation includes not only “industrial” depreciation but also an “interest calculated on the real value of fi xed assets.” The balance is the net operating income. This income is different from the traditional one for two reasons. First, visibly, Boutan tries to calculate a kind of pure profit by integrating an interest that is a comprehensive cost of capital including equity and debts. By introducing this concept in a fi nancial accounting system, Boutan was ahead of Anthony (1973), who proposed the same solution ten years after in his famous article “Accounting for the Cost of Equity.” Second, the direct taxes and the interests of banks are not treated as expenses as is the case in a private-capitalist economy. Here, Boutan is in line with the philosophy of a capitalist planned economy where three major actors work together: the state and the whole of banks and private owners under its control; in this kind of economy, and especially in nationalized enterprises,

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it is rational that the operating income could be considered from the point of view of an entity unifying the capital invested by the state, the banks, and the private owners. The third account, the allocation account, shows how the operating income has been allocated; on the credit side, we fi nd mainly the net operating income; but Boutan adds here the cost of capital, which he had previously deducted as expense in the preceding account. By cancelling this expense, Boutan returns to a real income, which allows him to show its real allocation. Actually the debit side is composed of three items showing the real payments to the banks (interests), the private owners (dividends), and the State (direct taxes). After that the balance of this account shows the net retained earnings of the entity. The last and fourth account is a statement of funds, taking on the credit side the retained earnings and the other sources of funds and, on the debit side, the different needs of funds (capital investments notably). Boutan creates a statement of sources and funds integrated in accounting: a revolution! It should be noted that, according to Boutan, the movements of inventories should be treated along a permanent inventory method, and the production and exploitation accounts should be divided by branches of activity as defi ned by national accounting, which implies the integration of cost accounting to fi nancial accounting. This ambitious proposal has been published again a little later with some secondary changes in another article in collaboration with Delsol (Boutan and Delsol 1969). To fi nish with the marking proposals of this school of French national accountants, it should be noted that Vincent (1968), Massé and Bernard (1969), and Courbis and Templé (1975) within the frame of the Center of Studies on Revenues and Costs (CERC) have developed “the method of surplus accounts” to analyze the variation of added value; this method describes an accounting system allowing one to distinguish inside the global variation of the added value the part that is due to the variation of the volume of activity and the part that is caused by the variation of productivity (CERC 1973). This accounting system, which could be interpreted as a variant of the Boutan’s proposal, was mainly applied to nationalized enterprises such as the SNCF (1969) to guide their policy of revenues. All these innovative proposals have been the basis for the elaboration of all subsequent French or “French-based” accounting plans: the African OCAM accounting plan published in 1970, applied by many African countries.and the revised French accounting plans of 1982 and 1999, where Benedetti and Bruhnes (1971) and Perochon (1971) played a significant role for their concrete elaboration. To be true, these plans have not retained all the proposals of the French school of national accountants, especially the French plans of 1982 and 1999, for three main reasons: first, the entity conception of income has not been agreed on, taxes and interest are being treated as expenses, and income goes on being the income for private owners, which testifies to the weakness of the French state capitalism face to private employers; second, the introduction

266 Jacques Richard of the cost of capital concept has failed; and third, there is no obligation to use a permanent inventory and to integrate in accounts a fund statement (contrary, curiously, to the OCAM accounting plan, which, albeit applying to a technically underdeveloped African enterprise, paradoxically mentions this obligation). But the core of the proposals have been retained, with, however, a time lag of about fifteen years: first, the structure of the P&L statement in French Plans strictly relies on the concept of added value and its distribution; second, the modes of valuation have been influenced by the dynamic stance: between 1982 and 2005, there was no possibility to register potential profits, and cost valuation in a dynamic stance was dominant; although tax depreciation was allowed, industrial (economic) depreciation must be shown apart; third, dynamic valuation was admitted for intangibles: Before the switch to the IFRS in 2005, France was one of the only few countries in the world to admit the capitalization of assets for advertising, training, and applied research. All of these dynamic characteristics of French accounting were a consequence of the influence of the French school of national accountants. These original features concerned individual accounts; consolidated accounts that also appeared in France during this Gaullist period were not original but “imported” from Germany and America (Bensadon 2007: 158).

Back to the Present in Guise of Conclusion Today, the situation is roughly the following: After the EU’s decision in 2002 to apply obligatorily IFRS to consolidated accounts of listed groups, there is a big divide in the French accounting system; on the one hand, group accounts (that increasingly include non-listed groups) are in line with the IFRS since 2005 and are no longer supposed to apply the French accounting plan: they use fair value, including actuarial value, and show P&L statement in line with Anglo-American classification of expenses by functions. But individual accounts must always apply the French accounting plan and stay with the dynamic accounting forged in the 1960s, notably a classification of expenses by nature designed to show the added value. They cannot apply fair value relating to potential profits. There is also a big divide between scholars: some wish to switch totally to the IFRS, others want to maintain the today’s situation, and some hope to return to the preceding era of the historical cost system. This struggle is summarised by Capron and Chiapello (2005), Bignon et al. (2004), and Aglietta and Rebérioux (2004), among others. Beyond this struggle, what is clear is that, up to now, the theoretical contribution of France to the foundation of the third stage of fi nancial accounting (i.e., the fair value accounting in the sense of actuarial value) has been low if not useless. This is not astonishing due to the fact that France has been late in the development of its fi nancial capitalism and that a lot of important scholars fight this approach of accounting. On the contrary, the contribution of France has been substantial as far as static and dynamic accounting types are concerned.

The Three Main Schools of the French Financial Accounting Doctrine Appendix

267

List of Events

General events 1643 Louis 14 takes power 1673 Ordonnance for the commerce

Accounting events 1675 Le parfait négociant (Jacques Savary) 1758 Le tableau économique (François Quesnay)

1804 Napoleon takes power 1807 Code of commerce 1808 Commentaire sur le Code de commerce (De la Porte) 1814–1848 Restauration (Louis 18, then Charles 10 and Louis Philippe) 1817 Essai sur la tenue des comptes d’un Manufacturier (Payen) 1824 Works on cost accounting by Cazaud and Degrange 1848–1870 Second Republic then Napoleon 3 1855 Manuel des affaires (Courcelle-Seneuil) 1857 German Code of commerce 1865 Traité de comptabilité et d’administration Industrielle (Guilbault) 1867 Law on corporations by actions 1869 Traité élémentaire de comptabilité (Courcelle-Seneuil) 1870 Defeat of Sadowa against Germany 1871–1940 Third Republic 1875–1879 German forerunners of the dynamic 1886 Simon’s publication on theory of accounting 1889 La science des comptes (Léautey et Guilbaut) 1906–1912 French lawyers publish dissertations on the theory of accounting 1909 Schmalenbach publishes about the dynamic theory of depreciation. 1927 Schmalenbach publishes his monistic–circuit accounting plan 1937 Goering’s chart of accounts 1940–1944 Petain’s dictatorship 1942 French version of Goering’s chart 1943 Käfer’s accounting plan 1944 CNOF’s accounting plan 1944–1946 First de Gaulle’s government 1947–1958 Fourth Republic 1947 First French accounting plan not obligatory 1957 Second French accounting plan not obligatory 1958–1969 Second de Gaulle’s government 1962 1957’s Plan of accounts is made obligatory 1962–1967 publications on the reform of the French Accounting plan by Meyer, Delsol, and Boutan 1969–2000 Other French governments of the fifth Republic 1982 Third French accounting plan 1999 Revision of the third accounting plan 2000 Treaty of Nice (enlargement of the political power of the UE) 2002 EU’s adoption of the IFRS 2005 France adopts IFRS for consolidated accounts but not for individual accounts

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NOTES 1. Littleton (1941: 166) claims for Savary’s influence on later German perspectives (editorial note by Yuri Biondi). 2. Some authors, such as Bignon and alii (2009: 11), use the term, at least partially, in the sense of continuation static, while others, such as Richard (1996, 2005a, 2005b, 2005c), use it in the sense of liquidation static. To avoid any confusion, continuation-static is named “actuarial accounting” here. 3. There is a large belief in France (see notably Nioche and Pesqueux 1998) that this situation is due to the French accounting state regulation including, later, the French accounting plans. This thesis is false; as soon as the university developed the teaching of accounting theory in the 1980s, thanks mainly to Colasse, the founder of the Dauphine’s doctorate on accounting research, and the AFC (French association of accounting researchers) was created, French writings on theory of accounting exploded despite the existence of accounting plans (see after). 4. A monistic plan of accounts, contrary to a dualistic one, is based on an integration of management (cost) accounting and fi nancial accounting. A circuit plan of accounts is generally a monistic one that arranges the structure of accounts along the circulation of goods from delivery to production, sale, and recovery of money. 5. The CAN (today ANC, Autorité des Normes Comptables) is a public organization placed under the umbrella of the Ministry of Finance, regrouping the main stakeholders interested in accounting (including representatives of trade unions). At the origin, the public sector played a dominant role, but with time, the private sector and especially the representatives of banks, big industrial companies, and big audit fi rms have taken more and more power.

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Dreyfus,P.1912. « Les amortissements dans les sociétés anonymes ».Thèse ,Paris. Dumarchey, J.1914. Théorie positive de la comptabilité.Paris.EditionsA.Rey. Edwards, R. S. 1937, June. “A Survey of French Contributions to the Study of Cost Accounting during the 19th Century.” The Accountant.Supplement to the Accountant.June; pp.1–36. Faragi,V.1906. « De la conception économique opposée à la conception juridique du bilan des sociétés par actions »,Thèse,Paris Faure,G. 1909.La classification décimale et son emploi en comptabilité. Brussels. Institut national de Bibliographie. Fremery.1833.Etudes de droit commercial.Paris. Guilbault, C. A. 1877. Traité d’économie industrielle. Guillaumin. Hatfield,H.R.1919.Modern accounting:its principles and some of its problems.D.Appleton and Company.London Irson, C. 1678. Méthode pour bien dresser toutes sortes de comptes à parties doubles. Paris.(No name of publiher). Keyszner,H.1875. “Aktienzinsen, Dividende und Bilanz”, Archiv für Theorie und Archiv für das allgemeine deutsche Handelsrecht. pp. 99–145. Leautey,E.,et Guilbault,A. 1889.La science des comptes mise à la portée de tous. Paris,Librairie comptable et administrative. Lion, M. 1928. “Geschichtliche Betrachtungen zur Bilanztheorie bis zum Allgemeinen Deutschen Handelsgesetzbuch”. Sonderdruck aus Vierteljahresschrift für Steuer und Finanzrecht, Heft 3, Berlin. Littleton, A. C. 1933. Accounting evolution to 1900. American Institute Publishing Co (Publisher).New York. Littleton, A. C. 1941. “A Genealogy for ‘Cost or Market.” The Accounting Review 16: 164–165. Locre. 1829.Esprit du Code de Commerce,Paris,Dufour Magnin, P. 1912. « De l’amortissement des immobilisations dans le bilan des sociétés anonymes ». Annales de droit commercial,pp. 26, 419–458. Massabiau, F. 1764. Essai sur la valeur intrinsèque des fonds. Paris: Knapen. Molinier,M.J.V.1846.Traité du droit commercial, Joubert.Librairie de la cour de cassation.Paris. Monginot, A. 1826. Théorie de la tenue des livres du commerce en partie double. Troyes.(Pas de nom d’éditeur). Monginot, A. 1854. Nouvelles études sur la comptabilité commerciale, industrielle et agricole. Paris.(Pas de nom d’éditeur). Monginot, A. 1867. Nouvelles études sur la comptabilité commerciale, industrielle et agricole. Paris.(Pas de nom d’éditeur). Pardessus,J.M. 1915. Cours de droit commercial.Paris .Garnery .Tome 3. Payen, A. 1817. Essai sur la tenue des livres d’un manufacturier. Paris.(Pas de nom d’éditeur). Prospert, P. 1934. Les amortissements industriels en droit commercial et en droit fi scal. Thèse. Savary, J. 1675. Le parfait négociant ou instruction générale pour ce qui regarde le commerce . . . et l’application des ordonnances; chez louis Billaire; avec le privilège du ROY. Reproduction en fac similé de la 1ère édition par Klassiker der national ökonomie, 1993, Deutschland. Scheffler,H.1879. «Über Bilanzen», Vierteljahrschrift für Volkswirtschaft, Politik und Kulturgeschichte, pp. 1–49. Simon, H. V. 1986. Die Bilanzen der Aktiengesellschaften.Von Guttentag, Berlin. Strombeck,von,J.1978. «Grundkapital Grundvermögen und Bilanz der AG insbesondere der Eisenbahngesellschaften in Archiv für Theorie and Praxis des allgemeinen deutschen Handelsrechts, Band 37 pp. 1–33 und Band 38, pp. 13–107.

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Fabre, K. 2008. « L’influence de l’évolution des modes de fi nancement des entreprises sur le modèle comptable français (1890–1939). Le cas de Schneider et L’air Liquide ». Thèse. Université Paris Dauphine. Febvre,L.1952. Combats pour l’histoire. Armand Colin. Fortin, A. 1986. “The evolutions of French accounting as reflected by the successive uniform systems (plan comptables généraux”).Doctoral Dissertation Champaign-Urbana, IL: University of Illinois Press. Fortin,A.1991.”The 1947 French Accounting Plan:origins and influence on subsequent practice”.The Accounting Historians Journal. Décembre Hautcoeur, P. C. 1994. “Le marché boursier et le fi nancement des entreprises françaises (1890 à 1939 ) ». Thèse pour le doctorat es sciences économiques. Paris : 1 Panthéon-Sorbonne. Gallais-Hammono et Hautcoeur, P. C. 2007. Le marché financier français au XIXème siècle, vol. 1. Paris: Publications de la Sorbonne. Hilaire, J. 1986. Introduction historique au droit commercial.Paris PUF. Hilferding, R. 1910. Das Finanzkapital. Wien.Wiener Volksbuchhandlung. Käfer,K.1943. Kontenrahmen für Gewerbe Industrie und Handelsbetriebe. Bern. Verlag Paul Haupt. Kuizel, R. 1981. Capitalism and the state in modern France. Cambridge: Cambridge University Press. Labardin, P., and Nikitin, M. 2010. Pour une théorie élargie de la réception. New Orleans, LA: LOG. La Porta, R., Lopez-de-Silanes, F., and Shleifer, A. 1999. “Corporate ownership around the world.” The Journal of Finance 54: 471–517. Lemarchand, Y. 1993a. Du dépérissement à l’amortissement. Enquête sur l’histoire d’un concept et sa traduction comptable. Paris: Ouest Editions. Lemarchand, Y. 1993b. “The Dark Side of the Result: Self Financing and Accounting Choices within 19th Century French Accounting.” ABFH 3(3): 304–325. Lemarchand, Y. 2005. “Jacques Savary et Matthieu de La Porte: deux classiques du Grand siècle.” In Les Grands Auteurs en Comptabilité, ed. B. Colasse. Paris: Management et Société, pp. 21–38. Littleton, A. C. 1941. “A Genealogy for ‘Cost or Market.’” The Accounting Review 16(2): 161–167. Massé, P., and Bernard, P. 1969. Les dividendes du progrès. Seuil-Société. Meuvret, J. 1971. “Manuels et traités à l’usage des négociants aux premières époques de l’âge moderne.” In Etudes d’histoire économique. Cahier des annales 32. Paris: Armand Colin, pp. 231–250. Meyer, J. 1962. Comptabilité d’entreprise et comptabilité nationale. Paris: Dunod Editions. Moxter, A. 1982. “Gefahren des neuen Bilanzrechtes ». Der Betriebsberater.” Heft 17: 1030–1032. Moxter, A. 1984. Bilanzlehre. Band1. Gabler (publisher).Wiesbaden.Germany. Nikitin,M.1992. « La naissance de la comptabilité industrielle en France ».Thèse Université Paris Dauphine Nioche, J. P., and Pesqueux, Y. 1998. “Accounting, Economics and Management in France: The Slow Emergence of an ‘Accounting Science.’” EAR 6(2): 231–250. Oberbrinckmann, F. 1990. Statische und dynamische Interpretationen der Handelsbilanz. Eine Untersuchung der historischen Entwicklung insbesondere der Bilanzaufgabe und der Bilanzrechtskonzeption. Düsseldorf: IDW Verlag. Parker, R. H. 1966. “A Note on Savary’s Le Parfait Négociant.” Journal of Accounting Research: 260–261. Perochon, C. 1971.” Comptabilité nationale et comptabilité d’entreprise. Thèse pour le Doctorat d’Etat ès Sciences Economiques ». Unpublished doctoral dissertation, Université de Paris1.

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Plessis, A. 1996. “Le fi nancement des entreprises.” In Histoire de la France industrielle, ed.M. Lévy-Leboyer. Paris: Larousse, pp. 126–159. Praquin, N. 2003. « Comptabilité et protection des créanciers (1807–1942): une analyse de la fonction technico-sociale de la comptabilité ». Unpublished doctoral disseration, Université Paris Dauphine. Rathenau, W. 1917. Vom Aktienwesen. Fisher Verlag.Frankfurt am Main. . Richard, J. 1982. « Comptabilité et systèmes économiques ». Unpublished doctoral dissertation, Université Paris Sorbonne. Richard, J. 1993. Les origines du Plan Comptable français de 1947: les influences de la doctrine comptable allemande. Cahier de Recherche du CEREG N°9302. Université Paris Dauphine. Richard, J. 1995. “The Evolution of Accounting Charts Models in Europe from 1900 to 1945. Some Historical Elements.” EAR 4(1): 87–124. Richard, J. 1996. “De l’histoire du plan comptable français et de sa réforme éventuelle.” In Accounting in France (La comptabilité en France), ed. Y. Lemarchand and R. H. Parker. Garland Publishing, pp. 305–320. Richard, J. 2005a. “The concept of fair value in French and German accounting regulations from 1673 to 1914 and its consequences for the interpretation of the stages of development of capitalist accounting.” CPA 16: 825–850. Richard, J. 2005b. “Les trois stades du capitalisme comptable français.” in Les normes comptables internationales instruments du capitalisme fi nancier, ed. . M. Capron. Paris: La découverte, pp. 89–119. Richard, J. 2005c. “Simon, Schmalenbach, Schmidt: les trois ‘S’ de la pensée comptable allemande.” In Les grands auteurs en comptabilité, ed. B. Colasse. Paris: EMS, pp. 73–90. Richard, J. 2012. “The victory of the Prussian dynamic accounting over the public fi nance and patrimonial accounting models (1838–84).An early illustration of the appearance of the second stage of capitalist fi nancial accounting and a testimony against the agency and the market for excuses theories”. Accounting Historians Journal,Vol39,Number 1,pp.89–124. Schneider, D. 1974. “Die vernachlässigten Begründer der Klassischen Bilanz-diskussion I. ” Paris: WiSt, pp. 288–292. Standish, P. 1990. “Origins of the Plan Comptable General: A Study in Cultural Intrusion and Reaction.” ABR 20(60): 337–351. Stern,J.M.,Stewart,G.B,and Chew,D.H.(1995).”The EVA Financial Management System”.Journal of Applied corporate Finance (Vol.8,n°2,pp.43–45). Touchelay, B. 2011. L’Etat et l’entreprise.une histoire dela normalisation comptable et fiscale à la française. PU Rennes. . Verdier, F. 1983. Le concept de valeur ajoutée et le nouveau Plan Comptable. Thèse. Vincent, A. 1968. La mesure de la productivité. Dunod. Paris Voutsis, C. 1965. La distribution de dividendes fi ctifs. Thèse.Paris

11 Accounting and the Absence of a Business Economics Tradition in the United Kingdom 1

Christopher Napier

INTRODUCTION To many accounting scholars, the existence and importance of a link between accounting and economics is almost self-evident. As Hopwood (1992: 128) has put it: The idea of a relationship between accounting, as a form of economic calculation, and economics, a form of abstract knowledge about the nature of the economic, is now a longstanding and increasingly accepted one. Conceptions of the economic nature of such accounting categories as cost and income pervade accounting treatises and even policy-orientated discussions of the craft. Economic ideas of their essential nature are used to provide a basis for gauging the adequacy of accounting calculations and to suggest possibilities for their transformation and presumed improvement. Economics, so used, is seen as a means for helping accounting to become what it should be, but what currently it is not. Yet, as Hopwood (1992: 126) also points out, “In countries such as the United Kingdom it is as if the accountant often has more significance than accounting itself.” While British accounting may well on occasion present itself as economic calculation and may appeal to economic knowledge, most British accountants have only a superficial, and certainly an uncritical, awareness of economic theories and ideas. The connections between accounting and economics in Britain are complex and often covert. Although academic accounting has long been heavily dependent on economics for its predominant theoretical underpinnings, accounting practitioners have absorbed economic ideas only indirectly. Often the process by which such ideas permeate into accounting practice is a slow and difficult one. The process is well exemplified by the contested way in which British accountants came to accept discounted cash flow (DCF) techniques: derided as “dangerous nonsense” and as “sheer insanity” in 1938, honoured as “the most reliable technique yet known” for

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assessing investment decisions by 1964 (Miller 1991: 733–734). As Miller (1991: 744) shows, DCF was “sold” not so much on theoretical economic grounds but rather “because of its enhancing effects on the growth rate of individual companies and the economy overall.” British accountants might not be capable of understanding the theory underlying DCF; they could, however, appreciate appeals to their patriotism. On the other hand, by the 1930s, many of the then small number of British accounting academics were beginning to regard accounting as “the special means through which the theories of economic value could be put into accounting practices to guide decisions and action in the fi rm and the economy. . . . [A]ccounting had the particular role of making economics ‘practical’” (Robson and Young 2009: 344). The difficulty faced by most British accountants in dealing with explicit economic ideas can be traced to two interlinked factors. The fi rst of these is the way in which British accountants are educated. Although accounting in Britain had become a mainly graduate profession by the 1980s (Lee 2010: 35), this is largely because of the growth in numbers entering higher education. What is important is not that British accountants have a university degree before they begin their professional training, but rather that they are unlikely to have studied “relevant” subjects. Indeed, despite the explosion in university accounting courses over the past forty years, many accountants positively prefer “non-relevant” graduates. They see such graduates as having a “more rounded” personality, not burdened by technical knowledge. Why should this be the case? The explanation lies in the second of the interrelated factors: a suspicion of technical expertise that has permeated British society for more than a century. Accountancy has had to fight a battle against those in society who would label it “technical” and thereby dismiss it. British accountants have been remarkably successful in this, so that “the occupational structures that have emerged around [the techniques of accountancy] are ones that are no longer populated with clerks but rather with executives, managers and indeed professionals” (Hopwood 1992: 126). On the other hand, British economists have sometimes been dismissive of accounting (Napier 1996). At best, accounting is regarded as a practical technique whose utility is that it generates the data with which economists may perform their analyses. At worst, it is seen as a source of error and confusion, best ignored by the pure economist. Some of the apparent disdain for accounting was due to the difficulties that economics faced in establishing itself as a distinct profession within the British universities, state, industry, and commerce. Although attempts were made by some economists to develop a “science of commerce” in which accounting played a central role, mainstream economists put more effort into developing a “science of economics” in which “practical” issues were only distractions. In order to study the intellectual and professional influences of economics on accounting in the United Kingdom, therefore, it is fi rst necessary to consider the contexts in which accounting and economics operated around

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the beginning of the twentieth century. Early attempts to locate the teaching of accounting within university economics and commerce departments and the lack of success of these attempts are next considered. This leads to an examination of the work of the Department of Business Administration at the London School of Economics in the 1930s, which had a disproportionate influence on the relationship between accounting and economics in Britain. After World War II, the theoretical dependency of accounting on economics has become widely accepted within the academy, but it has been slower to penetrate the minds and practices of accountants.

ECONOMICS, ACCOUNTING, AND THE “SCIENCE OF COMMERCE”

The Independent Development of Accountancy As Napier and Noke (1992) have noted, accountancy2 in Britain adopted many of the symbols and structures of other, longer-established professions, in particular law. Although law was recognized as an academic discipline as well as a professional activity, in the nineteenth century it was by no means necessary for lawyers to achieve a university degree in order to enter the profession. Similarly, few early accountants had been to university. Following the model of the solicitors’ profession, professional accountants adopted a pattern of professional training whereby entrants would be apprenticed as “articled clerks” to existing practitioners and would learn their accounting on the job during a five-year training period. This pattern of training provided few opportunities for acquiring theoretical perspectives on accountancy practices, and any applications of theoretical notions to accountancy arose only indirectly and implicitly. Because of this training pattern, advanced textbooks in accounting were slow to emerge (until the 1880s, textbooks tended to restrict themselves to the techniques of bookkeeping), and no formal statement of a body of accounting rules and practices can be discerned. Indeed, such a statement would probably have been regarded by practicing accountants as too “theoretical.” Although the existence of an income tax implied the need to measure taxable profit, the method of assessing these profits contained a considerable amount of discretion. The main principles that developed related to the identification and treatment of capital expenditure (Edwards 1976), where tax law did not permit a deduction in determining profits. Hence, British accountants saw the capital/revenue distinction as crucial. Bryer (1991, 1993, 1995) has argued that the general expression of this distinction, as stated by leading accountancy practitioners of the mid- to late nineteenth century, reflected the way in which contemporary political economists, in particular Karl Marx, were elucidating a concept of capital. There is no evidence that British accountants were aware of Marx’s work, and it is probable that both the accountants and Marx

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were responding to an unreflective adoption by businessmen of a capital/ revenue distinction articulated originally in the context of British aristocratic estates (Napier 1989), and itself possibly deriving from the Roman Law concept of fructus (Schneider 1991). As theoretically oriented writings on accounting matters began to emerge in Britain, with the founding of the weekly periodical The Accountant in 1874, writers (who were almost invariably accountancy practitioners) tended to look mainly to the law for “rules” relating to accounting (see e.g., the papers collected in Brief 1976). Yet the British common law tradition tended to avoid the systematic formulation of bodies of rules. Thus, Lord Justice Lindley, in the case Lee v. Neuchatel Asphalte Company ((1889) 41 Ch. D. 1), stated, “It is not a subject for an Act of Parliament to say how accounts are to be kept; what is to be put into a capital account, what into an income account, is left to men of business.”3 Indeed, parliament was to say little about the measurement of profit for fi nancial reporting purposes until as late as the Companies Act 1981. In their professional training, accountants emphasized law over economics. As lawyers did, professional accountants put great weight on the notion of “public practice,” to the extent that the early professional bodies initially excluded from membership those employed within industry and commerce, and they later questioned the independence and thereby the professionalism of employees (Kirkham and Loft 1993: 550). Integrity and independence were seen as of at least equal importance to technical and conceptual skills. Such skills were acquired haphazardly, although here Scottish chartered accountants often had an advantage over their English counterparts. From the beginning, the Scottish professional accountancy bodies were actively involved in providing classes for apprentice accountants, and the examinations taken by these apprentices included, in addition to bookkeeping and accounting, a substantial amount of law, as well as actuarial science and political economy (Stacey 1954: 21). Because of the nature of the Scottish educational system, a sizeable minority of apprentice accountants were graduates, who had probably already studied some law and political economy as part of their degrees. For non-graduates, part-time attendance at university courses in law was compulsory, while attendance at university classes in economics and accountancy became required from the early twentieth century (Solomons 1974: 17). Chairs in accountancy were established at Edinburgh University in 1919 and at Glasgow University in 1925, although they were both held on a part-time basis (until the 1960s) by accountancy practitioners.

The Professionalization of Economics At the same time as accountancy was emerging as a profession, early steps were being taken to establish economics as an academic discipline. As Kadish and Tribe (1993: 1) observe, “The study of political economy in

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British universities around the middle of the [nineteenth] century was not well developed, but no one seriously disputed the need to include some political economy in the curriculum, in one form or another.” In the older universities of Oxford and Cambridge, economics was generally studied as an aspect or extension of other disciplines, such as history. Frequently, the economics components of these courses involved little more than a requirement to read a standard text such as Smith’s Wealth of Nations (Smith 1904; fi rst published in 1776) or Mill’s Principles of Political Economy (Mill 1909;fi rst published in 1848) . The aim of the Oxford degree in particular was not to teach future experts but rather to provide a rounded preparation for life: A minister, lawyer, banker, manager of a factory, or Justice of the Peace, or master in a secondary school, or journalist, would draw inestimable advantage from having passed through the curriculum at Oxford, in spite of all its limitations. Many of those who had to deal with the organization of the Modem History School were convinced that it was serving its purpose sufficiently well by training the average good citizen from the governing classes in the past annals and present problems of the British Empire. (Oman 1939: 247–248) It is important to note that the British tradition of education for the “governing classes” was not one that focused on the study of law and public administration. On the contrary, a period at Oxford or Cambridge (not necessarily capped by taking a degree) was as much a socializing as a learning experience, with the intellectual content heavily dependent on a study of classical languages. The philosophy of higher education reflected by Oxford and Cambridge was well summed up by John Stuart Mill (1867/1984: 218, emphasis added): There is a tolerably general agreement about what a university is not. It is not a place of professional education. Universities are not intended to teach the knowledge required to fit men for some special mode of gaining a livelihood. Their object is not to make skilful lawyers and physicians or engineers, but capable and cultivated human beings. However, this view of the role of university education began to be challenged toward the end of the nineteenth century. Alternatives to Oxford and Cambridge were provided by new universities in London and Durham, and later in major commercial centers such as Manchester, Birmingham, Bristol, Leeds, and Liverpool. As Sanderson (1972) points out, these new “civic” universities raised their endowments from local industry and commerce. They stressed that their purpose was to serve industry, for example by teaching the “sons of industry,” providing them with the intellectual equipment to manage their fathers’ businesses. In addition,

278 Christopher Napier the universities would conduct research to provide competitive advantage to local industries. With competition from the United States and Germany increasingly being perceived as a threat in the later nineteenth century, public pressure grew for better educated businessmen. Often this led to idealization of the educational system of competitor countries such as Germany (Sanderson 1972: 16). Although both the older and new universities employed professors of economics, their teaching interests tended to emphasize political economy and to adopt a historical perspective. Moreover, beginning with John Stuart Mill, many economists “tended to take a lofty, ‘civilized’ view of the actual world of business and industry, maintaining a certain distance from its contamination, or hoping to educate its participants to a wider conception of life” (Wiener 1981: 90). This view was reflected by Alfred Marshall, the driving force behind the professionalization of economics as an academic discipline in Britain and the establishment of separate economics degrees. In fact, Marshall had a deep curiosity about the practical workings of industry. He regularly visited factories and workshops, and it was said that he “gained such a knowledge of factory processes, techniques and skills that he could guess correctly at workers’ wages by watching them at work” (Sanderson 1972: 200). However, he saw his mission as being to elevate the businessman from an overconcentration on short-term profit maximization. As he stated in his inaugural lecture following his appointment as Professor of Political Economy at Cambridge in 1884 (a post that he was to hold until 1908), “If more University men looked upon their life here as preparing them for the higher posts of business, what a change they might make in the tone of business. Just and noble sentiments might be introduced into counting-house and factory workshop” (quoted in Maloney 1985: 32). Marshall was ambitious to establish economics as a “professional” discipline, and, according to Maloney (1985: 2), his objectives at Cambridge were: First, he wanted economists to be trained in a body of knowledge which—without excessive grief—he recognized would be inaccessible to laymen. Secondly he sought, via the development of welfare economics, to give the economist a specialist voice in the art of policy making. Thirdly, he wanted to enhance the scientific authority of his subject by keeping it clear of political partisanship. The new civic universities in the later nineteenth century looked on Cambridge as a main source for teachers, and Marshall’s ideas, and his preferences for analysis rather than description and for a neutral, “scientific” approach to policy, permeated economics in these institutions. Marshall’s major contribution to the economics literature was his Principles of Economics (1890), in which he considered issues of production

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and in particular costs. In Marshall’s Principles, and especially in his more elementary treatment of the economics of production in Elements of Economics of Industry (1892), he drew explicitly on the emerging theoretical literature of accounting. An example of this was his citation of Garcke and Fells’ Factory Accounts (1887) in the context of a discussion of “the lowest price at which it will be worthwhile [for a manufacturer] to accept an order” (Marshall 1892/1899: 207). Marshall was also aware of Ewing Matheson’s The Depreciation of Factories (1884).4 As Williams (1978: 81) notes, Marshall “wanted to use words to mean what the business world took them to mean,” and the accounting literature may well have influenced Marshall’s vocabulary of costs (Napier 1996). Although Marshall’s analysis of the economic functioning of fi rms, as the fundamental analytical units of the production process, was deep and innovative, he tended to conceptualize the “fi rm” in terms of a single entrepreneur making decisions within a market setting. The Marshallian “representative fi rm” bore many similarities to the workshops visited by Marshall in his youth, but was increasingly unrepresentative of the large organizations emerging in the later years of the nineteenth century.

Toward a Science of Commerce The principal economist to advocate business education at the university level during the early years of the twentieth century was W. J. (later Sir William) Ashley, Professor of Commerce at Birmingham University from 1901. Ashley was a history graduate from Oxford, and he had been Professor of Economic History at Harvard before going to Birmingham. With this background, Ashley was relatively unsympathetic to Marshall’s more analytical approach (Kadish 1989: 90), and he preferred to stress descriptive economics. Before the Faculty of Commerce at Birmingham began operations in 1902, Ashley visited Germany to look at the recently created Handelshochschulen, being particularly impressed by that at Cologne (Ashley 1926).5 The Faculty of Commerce offered the degree of Bachelor of Commerce (B.Com.), during which: [Students] were to be offered some knowledge of a number of subjects considered relevant to a student expecting to reach top management in a manufacturing fi rm. These were economics, accounting, commercial law, public fi nance, sciences, and languages. They had also to take others, of their own choice, which came under the general heading “cultural.” This was so flexible in practice that a commerce degree student could, and did, include a workshop course in engineering. There was, in addition, the weekly commerce seminar, “the purpose of which is to train men in the investigation of commercial and economic questions, and to practise them in the presentation of their conclusions in a lucid way.” (Keeble 1992: 100–101)

280 Christopher Napier Ashley regarded the teaching of accountancy as an integral part of the B.Com. program and appointed as the first Professor of Accounting (not only at Birmingham but in any British university) the chartered accountant Lawrence Dicksee. As well as running a professional practice, Dicksee was the author of a number of leading textbooks aimed at articled clerks taking professional accountancy examinations, in particular his Auditing (first edition 1892). Dicksee had extensive teaching experience in both Cardiff and London, where he had run coaching classes for the London Chartered Accountants Students’ Society (Kitchen and Parker 1980: 60). Since 1897, Dicksee had given a course of lectures on “Accountancy and Business Methods” at the recently opened London School of Economics and Political Science (LSE), which he continued to give after taking up the appointment at Birmingham. While teaching at Birmingham and LSE, Dicksee found time to write his textbook Advanced Accounting (1903). Dicksee saw this book as serving the needs of not only accountant students but also “others, who, while desiring a knowledge of Accounts, had yet no intention of entering the profession of accountancy” (Dicksee 1903: vii), including, presumably, university students of accounting. However, the part-time nature of Dicksee’s appointments, and similar appointments made at other universities, constituted a serious barrier to any substantial exchange of views between economists and accountants. Accountancy teaching was regarded as best provided by part-timers, who, while they could bring experience of accountancy practice to their teaching, were not necessarily well equipped to do much more than present current accountancy practice in a relatively structured way. In the three institutions where the “higher commercial education” was well established—LSE, Birmingham, and Manchester—interchanges between accountants and economists were either inhibited or unlikely to provide much of a theoretical structure to accounting. There were various reasons for this inhibition. At LSE, with its strong commitment to education in business and administration (Dahrendorf 1995: 88–89), economics teaching was dominated between 1895 and 1926 by Edwin Cannan, who was not regarded by contemporaries as a major contributor to economic theory and who was out of sympathy with the analytical tendency in economics represented by Marshall (Milgate 1987). Yet at the same time, Cannan (1902/1962: 187–188) was unconvinced by the argument that economics could help the businessman: I do not mean to argue that a knowledge of economic theory will enable a man to conduct his private business with success. Doubtless many of the particular subjects which come under the head of economics are useful in the conduct of business, but I doubt if economic theory itself is. . . . The practical usefulness of economic theory is not in private business but in politics. Cannan seems to have done little at LSE for the development of business education. This is not to say that all economics teaching at LSE was

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abstract and analytical. By the early 1920s, undergraduates could select a wide range of courses under the heading “Commerce and Industry”, covering issues such as industrial organization, labor unions, wages systems, industrial structure and location, business fi nance and trade with most parts of the world. The courses were mainly descriptive, without a clear theoretical underpinning. At the University of Manchester, a two-year evening Commercial Certificate had been available from 1889. This initially included a compulsory bookkeeping element in the first year, while from 1890, a second-year course in advanced bookkeeping and accounts was offered, taught by an occasional lecturer, a Mr. Trevor (Tribe 1993: 199–200). Most of the economics lecturers were former students of Marshall. In 1899, a daytime certificate in commerce was introduced: This was described as “more academic in nature” and included no accounting. In 1901, however, the chair in political economy at Manchester was filled by Sydney Chapman, who was instrumental in creating the Faculty of Commerce and Administration in 1904. The new B.Com. degree was structured so that students could take and be certified in individual courses, including accounting, taught by a local accountant called Roger Carter. Taking single courses was much more popular than following the whole degree, with individual courses often attracting several hundred students, whereas only about twenty a year registered for the full degree. At Manchester, “the teaching of economics remained at the core of the syllabus” (Tribe 1993: 207), but again accounting was seen as essentially professional and practical, and part-time teachers such as Carter seem to have had little contact with the full-time economists. In Birmingham, Ashley regularly propagandized for “higher commercial education.” In December 1905, for example, in a speech reported in The Times, Ashley (1905: 7) stated: In my opinion, a true science of commerce is capable of being created. At present, however, it does not exist. That should have been the task of the political economists, but hitherto English economists have been too content to pursue the results, the conclusions to be reached by a process of reasoning starting with certain assumptions. . . . It seems to me that it is necessary that the problems which actually arise and which present themselves to a businessman in the course of his operations should be realized and studied. In a later address, Ashley located accounting more specifically within the “science of commerce”: By the side of . . . “political” economy . . . there must be created something that I may provisionally call Business Economics, which frankly takes for its point of view the interest of the individual business man or business concern. ...

282 Christopher Napier The problem of Cost Accounts, which is attracting more and more attention in the business world, is hardly one that can be left entirely to the accountants. For it is fundamentally a question not of technique but of policy—not how to get certain figures, but what figures to try to get, and how to combine them. (Ashley 1908: 187, 195) Ashley believed that the “science of commerce” should be addressing the ignorance of businessmen as to the best methods within their industries, and that the role of universities was to discover and diff use these best methods. Thus, the “science of commerce” was empirical and comparative, not theoretical. Unfortunately, while Ashley saw the significance of accounting, he found it difficult to incorporate much teaching of accounting within the B.Com. degree. Dicksee gave up the Birmingham chair in 1906, and accounting continued to be taught on a part-time basis until 1931, when Donald Cousins was appointed to a full-time Readership in Accounting and Administration (Craner and Jones 1995). As in Manchester, however, student numbers were disappointingly low. In the fi rst forty years of the degree, fewer than 400 students graduated (Keeble 1992: 102). One factor behind the lack of success of Birmingham and the other civic universities in attracting students was the continuing prestige of Oxford and Cambridge. From the 1890s on, the latter university made a particular point of seeking to attract sons of businessmen. Marshall’s efforts to establish an Economics Tripos at Cambridge (thus constituting a separate economics degree) were motivated by his view that business increasingly needed broadly based non-technological graduates as managers. Marshall (1905a: 4) had a clear idea of the role of an economics degree: What is desired is not technical instruction, but education of a high type which shall have the additional advantage of preparing the student to take, without unreasonable delay, a responsible place in business or in public life, and which shall have as high an educational value as that of any other school. This conception seemed to leave no room for the study of “practical” topics such as accounting, and the educational correspondent of The Times challenged Marshall’s apparent disdain: “If there is one subject a knowledge of which is indispensable to a business man, it is surely the theory and practice of accountancy, and the omission of this subject from the Cambridge scheme is certainly significant” (Educational Notes, The Times, December 11, 1905: 6). Responding to this, Marshall stated his attitude to accounting frankly: The detailed techniques of accounting fill the mind, without enlarging it and strengthening it. . . . It is faculty rather than knowledge which the business man of today needs. It is a powerful and capacious mind,

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rather than one already crammed with dead matter, that a University should send out to the work of the world. (Marshall 1905b: 5) In the years before World War I, therefore, a “science of commerce” did not emerge to any significant extent. One reason for this was that economic theory made little attempt to analyze fi rms as they were, rather than as the simplifications of Marshallian theory postulated them to be. Another reason was the low prestige in which applied education in universities was held, which constrained both the supply of and the demand for “higher commercial education.” The few accountants with contacts inside the universities rarely reflected current economic thinking in their work, while early references to accounting in academic publications such as the Economic Journal emphasized the legal aspects of accountancy practice (e.g., Schuster 1900; Barlow 1901; Sanger 1903). In his textbooks, Dicksee also stressed the legal context within which accountancy practice operated. The intellectual paradox of British accounting by 1914, therefore, was that its ideas and principles were grounded much more in law than in economics, although law did not offer explicit systems of rules for the determination of profit and the valuation of assets. Hence, textbooks accentuated questions of how accounting should be practiced rather than why.

INTEGRATION AND ALIENATION: ECONOMICS AND ACCOUNTING BEFORE AND BETWEEN THE WARS

Professional Accountancy and the “Higher Commercial Education” Neither professional accountants nor industrial and commercial concerns saw much value in university-level education for their articled clerks and management recruits. The widespread view (at least in England) was that three years at university actually spoiled potential businessmen, through inculcating bad work habits. British industry was inconsistent, complaining on the one hand that graduates lacked technical expertise while preferring on the other to select (if they recruited at all from universities) arts graduates who had achieved the necessary “rounded personality” and had avoided a “mind crammed with dead matter.” There were, of course, exceptions to this view. One of the most outspoken accountants to favor closer involvement with the universities in professional education was Charles Hewetson Nelson, a member (and president 1913–1916) of the Society of Incorporated Accountants and Auditors. In a lecture on professional education in 1911, Hewetson Nelson advocated the attendance of accounting students at relevant university courses (on the Scottish model), considering that the accountancy training of the time involved students picking up their knowledge in a “happy-go-lucky” manner depending on the attention that their principals could afford to give. He observed that “the modem Universities

284 Christopher Napier . . . are all, more or less, moving in the direction of higher commercial education, and the machinery which they have already started can . . . be usefully utilized to further the progress of the preliminary education of the accountant of tomorrow” (Hewetson Nelson 1911: 16). He spoke with particular approval of the German Handelshochschulen, especially that of Berlin. However, Hewetson Nelson was in a minority within the accountancy profession, and training under articles and study through correspondence courses continued to dominate professional accountancy education into the late 1960s. Within industrial fi rms, the later years of the nineteenth and early years of the twentieth century saw what Solomons (1952b/1968: 17) described as “The Costing Renaissance.” Although recent research (e.g, Fleischman and Parker 1991; Fleischman and Tyson 1993) has tended to contradict the conclusion of Pollard (1965: 248) that “the practice of using accounts as direct aids to management was not one of the achievements of the Industrial Revolution,” what is clear is that there was no substantial discourse of cost and management accounting in Britain before the late nineteenth century. Costing methods developed inside individual firms on a trial-anderror basis, and businessmen were rarely explicit about the reasons for trying and adopting or rejecting the methods whose traces remain in the archive. The costing renaissance identified by Solomons was attributed by him to an increase in the complexity of British business, and to the growing difficulty of price fi xing in industries such as engineering, where the naive models of price determination through competitive markets propounded by many economists failed to reflect what was rapidly becoming a highly specialized activity. Yet there is no significant evidence that costing systems in practice were being developed according to any sort of theoretical model. If the business prospered, then that validated the costing system. Moreover, as Armstrong (1987: 419) observes, “The future of cost accountancy as a body of knowledge was, at this time, open.” Much of the work of constructing and maintaining costing systems was in the hands of engineers rather than accountants—Emile Garcke, for example, was an electrical engineer—while the few accountants in industry who were capable of taking an interest in costing would probably have been regarded as “bookkeepers” rather than “qualified” accountants. Chartered accountants were called on from time to time to advise on the installation of costing systems (Jones 1988), but their main business remained insolvency and audit, where they could act as external consultants, disengaged from management. Loft (1986) and Armstrong (1987) have explained how cost accounting came of age in Britain as a result of the pressures of World War I. Briefly, attempts to avoid war profiteering and to determine “fair market prices” in the absence of competitive markets led to the adoption of cost-based pricing and thereby to the need to ascertain costs. “The cost investigations required were carried out by cost investigation departments. Qualified (chartered or incorporated) accountants were employed to lead teams on the accounting

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side” (Loft 1986: 145). However, these groups probably had little practical knowledge of costing before they started their work, and thus they had to learn on the job. It was significant that “eminent City accountants were appointed to senior positions in Government service” (Loft 1986: 146), particularly at the Ministry of Munitions, which developed standardized accounting procedures for its contracts (Marriner 1980), as this began to legitimize cost accounting in the eyes of the accountancy profession. A byproduct of the development of costing in Britain during World War I was the formation in 1919 of the Institute of Cost and Works Accountants (ICWA, now the Chartered Institute of Management Accountants). As Loft (1986) demonstrates, this organization had ambivalent aims: While it was intended to encourage the expansion of knowledge about costing methods, it also attempted to raise the social status of cost accountants and works accountants. Much of the work of developing cost accounting during the 1920s was motivated by the notion of “scientific costing,” derived from North American ideas of “scientific management.” These ideas impressed some economists, most notably Marshall himself. In his last book, Industry and Trade (1919), Marshall discussed the work of Taylor and others, although he did not attempt to incorporate this rigorously into an economic analysis of the industrial fi rm. Unfortunately, Marshall’s dabbling with scientific management was of little inspiration to the next generation of economists (Williams 1986). University courses, which before World War I had been heavily biased toward bookkeeping and fi nancial accounting, began to reflect the interest in cost accounting. At LSE, a course in cost accounting was introduced in 1918 (Dev 1980: 4), and costing also began to be taught at the civic universities. Indeed, the years immediately after the war constituted a significant period of development in the “higher commercial education.” The LSE raised nearly £300,000 to develop a B.Com. degree, available not only to full-time students of the University of London but also to external students. Commerce degrees were set up in many provincial universities, including those in Scotland and Ireland, and these tended to include an element of accounting in their syllabuses. However, comparatively few graduates of these degrees actually went into industry or commerce (Sanderson 1972: 210). Moreover, the heavy reliance on part-time teaching for accounting courses continued to make it difficult for a dialogue to develop between accountants and economists. During the 1920s, a few isolated individuals attempted to encourage such a dialogue. Significant among them was Sir Josiah (later Lord) Stamp. In an address to the Society of Incorporated Accountants in 1921, titled “The Relation of Accountancy to Economies,” Stamp claimed that much of economic teaching in Britain involved abstract theorizing, divorced from “the facts.” He commended the inclusion of elementary economics and statistics in the examination syllabus of the Society, although, as the examiner for economics, he thought that the majority of students had only a “bare

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textbook knowledge” of the subject. He subtly criticized those who “may have thought more of the cultural broadening effects on [the accountant’s] mind than any pointed improvements in technique” by saying: Now you could get such general breadth of view doubtless by other subjects, such as history, political ideas, the principles of criticism, architecture, the methods of science, or particular sciences from anthropology to Egyptology, for there is no royal road to breadth of view and to the capacity to enjoy a full and rounded life rich in varied interests. But in the choice of economics you arc doing something to get this effect with a direct economy and natural fitness. (Stamp 1921: 44) Stamp claimed that an economic perspective could only enhance accountancy—the professional accountant “must be the better for a large grasp of the problems in hand in their wide economic significance, and for being more than a legally trained ‘figure merchant’ skilled in the presentation of numerical records”. He also suggested that accountancy might inform economics, through providing the raw data as to the results of industry for economists to analyze. However, to date, accountancy had failed to make a single substantial contribution to economic science. Stamp set out a number of areas where economists were theorizing in the dark: “How the differentials of profit for profitable concerns, as compared with marginal concerns, are made up and classified, and to which elements of advantage most profits are due”; “the relation between profits and capital . . . what share of the total reward belongs to the different economic elements of risk, direction, management and so on”; “the problem of the relation between changes in trade volumes and changes in prices, with corresponding changes in profits”; and “the amount of the national capital.” Stamp’s address met with a mixed reception, with leading chartered accountants such as Sir William Plender (senior partner of Deloitte & Co.) welcoming the idea of cooperation between economists and accountants in principle, but pointing out “the view of economists of what is profit may differ from that of the lawyer, and of the business man who is responsible for a company’s management and fi nance, and this fact should not be ignored” (in Fells 1922: 125). Plender clearly felt more comfortable with the view of the lawyer than that of the economist. Nonetheless, Stamp’s message did inspire several professional accountants and led to some collaborative work, including Stamp and Hewetson Nelson’s book Business Statistics and Financial Statements (1924), a remarkably detailed treatise on the compilation and analysis of accounts, covering topics such as budgets, consolidated statements, and auditing. Significantly, however, this book, written for students studying outside formal courses, was, as the authors pointed out, based on an American model. On the economists’ side, Birmingham continued to be an important center for the “higher commercial education”. One of Ashley’s successors

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as Professor of Commerce, Philip Sargant Florence,6 maintained Ashley’s philosophy of regarding the education of businessmen as a central role of the modern university. Florence specialized in industrial organization, the subject matter of his leading book (Florence 1933). In addition to a study of more traditional aspects of industrial economics, such as production functions and costs, sales and marketing, labour policy, industrial location and the optimal size of industrial concerns, Florence was innovative among economists in Britain in considering managerial structures. He was well aware that, by the 1930s, the most important industrial and commercial concerns in Britain were large fi rms giving rise to significant problems of management and integration. Florence was not an original thinker in this area, tending to follow US ideas, such as the “line-andstaff ” model for organizational management. Florence was, however, aware of the “scientific management” movement, and in particular the publications in the late 1920s and early 1930s of pioneer management consultant Lyndall Urwick (Brech, Thomson and Wilson 2010; Parker and Ritson 2010). He regarded accounting as a statistical aid to the provision of economic information within organisations, and placed some value on well-operating budgetary control systems, but he was typical of economists in Britain during this period of both seeing accounting as having only a technical role and not developing a well-articulated theory of business organization and management.

Bringing Economics to Accounting: The LSE in the 1930s In her analysis of management education in Britain, Keeble (1992: 93) gave great weight to the establishment of the Department of Business Administration at LSE. In the 1920s, accounting at LSE had continued to be taught by part-timers, fi rst Lawrence Dicksee, who had been appointed Cassel Professor of Accounting and Business Methods in 1919, and then F. R. M. de Paula, who succeeded Dicksee as Cassel Professor in 1926. In 1930, de Paula resigned to take up an appointment as Chief Accountant to the Dunlop Rubber Company (a significant example of a chartered accountant entering industry; Kitchen and Parker 1980: 81–120). His chair was fi lled not by another accountant but by an economist, Arnold Plant, who had previously been Professor of Commerce at Cape Town. On leaving school, Plant had joined an engineering fi rm and had risen rapidly to a managerial role. Unusually for the time, he decided to study for a degree, taking the University of London B.Com. degree in 1922 and LSE’s B.Sc. (Econ.) in 1923. He returned to LSE in 1930 as Cassel Professor of Commerce at the age of thirty-two (Coase 1987) in order to develop postgraduate education in business administration. Plant, who was a charismatic teacher (Baxter 1991), gathered a group of young scholars around him, most notably the “three Ronalds”: Coase, Edwards, and Fowler.7 Edwards, who had left school at age sixteen and

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trained as an accountant, had been a student on the University of London’s external B.Com. degree. He attracted the attention of Plant, who secured Edwards an appointment as a lecturer in the Department of Business Administration in 1935. Coase had also studied for the B.Com. degree, taking no courses in economics but rather specializing in accounting in his fi nal year (Medema 1994: 3). Fowler had been a fellow student of Coase, had written a monograph on depreciation (Fowler 1934), and collaborated with Plant on various projects involving accounting. Plant in both formal teaching and private conversation encouraged his students and colleagues to study real-world problems, but to do so from an economic perspective: His analytical system was unsophisticated but powerful. He thought of the economic system as essentially competitive, with monopoly transitory and relatively unimportant. The State had a role in providing law and order, but State intervention commonly promoted monopoly and . . . was designed to promote the interests of groups with political power. He was especially interested in attempting to understand the reasons which led to the adoption of business practices. (Coase 1987: 891) The main theoretical and methodological contributions to economics of academics at LSE in the 1930s came from Lionel Robbins, Friedrich von Hayek, and, to a lesser extent, John Hicks (Coats 1983). Robbins, particularly through his Nature and Significance of Economic Science (1932), emphasized the “fact” of economic scarcity, so that economics became “the science that studies the relationship between ends and means that have alternative uses.” The emphasis that Robbins put on scarcity (a concept that, although it can be traced back to the classical economists, was not central to Marshallian analysis: see Montani 1987) reflected the fact that, in his teaching, he relied less on Marshall than on P. H. Wicksteed’s The Common Sense of Political Economy (1910). A main theme of Wicksteed was that all choice and allocation could be understood in terms of the selection between alternatives, and he developed this concept into one of opportunity cost: “By cost of production, or cost price, I mean the estimated value . . . of all the alternatives that have been sacrificed in order to place a unit of the commodity in question upon the market” (Wicksteed 1910: 385). Hayek considered the role of information in providing signals for planning and decision making, and during the 1930s, he was particularly active in defending the “market” against “socialism” (Hayek 1935). Plant in particular shared Hayek’s regard for the price system as the best available mechanism for achieving optimal allocations of resources. Hicks was beginning to work with the ideas of Frank Knight on risk and uncertainty,8 and he was starting to analyze how business organization (e.g, the jointstock company) might function as a means of risk sharing but would give rise to problems of control (Hicks 1931/1982)—an analysis that in some ways is a precursor of the much later agency theory. From these economic

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analyses, Plant and his colleagues distilled a notion of accounting’s role in economic decision making and a normative principle that accounting should be “decision-useful.” The critique of contemporary accounting practice developed by the LSE School, and its recommendations for improving both fi nancial reporting and managerial uses of accounting were discussed through the Accounting Research Association (ARA). This organization was launched in 1936 by Edwards in conjunction with Cosmo Gordon, the librarian of the Institute of Chartered Accountants in England and Wales (ICAEW) and a keen historian, and reflected the diverse interests of its supporters. These included the editor of The Accountant, which provided a platform for some of the most influential publications in accounting theory to emanate from the LSE School.9 Between July and September 1938, the pages of The Accountant welcomed a series of articles by Edwards on the nature and measurement of income. These show from the start the influence of Robbins (echoing Wicksteed): “The fi nancing of a business involves deflection of resources from the alternative uses to which they might have been put; and the amount of resources employed in any given use will be determined by the competing demand for them for other purposes” (Edwards 1938/1977: 97). After a lengthy review of the current state of fi nancial reporting practice, Edwards (1938/1977: 126) concludes “that they are, from the standpoint of income measurement, inadequate and confused” and proposes in their place what he calls “the increased-net-worth theory of income,” which involves an essentially forward-looking rather than historical basis of valuation. His conclusion is that: Published accounts should have as their object the provision of information for a judgement of net worth. The clearer and more relevant this information, the easier it is for the shareholder to calculate his income. The accountant should try to provide the information on which the net worth judgement is based, but cannot normally be expected to make this judgement himself. As we fi nd out more about the ways in which investors reach decisions—and this is very much a job for the research worker in accounting—we shall learn how to develop the methods and forms of reporting that are most likely to help. (Edwards 1938/1977: 139) Following the Edwards articles, The Accountant published a series by Coase (1938/1973), “Business Organization and the Accountant.” This drew heavily on Edwards’ article (1937), “The Rationale of Cost Accounting,” which emphasized the importance of marginal costs and marginal revenues to business decisions, showing that the accountant’s practice of allocating fi xed costs lacked theoretical economic support and that additional (generally replacement) costs rather than historical costs were relevant

290 Christopher Napier for decision making. Coase (1938/1973: 108) cast decisions in terms of opportunity costs: The cost of doing anything consists of the receipts which could have been obtained if that particular decision had not been taken. When someone says that a particular course of action is “not worth the cost”, this merely means that he prefers some other course of action. . . . This particular concept of costs would seem to be the only one which is of use in the solution of business problems. While the concepts of marginal and opportunity cost had a long ancestry both within and outside Britain, what was significant about the contribution of the LSE School was that they sought to reform accounting practice in the name of economic theory. The immediate impact of the LSE School was small. Edwards in particular faced vituperative rejection of his thesis from his LSE colleague Stanley Rowland, who as not only a chartered accountant but also a qualified solicitor reflected the more traditional “legal” basis of British accounting thought. Rowland suggested that “Mr Edwards has ‘gone berserk,’” that he was “enjoying the sport of bludgeoning the heads of accountants with intent that they shall be both bloody and bowed,” and fi nished with what Miller (1991: 741) has described as “a statement almost moving for its evocative appeal to the ledger as a domain of objectivity and security in contrast to what [Rowland] saw as the speculative and showy world of the accountant”: Let us leave these nightmare thoughts and get back to a world in which cool sanity reigns. Let the accountant sit before his ledger and regard it with confidence as the bed rock on which his whole scheme rests. Let him record the present as it flows into the past and let him leave to others the risky business of tearing aside the veil which conceals the future. (Rowland 1938: 522)10 Neither was Coase immune from Rowland’s shafts, being accused by him of “lay[ing] greater emphasis on the speculative element than on experience” (Coase 1990: 8). However, Coase by no means restricted his work to accounting matters. During the 1930s, he was developing what later came to be regarded as his seminal article, “The Nature of the Firm” (Coase 1937). In this article, he attempted to provide an explanation for a phenomenon that Plant and others tended to play down: Why, if markets and the price mechanism were so desirable as a means of achieving optimal resource allocation, did large organizations not only emerge but grow and flourish? The “theory of the fi rm” of Marshall and other mainstream economists effectively considered the fi rm as a production function, a “black box,” where an entrepreneur coordinated factors of production and

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decided on outputs, all within a known system of market prices. But this analytical tool provided no explanation for the emergence of “real” fi rms, in which “the distinguishing mark of the fi rm is the supersession of the price mechanism” (Coase 1937: 389). Coase’s analysis stressed that transacting through markets. Coase importantly defi ned the fi rm as consisting of “the system of relationships which comes into existence when the direction of resources is dependent on an entrepreneur” (Coase 1937: 393). Coase’s concept of the fi rm was significant in that it attempted to preserve the analysis of economic phenomena in terms of marginal costs and benefits: “A fi rm will tend to expand until the costs of organizing an extra transaction within the fi rm become equal to the costs of carrying out the same transaction by means of an exchange on the open market or the costs of organizing in another fi rm” (Coase 1937: 395). This marginal analysis also permeated Coase’s articles in The Accountant, particularly when he reflected on information costs: It would be Utopian to imagine that a businessman, except by luck, could manage to attain this position of maximum profit. Indeed it may cost more to discover this point than the additional profits that would be earned. (Coase 1938/1973: 102) Despite the innovative thinking of Edwards, Coase, and others, however, they had little direct impact on accountancy practice at the time. Nor were they teaching large numbers of students who could import their ideas into practice. The onset of World War II led to the temporary break up of Plant’s group. After the war, the work of Coase and Edwards moved away from accounting, although they had a continuing personal influence on the new generation of accounting academics, the LSE Triumvirate of William Baxter, Harold Edey, and David Solomons (Whittington 1994; see also Baxter 1991: 147).

National Income Accounting The work of Plant and his followers at LSE in the 1930s was, in comparison with other developments in British economic theory, a relative byway. The most vital contributions to economics appeared to be those made by macroeconomists, most notably Keynes. In Britain, the macroeconomic theorizing of the 1930s is associated mainly with Cambridge, where Keynes was based. Among those working at Cambridge was Richard Stone, who is particularly associated with the development of the system of national income accounts that is still widely used throughout the world (Stone 1947, 1981; see also Suzuki 2003a, 2003b). In developing an operational measure of national income, Stone, and his collaborator, James Meade, drew on the “central concept of income” developed by Hicks in Value and Capital (1938). The Hicks income concept has permeated the accounting literature

292 Christopher Napier concerning income measurement, despite Hicks’s own dismissive attitude to the income concept (Clarke 1984: 94–98). It was applied by Meade and Stone (1941) in their attempts to construct the raw materials of national income accounts. The movement toward national income accounting during World War II was one of many manifestations of greater state involvement in economic planning and control. The economic planners, though, needed adequate economic data, and they found the accounts of companies to be grossly inadequate. Suggestions were made that standardized forms of accounts should be introduced, and economist H. W. Singer brought out an appreciative study of the German system of accounts (1943). Bircher has documented a submission from The Economist to the Cohen Committee on Company Law Amendment (1945), calling for standardized information to be supplied to economic policy makers: The doctrine that the state was responsible for the economic health of the country was a new one but it was nevertheless widely accepted. Yet that doctrine had implications for accounting very different from that which prevailed before it became accepted. The regulation of accounting data must accordingly be approached with the needs of economic policy makers in mind. [The Economist] therefore called for standardized, very detailed sets of accounts with legal defi nition of such terms as depreciation, reserves, reinvestment of profits and other important terms. (Bircher 1991: 256–257) Standardization of accounts was, however, strongly opposed by the ICAEW and did not become part of the law relating to company accounts. Not all accountants were opposed to the national income (social) accounting approach, however. Significant bridges between economics and accounting were constructed by Frank Sewell Bray, an incorporated and chartered accountant who played a key role in the emerging accounting research of 1940s and 1950s Britain. Bray was responsible for the foundation of the journal Accounting Research, supported by the Society of Incorporated Accountants (until it was closed down following the absorption of that body into the chartered institutes in 1957). While continuing as a partner in the accountancy fi rm Tansley, Witt & Co., he held an appointment as a Senior Research Fellow in Richard Stone’s department at Cambridge. Bray published extensively on the design of accounts (1947, 1949) and opened the pages of Accounting Research to articles on social accounting (Forrester 1982). He also held the Stamp-Martin chair of accounting at Incorporated Accountants’ Hall. Although the development of national income accounting might have provided a focus around which practicing accountants and economists could have come together, attempts to do so tended to be of little lasting benefit. One such initiative may be mentioned. This was the Joint

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Exploratory Committee set up by the ICAEW and the National Institute of Economic and Social Research just after World War II. Although this contained several sympathetic accountants such as Bray, its report, Some Accounting Terms and Concepts (Joint Exploratory Committee 1951), has been described by Parker (in Forrester 1982: 10) as “rather disappointing and now forgotten.”

DEVELOPMENTS AFTER WORLD WAR II: A DIALOGUE OF THE DEAF? By the end of the war, there was at least a promise that accounting and economics in Britain could march together. Application of economic theory to analyze and improve the use of accounting in business decision making had been initiated by the LSE School and was to be developed further by Baxter, Edey, and Solomons (Napier, 2011). The possibility that accounting could provide useful data for national economic planning was accepted, and moves to make fi nancial statements more useful to the state were at least under consideration. The accountancy profession was securely established and rapidly expanding, and (in certain places at least) it had a clear commitment to research. Moreover, the profession was beginning to acknowledge, in the universities scheme recommended by the Joint Committee Representing the Universities and the Accountancy Profession (McNair Report 1945), the benefits that might accrue from a relevant higher education. The scheme offered certain exemptions from professional training and examinations for students who had taken relevant degrees. The McNair Committee recommended that these degrees would contain roughly equal amounts of accounting, economics, and law. The encouragement of the universities’ scheme led several universities to appoint full- and part-time accounting teachers, including in 1947 the fi rst full-time professors at LSE (Will Baxter) and Birmingham (Donald Cousins). However, a worrying signal of the continuing professional disdain for the newer universities was given by the ICAEW’s preference for offering funding for accounting education to Oxford (which turned down the offer) and then to Cambridge (which accepted the money and used it to endow a chair for Richard Stone). As accounting spread as an academic discipline in British universities, it was often initially located in economics departments, and some exchange of ideas could be achieved. However, given the continued prestige of analytical economics and macroeconomics, a specific business economics found it difficult to emerge. This may have been due to a certain degree of modesty on the part of the early academic accountants, who appear to have made no attempts to expand their discipline into an autonomous business economics. Most of the early academic accountants came from a professional background and were heavily committed to the legal basis of fi nancial reporting. Thus, economics was a tool for analysis to be furnished

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by economists rather than a goal for the academic institutionalization of accounting. Accountants who wanted to develop a more theoretical understanding of industrial organization, for example, often moved away from teaching and researching in accounting and saw themselves as economists rather than as accountants: The postwar career of Ronald Edwards is a good example of this. Edwards became Professor of Business Organization at LSE, and he tried to promote the application of economic ideas to business problems, particularly through his seminars for businessmen, civil servants, and academics (Dahrendorf 1995: 418). However, he contributed less and less to accounting, and eventually he left LSE to follow a senior career in industry. Coase moved to the United States in 1951, leaving behind a small number of economist colleagues interested in understanding the fi rm and its accounting through economic theory (mention may be made in particular of George Thirlby and Basil Yamey). However, the main use of economic analysis to understand the workings of the fi rm continued to emphasize markets rather than internal organization. The central influence of LSE on the development of academic accounting in the United Kingdom was reinforced by the extent to which the members of the generation of professors appointed to British chairs of accounting in the 1950s, 1960s, and 1970s were likely to have taught, studied, or both at LSE (Dev 1980). As students of the LSE triumvirate, they absorbed the notion that accounting needed to be understood, and could be improved, through an application of economic theory, but on balance the theory they acquired and promulgated owed more to traditional economic analysis in terms of prices and markets than to a Coasean approach to the organization. This is not to say that British academic accountants ignored the emerging economics of the organization and management associated with North American writers such as Baumol (1959), Simon (1947, 1957), and Cyert and March (1963), augmented by the British economist Robin Marris (1964). Their contributions influenced several researchers, as well as underpinning textbooks such as Amey and Egginton’s Management Accounting: A Conceptual Approach (1973). With regard to fi nancial accounting and reporting, however, the conservatism of the professional institutes tended to inhibit opportunities for a greater integration of theory and practice. Textbooks for professional accountancy students generally presented accounting as a collection of untheorized practices constrained within a body of legal rules. These rules, augmented by the ICAEW’s Recommendations on Accounting Principles (Zeff 2009), hardly ever had a discernible theoretical basis, and the latter often did little more than express existing practice (with all its inconsistencies) in an orderly way (Leach 1981: 4). Unfortunately, with the closure of Accounting Research in 1958, there were no specialist research journals in accounting in Britain at a crucial point in the expansion of accounting teaching in universities.11 The Association of University Teachers of Accounting (AUTA), formed in 1947, sponsored the publication of three

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collections of readings: Studies in Accounting, edited by Baxter (1950); Studies in Costing, edited by Solomons (1952a); and Studies in the History of Accounting, edited by Littleton and Yamey (1956). But there was an unfortunate absence of an authoritative textbook applying economic theory to fi nancial accounting. Moreover, the academic accountants suffered a psychological blow from the rejection by the ICAEW’s Committee on Education and Training of a greater role for theoretical education in the training of accountants (Parker Report 1961). This Report was excoriated by Solomons (1961a: 412): Whenever it can fi nd specious reasons for opposing change it does so. . . . For some reason, the Institute has always preferred to take advice on its educational policy from amateurs. . . . Many thousands of articled clerks will be subjected to the profession’s archaic training methods before the system is again the subject of review. This is a sobering thought; for a great opportunity has been lost, and the price will be paid not by those who are already members of the Institute but by those whose professional education might have been but now will not be worthy of a great profession. Thus, despite the continuing growth of university courses in accounting, the early 1960s were a relatively dark period for the development of accounting theory in Britain, evidenced in particular on the institutional front by the fact that the AUTA was moribund during the decade and on the personal front by Solomons’ departure for the United States in 1959 (Zeff 1997). Nonetheless, Baxter and Edey, and their growing number of ex-students, continued to argue for a greater application of economic thinking to accounting, and for more economics training for professional accountants (Bourn 1965a, 1965b, 1966a, 1966b). Baxter in particular encouraged the development of the “deprival value” (or “value to the owner”) concept, which he had derived from the work of the American writer Bonbright (1937), while Edey (1982), through his membership of key committees of the ICAEW, tried to encourage more research and increased theoretical content in the professional accountancy examinations. Both Baxter and Edey attempted to persuade the Jenkins Committee (1962) to permit companies to use replacement cost accounting. Although this was the fi rst occasion on which full-time accounting academics gave evidence to a Company Law Committee, the recommendations of the Jenkins Report were anodyne and led to little change in the form and content of company accounts. As the 1960s continued, the rate of price inflation, which had since 1950 been small but positive, started to accelerate. The appropriate way of reflecting price change in company fi nancial statements, which had been a longstanding topic in the writings of the LSE triumvirate and others, started to become a matter of wider debate within not only the accountancy profession but also academic economics. The influential Readings

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in the Concept and Measurement of Income (Parker and Harcourt 1969), edited by an accounting professor and an economics professor, brought together many of the seminal contributions to accounting income theory in the English language. The collection included a article by Solomons (1961b: 383), in which he suggested that “the next twenty-five years may subsequently be seen to have been the twilight of income measurement”. In an influential book chapter, Solomons (1966) developed a formalization of the “value to the owner” concept in terms of replacement cost, net realizable value, and present value of future cash flows, and this was taken up by Parker and Harcourt (1969: 17). With the rapid increase in the rate of inflation in the early 1970s, not only the accountancy profession but also the British government became involved in attempts to reform company fi nancial reporting to reflect the impact of price change. These attempts have been documented at length by Tweedie and Whittington (1984), but the contributions of Robson (1994a, 1994b) are particularly important in explaining the extent to which many of the proposals for infl ation accounting appealed to relatively unarticulated notions of economics. Speaking of the connection between technical methods for inflation accounting (such as current purchasing power) and state counterinflation discourses, Robson’s main conclusion is that, “to examine the inflation accounting discourse within the terms of economic value theory, when it is not clear that participants in the debates necessarily structure their ‘choices’ or view their interventions in terms of ‘economic value,’ can assist in ignoring, overlooking or obfuscating these connections” (Robson 1994b: 210). It is probable that the unwelcoming reaction to inflation accounting on the part of considerable elements of the accountancy profession was due to ignorance of the theoretical underpinnings of the recommended systems, if not downright hostility to the “academic.” Inflation accounting was only one of the issues on the professional accountancy agenda when the 1970s began. The previously lax approach to the formulation of accounting principles began to change with the setting up of the Accounting Standards Steering Committee in 1970. The early Statements of Standard Accounting Practice (SSAPs) issued by this body are significant for their lack of theoretical reasoning, exemplified in particular by SSAP 2 on disclosure of accounting policies (Accounting Standards Steering Committee 1971). This document proposed four fundamental accounting concepts (going concern, prudence, accruals, and consistency), but it opted out of developing a “basic theory of accounting”: An exhaustive theoretical approach would take an entirely different form and would include, for instance, many more propositions than the four fundamental concepts referred to here. It is, however, expedient to recognize them as working assumptions having general acceptance at the present time. (Accounting Standards Steering Committee 1971: note to para. 2)

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In recent years, fi nancial reporting has become more explicitly regulated not only through accounting standards but also by more detailed company law. The latter development is largely a response to European harmonization initiatives, and there is rarely a specific appeal to economic arguments when accounting regulations are developed (a partial exception to this is the reduction in auditing and disclosure requirements for small and medium sized companies, justified by reference to a cost-benefit analysis). Moreover, academic accountants as a body rarely contribute to the standard setting process, although individual academics have played, and continue to play, a central role (the Accounting Standards Board, for example, established as the U.K. standard setting body in 1990, had two members with academic backgrounds—Sir David Tweedie and Geoffrey Whittington).12 Within universities, the years from about 1965 have seen an explosion in research, much of which appeals to economic paradigms. However, British researchers increasingly draw their theoretical perspectives from innovations in the United States. For example, Whittington (1987) points to the influence of U.S. writers on the development of such applications of economics to accounting as capital budgeting, agency theory, and information economics. In all of these areas, British writers have made important contributions to the exposition of the central ideas (for capital budgeting, see Merrett and Sykes 1963, 1966; for agency theory, see Walker 1989; for information economics, see Strong and Walker 1987; Bromwich 1992), but the ideas themselves emerged in the United States. The attempts to develop an economic explanation for the supply of and demand for accounting—positive accounting theory—have also had an impact on British academic accounting research, although often through stimulating hostility rather than endorsement. Indeed, the major theoretical innovations in British academic accounting in recent years have come from the application of more broadly social and critical theories to accounting, much of which has appeared in the journal Accounting, Organizations and Society under the editorship of Anthony Hopwood. Some of this research, but by no means all, has been an attempt to recover a notion of a “political economy of accounting” (Cooper and Sherer 1984), but most applications of economics to accounting theory are held in suspicion by the critical accounting movement. The position today can be summed up as a “dialogue of the deaf.” Accounting theory relies heavily on economic ideas, in both fi nancial reporting (Whittington 1986) and managerial accounting, but the application of economics to accounting continues to be contested by the “critical” accountants. Despite the emergence in the mid-1960s of separate business schools in London (Barnes 1989) and Manchester (Wilson 1992) and the rapid expansion of postgraduate business education from the late 1980s, no specific business economics tradition has emerged. Indeed, the United Kingdom exhibits in the area of business fi nance what Whitley concludes with respect to the United States:

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Christopher Napier The domination of economists seeking to extend equilibrium models of perfect markets to the operation of capital markets led to the business fi nance area concentrating on theoretical models of asset valuation and more traditional concerns and practical topics being seen as derivative. (Whitley 1984: 188)

In fi nance, as in other areas of economics, theoretical analysis is still more prestigious than applied work. Even given the expansion of the business schools, much formal management education in Britain takes place in the context of professional accountancy training, and the suspicion of theory continues. In fi nancial accounting and auditing, there is still an emphasis on law as the structuring body of knowledge, while management accounting and fi nancial management are often taught as scarcely theorized bodies of techniques. Much professional education is in the hands of private sector “crammers” dedicated to getting as many students as possible through the professional examinations (Power 1991). Students who have not passed through a “relevant” accounting degree (or not otherwise studied the subject in their undergraduate degree) receive about three weeks’ worth of economics teaching, so they acquire only a superficial awareness. “Relevant” graduates continue to be regarded by many accountants as inferior to the “non-relevant.” The reaction of many practicing accountants to arguments couched in terms of economics is to spurn them as “academic.” Yet the irony of the matter is that, in the United Kingdom at any rate, accounting in recent years has been heavily involved in putting into effect interventions in the name of the “economic.” Indeed, Hopwood goes so far as to suggest that regarding accounting as simply an application of an economic body of theoretical knowledge is simplistic: “If the economic is as likely to result from accounting as it is to induce it, then there are limits to the extent to which it is meaningful to explore the underlying and enduring economic truths of accounting” (Hopwood 1992: 142). But, while we can observe, with Miller (1991) and Robson (1994a, 1994b), attempts to change Britain’s accounting practice in the name of “the economic,” we rarely see attempts to change Britain’s economic theory (as opposed to economic practice) in the name of accounting. The reasons for this are partly cultural and partly educational, and they have their roots in the nineteenth century. The outcome within the academy is deference to economics on the part of many accounting academics and disdain for accounting on the part of economists, while accountancy practice continues to follow a largely atheoretical road.

NOTES 1. Reprinted with minor changes from The European Accounting Review 1996, 5(3): 449–481.

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2. “Accountancy” connotes what accountants (especially in professional practice) do, while “accounting” embraces the intellectual content of the discipline: what accountants think. 3. In the Lee case, which determined that there was no legal rule requiring companies with “wasting assets” such as mines and concessions to provide deprivation, the plaintiffs, who wanted the company to depreciate its assets before arriving at the profit available for dividend, quoted a defi nition of profit offered by the economist J. R. McCulloch, in The Principles of Political Economy (1825). McCulloch, who was the fi rst Professor of Political Economy at London University (1828–1837), defi ned profits as arising after “capital wasted and used in the undertaking has been replaced.” 4. Ironically, books such as these were considered by the professional accountancy press to be too “theoretical” to have much practical value for accountants (Kitchen and Parker 1980: 39). 5. It is unlikely, however, that he met Eugen Schmalenbach, who did not join the faculty at Cologne until 1904 (Potthoff and Sieben 1994: 79). 6. Florence was born in the USA, but educated in the UK—he studied economics as an undergraduate at Cambridge but returned to the USA to take his PhD at Columbia University. He was a lecturer in economics at Cambridge (1921–29) before his appointment at Birmingham, where he remained until he retired in 1955. 7. Much of the history of their activities in the second half of the 1930s has been narrated by Coase (1990) and Baxter (1991), with earlier discussions by Buchanan (1969), Gould (1974), Dev (1980), and Arnold and Scapens (1981). 8. Knight’s Risk, Uncertainty and Profit (1921) and Wicksteed’s The Common Sense of Political Economy (1910) were the textbooks on Robbins’s undergraduate economic course (Baxter 1991: 139). 9. The ARA has been discussed by Zeff (1972) and in more detail by Bircher (1991: 156–182). 10. It was Rowland who used the expressions “sheer insanity” and “dangerous nonsense” about DCF quoted by Miller (1991). However, he should not be regarded as a consistent enemy of economics. Indeed, Edwards had begun his series of articles by quoting an earlier article of Rowland’s: “It is possible to preserve respect for the operation of law while not confounding matters which are legal with those which are economic. The relationship of dividend to annual profit is a matter of law; the relationship of profit to industrial and commercial operations is the subject of economic inquiry” (Rowland 1936: 250). 11. The Journal of Accounting Research was established in 1963 as a joint venture between LSE and the University of Chicago. In 1970, the ICAEW set up Accounting and Business Research, while the Journal of Business Finance (later Journal of Business Finance and Accounting) was founded in 1969. 12. Tweedie was to become the fi rst chairman of the International Accounting Standards Board in 2001, with Whittington as a board member.

REFERENCES Accounting Standards Steering Committee. 1971. Disclosure of accounting policies. Statement of Standard Accounting Practice 2. London: ICAEW. Amey, L. R., and Egginton, D. A. 1973. Management accounting: A conceptual approach. London: Longman.

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12 Developments in Accounting and Business Economic Thought Evidence from the United States Garen Markarian

INTRODUCTION The development of accounting in the United States is a rich and colorful elaboration that has been the subject of many books and monographs. As such, providing the main junctures in its history is no easy task, given the influences of education, politics, and practice. This chapter will attempt to provide the main highlights of such a development, given that a more nuanced study cannot be confi ned within the pages allotted. In addition, I will also dwell on the contributions of three key figures in shaping modern accounting thought: George O. May, A.W. Paton, and A. C. Littleton. These personas have been deemed, time and time again, to have been key voices in determining accounting as it is known today, both in the United States and, with the overreach of the U.S. industrial might, globally. The next sections will briefly discuss the critical junctures in the development of accounting in the United States, with a discussion of the major milestones, the influence of regulatory structures, and the role of private bodies. Finally, I proceed to discuss the contributions of G. O. May, A. C. Littleton, and A. W. Paton, especially Paton and Littleton’s (1940) seminal work, “An Introduction to Corporate Accounting Standards.” Although the advent of accounting followed an organic process with an amalgamation of various influences, I try to delineate them (as much as possible) into various sections for the ease of readability and exposition.

CRITICAL INFLUENCES IN THE DEVELOPMENT OF ACCOUNTING IN THE UNITED STATES

Milestones in the Development of Accounting as a Profession Historically, accounting in the United States has accompanied the rapid change in the intensively developing U.S. economy. The influences have been many: the change in the U.S. economy from farming and small-scale

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trading to the rise of the modern corporations encompassing railroads, shipping, canals, and slave trade (Bookholdt, 1978). This evolution led to accounting progressing from simple bookkeeping to one with various stewardship functions such as determining equity and dividends, lending capacity, valuation, and taxation. The modern age of accounting in the United States came about with the end of the Civil War, which brought along an industrial boom, accompanied with an advent in the public form of ownership that required the use of accounting and accountability (Flesher et al., 2005). By the end of the nineteenth century, it became evident that accounting was at the heart of enterprise, commanding an important role in its functioning. The industrial boom in turn created a need for having specialized professionals in business that can compile, prepare, and analyze fi nancial data, hence the creation of professional accounting bodies composed of both practitioners and teachers. The advent of commerce that accompanied the industrial boom also led to the proliferation of political regulation of business, from the establishment of the Interstate Commerce Commission (ICC, 1887),1 to the Federal Trade Commission (FTC, 1914), 2 and the Federal Reserve (Fed), 3 all of which had regulatory influences on accounting practices (McCraw, 1975). However, it was not until the stock market crash of 1929 that people started to question the information role of accounting and the adequacy of reports for decision usefulness, which led to a myriad of regulations that raised the eminence of accounting in the business world (Previts and Merino, 1979). The crash led to the founding of the Securities and Exchange Commission (SEC),4 which eventually led to the establishment of mandated audits and formal accounting standards in the 1930s (Zeff, 1984). Finally, a surplus of capital post-World War II led to a significant shift in the role of accounting in modern society, one that mimics the current status quo: After large one-time payments by the U.S. government when retiring liberty bonds, the average public had a windfall of funds in need of allocation. Consequently, this led to (1) a shift from a debt-based emphasis of fi nancial statements to a need for equity investments, and (2) a stronger focus on the valuation role of accounting numbers as opposed to liquidation value and debt repayment (Carey, 1969). Last but not least, the rapid industrialization was mirrored by the growth of private sector accounting bodies. The forerunner of the AICPA, the American Association of Public Accountants (AAPA), was created in 1887 with ten members. It was successful in passing laws in the state of New York creating the Certified Public Accountant (CPA) designation (first awarded in 1896)—mirroring the Chartered Accountant (CA) designation in the United Kingdom, of which U.S. accounting was heavily influenced. From a publication perspective, the Journal of Accountancy appeared in 1905 and continues to this day. The AAPA was renamed the Institute for Public Accountants (IPA) in 1916 and again renamed as the AIA in 1917. In

308 Garen Markarian parallel, a federation of state societies was formed, the American Society of Certified Public Accountants (ASCPA), and in 1936, under pressure from the New York State Society, the ASCPA and AIA merged, keeping the AIA name and reserving the CPA designation. The present AICPA was named as such in 1957, replacing the AIA (Flesher et al., 1996). Today, the AICPA boasts nearly 400,000 members in more than 100 countries, with a reputation of strong educational requirements and high professional standards. 5 Moreover, the growing number of university teachers of accounting led to its establishment as an academic field of study, independent of economics and business, granting PhDs and producing prolific research, which in turn influenced practice. The American Association of University Instructors in Accounting (AAUIA) was founded in 1916, starting as an association to promote accounting education. In 1935, it reorganized and was renamed the American Accounting Association (AAA), with a stronger focus on research and policymaking (Zeff, 1965).

Regulatory Influences The pre-World War I period saw a need for accounting and accountants, but only on a private basis, where the needs of bankers and creditors were the primary stewardship role of accounting numbers. The FTC took on the role of pressuring the private accounting bodies (especially the AIA) in streamlining auditing and fi nancial reporting practices. Furthermore, the aftermath of World War I and the accompanying industrialization impelled the FTC to promote uniform accounting procedures at the industry level, and also to suggest regulating the audit profession where certifications can only be awarded by FTC registered public accountants. Simultaneously, the Fed expressed interest in the credit worthiness of companies publicly selling debt, as such putting the spotlight on the reliability of fi nancial statements (Previts, 1980). It was only after the stock market crash of 1929 that the U.S. Congress established the SEC, which, under the leadership of its fi rst commissioner, Joseph Kennedy, Sr. (father of the late president, John F. Kennedy), took the role of regulating the issuance and trading of securities on the exchanges. The SEC’s reach naturally also extended to accounting standard setting, where the office of the chief accountant was created in 1935. Accounting and reporting practices were thought to have contributed to the stock market crash (Flesher and Flesher, 1986); hence, the SEC adopted an active interest in regulating the accounting profession, which in turn led to more vigorous standard setting by the AIA (Zeff, 2005). In the aftermath of the Great Depression, the AIA in collaboration with the New York Stock Exchange (NYSE) published a statement on five broad principles of accounting (after three years of deliberation), including the passage that “(fi nancial statements) fairly present, in accordance with accepted principles of accounting consistently maintained.” Hence, by the

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mid-1930s, fi nancial statements uniformly contained the following wellknown phrase: In our opinion . . . the accompanying balance sheet and related statement of income and surplus fairly present, in accordance with accepted principles of accounting consistently maintained by the company during the year under review, its position at the end of the year and the results of its operations for the year. 6 And at the requirement of the SEC, the fi nancial statements included the following declaration: The statement contained in the attached balance sheet . . . truly and fairly reflects the application of accepted accounting principles to the facts disclosed. Although such statements came out of regulatory power, and as a response to the public outcry over the Great Depression (Clikeman, 2009), at that time, no such thing as “accepted principles of accounting” existed, which led Carmen Blough, the fi rst chief accountant of the SEC, to remark, An examination of hundreds of statements filed with our Commission almost leads one to the conclusion that aside from the simple rules of double entry bookkeeping, there are very few principles of accounting upon which the accountants in this country are in agreement. Consequently, it was regulation by the SEC, and the objective of having streamlined accounting procedures, that shapes modern accounting today, as standards followed broad concepts. Hence, the newly created division of corporate fi nance at the SEC was charged with reviewing periodic fi lings for the purpose of determining proper accounting and full disclosure. Moreover, the SEC insisted on historic costs so that fi nancial statements do not contain erroneous information, and it pressured the private sector to develop accounting standards (Zeff, 2007). As such, the work of the SEC had a profound effect. For the fi rst time, a governmental body was charged with prescribing accounting rules, not for tax collection or rate regulation, but for the purpose of business itself and the users of fi nancial information. In the beginning years of post-Depression regulation, the SEC’s focus was not on which principles are used for what transaction, but rather a full and complete disclosure of the methods used for each item, and whether such methodologies are consistently utilized year in and year out. As such, initially, full disclosure and consistency were preferred over uniformity. As a result, in the early post-Depression period, a variety of practices still existed (see Healy, 1938). Companies could choose what to consolidate and how to treat intercompany transactions.

310 Garen Markarian The conversion of foreign balances into dollars and the resulting profitability was left to company discretion, and debatable current assets (such as receivables) were left to be considered in accordance with trade practices. For asset values, there was no prescription as to what techniques should be used (depreciated basis, current costs, replacement value, etc.) so long as such methods are stated. Although the SEC required that the main components of the income statement be kept separate, it allowed the combination of all items constituting less than 10% of revenue. However, pressure rapidly piled up on the private sector to streamline accounting practices. It was either that they (quickly) wrote their own principles or had such principles written for them. This shift in the view regarding accounting, from that of guarding against fraud and misrepresentation, to one of broad economic importance and social responsibility, led to extensive efforts to arrive at acceptable norms for accounting practice (Previts, 1984). For example, in 1937, the AIA offered a best paper prize for a manuscript titled “To What Extent Can the Practice of Accounting Be Reduced to Rules and Standards?” (Greer, 1938). The winning paper, authored by Gilbert Byrne, argued that “(Accounting has) fundamental truths upon which . . . by their very nature, there can be no general disagreement” (Byrne, 1937). Although such a notion has no credible basis in current times, this belief formed the basis of the self-fulfilling prophecy that accounting has a core set of acceptable principles, where mere formulation of accounting standards using underlying truths as a starting point would lead to widespread and uncontroversial practices. Throughout, the SEC was pressuring the AIA to find a common set of uniform accounting practices, prompting G. O. May, through the Committee on Accounting Procedure (CAP), to expand its role and start a research function, and discussions on problem areas. Consequently, membership was expanded from eight to twenty-two persons, reading as a who’s who of American accountants representing accounting firms, the NYSE, the SEC, large fi rms, and A. C. Littleton and A. W. Paton. The AIA charged CAP with the doctrine of issuing accounting pronouncements under its own umbrella starting in 1939 (Zeff, 1972).7 The next twenty years of CAP saw the issuance of fifty-one research bulletins. In the early years, as today, accounting standards developed through a number of mechanisms: lobbying by corporations and preparers or by various branches of government. Interest parties’ primary incentive was to present one set of more favorable numbers, as compared with another, or to show the success of their policies. Nevertheless, accounting also developed through the application of sound concepts that were not a byproduct of the political tug-of-war. For example, ARB 29 proposed LIFO, FIFO, and average cost as a basis for inventory valuation. LIFO was included under pressure from corporations given income tax benefits (Guenther and Hussein, 1995). ARB 32 (1947) proposed a “current operating performance” in the income statement, while special items and extraordinary items were

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shifted to below the bottom line. This fulfilled both accountants’ wishes that the income statement reflects continuing performance (see for example, Paton, 1932), and corporations’ desire to have flexibilities in reporting. This was heavily criticized by the SEC, which was skeptical in trusting managerial judgment.8 Problems arose when CAP was not able to resolve a number of accounting problems causing internal divisions, the inability to develop a unifying theory that provides the foundation for all principles. It also came under criticism from the accounting profession to bowing to industry, and, fi nally, it came under criticism for offering too many alternative accounting treatments. For example, Leonard Spacek, managing partner at Arthur Andersen and a devout believer in uniformity, frequently criticized CAP, joining a chorus of entities that represented the intellectual split in accounting: those for uniformity versus those for flexibility, with the SEC siding in the former camp (Brilloff, 2010). The lack of a unifying framework led the AIA and G. O. May to emulate the AAA in its standard setting philosophy, which sought to relate specific guidance to broad concepts. Thus, CAP was replaced by the Accounting Principles Board (APB) in 1959, empowered to streamline practices and establish a common set of Generally Accepted Accounting Principles (GAAP). Moreover, in a determining fashion, the onus was left on auditors and preparers to justify deviations from that prescribed by the APB. During its tenure, the APB issued thirty-one substantive opinions, covering issues such as depreciation, leases,

Text Box 12.1

Key Developments in Accounting and Accounting Thought

• End of the Civil War in 1865 and ensuing industrialization: the establishment of accounting as an essential role in the functioning of commerce • the American Association of Public Accountants (AAPA), the forerunner of the AICPA, is established in 1887 with ten members • First law establishing the CPA designation in the State of New York in 1896 • The newly formed AIA, on the behest of the FTC, publishes a document on auditing procedures, 1917 • The founding of the forerunning to the AAA (1917) • The stock market crash of 1929 and the establishment of the SEC in 1934: the modern era of accounting and standard setting • The AIA, under pressure from the SEC, charges CAP with promulgating principles and standards under the direction of George O. May (1939) • A. W. Paton and A. C. Littleton publish “An Introduction to Corporate Accounting Standards” (1940).

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pensions, taxes, convertible debt, EPS, business combinations and intangible assets, and so on (Zeff, 1972). Nevertheless, its inability to produce coherent financial statements, and a consensual/negotiated modus operandi, failed to meet the expectations of making defi nitive choices without outside interference and pressure (see Kripke, 1970). Exposure to the constituencies and the public was limited and late in the rule-making process. Additionally, the process was deemed to be too long and the committee inefficient (e.g., accounting for business combinations took seven years to come to light, after continuous internal and media bickering over the pooling of interests and amortization of goodwill). Finally, in 1972, after the recommendation by two AICPA committees, the FASB was formed with the charge “to establish standards of financial accounting and reporting in the most efficient and complete manner possible” (Wolk et al., 2007). This structure survives to this day.

Role of the AICPA and the AAA As early as 1917, the newly named AIA, at the behest of the FTC, which sought uniform accounting, published a document on auditing procedures, which also contained prescriptions regarding bookkeeping and fi nancial accounting (Sriram and Volmers, 1997). For example, the document advocated presenting the income statement in a disaggregated format, where production costs and revenues are presented separately from administrative and selling expenses, including interest on debt. This format persists until today, although now interest on debt has its own separate line item. This early memorandum became the fi rst authoritative guidance on technical accounting matters in the United States. The development of professional practitioner bodies was accompanied by similar developments in the teaching domain. The American Association of University Instructors in Accounting (AAUIA) was founded in 1916 at the urging of John Wildman at New York University. Starting as an association to promote accounting education, it later reorganized and was renamed the American Accounting Association (AAA) under the leadership of A. W. Paton in 1935, under a new manifesto that was approved by more than two-thirds of its members (Scovill, 1941). The objectives of the newly formed AAA were to: (1) encourage and sponsor research in accounting and publish or aid in the publication of the results of research; (2) develop accounting principles and standards, and to seek their endorsement or adoption by business enterprises, public and private accountants, and governmental bodies; (3) promote studies of accounting as an agency of control of business enterprise and economic affairs in general; and (4) improve methods of instruction and demonstrate the social benefits of a more widespread knowledge of accounting (American Accounting Association, 1936a). The newly formed AAA quickly set to work, sponsoring research projects on the fundamental concepts of accounting, the presentation of

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fi nancial statements, the evaluation of corporate capital, the measurement of income, problems in valuation, and consolidation issues. Both the AAA and AICPA were driven by fear of governmental regulation—the FTC in the beginning, and in the latter stages, fear of SEC intervention, drove them in forging ahead with initiatives to come up with their own competing set of uniform accounting principles and practices. Although often at odds, and in competition for the title of high authority on accounting issues, members of the AAA have served on AICPA standard setting committees throughout their existence (e.g. from CAP to as recently as the Pathways committee, etc.). In the mid-1930s, the AAA rejected the slow consensus building approach to accounting practices (as espoused by G. O. May and the AIA), and one of their official purposes was to develop a set of accounting principles and standards accepted by businesses, practitioners, and the government. In 1936, the AAA, under the presidency of Erik Kohler, issued “A Tentative Statement of Accounting Principles Affecting Corporate Reports,” to the disdain of the AIA for their loss of power and newly found competition on standards and principles that affect their own practitioners. This memorandum was well received and drew praise from the SEC. This five-page publication, which communicated key accounting principles as eschewed by the AAA, also listed historic costs as the fundamental maxim of accounting.9 The propositions contained focused on three key areas: costs and values (i.e., historic costs vs. current values), the measurement of income, and capital and surplus. In response, the AIA published its own “A Statement of Accounting Principles” in 1938 (see Sanders et al., 1938), this time by academics, to counter the successes of the AAA. During the middle of the last century, the accounting profession reached its height in prestige and power. Both academics and accounting practitioners were involved in setting standards through CAP, where no other industrialized economy had such private bodies setting accounting norms and practices, affecting the day-to-day function of the world’s largest fi rms.

GEORGE OLIVER MAY Hall of Fame inductee in 1950,10 George O. May is undoubtedly the practitioner who has had the biggest effect on the accounting practices of today. As a vice-president of the AIA and a senior partner in Price Waterhouse & Co., he leaves behind three main contributions: He convinced the SEC of the need for uniform accounting standards, and to delegate such a decision to the accounting profession (mirroring developments in Italy and the United Kingdom). He helped promulgate through CAP early authoritative guidance on accounting rules and principles. Finally, he authored numerous scholarly works that helped influence a large cohort of accountants and academics.

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Text Box 12.2 G. O. May (1875–1961) Born: Devonshire, England 1892: accounting clerk, Exeter 1897: certified as a CA, joins Price Waterhouse & Co., leaves to the United States in the same year 1902: becomes partner 1917: vice-president, AICPA 1934: driving force behind the AICPA and New York Stock Exchange collaboration in formalizing the audit process, which eventually led to the establishment of the public audit as a condition for listing 1937: vice-chairman (and effective chairman), Committee on Accounting Procedure Author of several books (1936, 1943) Major contribution to accounting: convinced the SEC that there should be uniform accounting rules, and these should be promulgated by the private sector, away from direct government intervention. Major voice both in the early activity of the AICPA (and its predecessors) and in the early promulgation of accounting standards

As an Englishman, he brought with him a variety of influences and practices from a more developed capital market. Moreover, he arrived in the United States in exciting times, where he experienced firsthand the fi rst substantive wave of U.S. governmental regulation, such as the Supreme Court’s decision to establish an excise tax on corporate income and the ensuing Revenue Act of 1918. Additionally, his start year as the AIA vicepresident (1917) also coincided with the Fed’s publishing of the AIA’s fi rst attempt to provide for a uniform set of accounting practices, which was later followed by the newly formed NBER’s fi rst study, “Income in the United States” (Mitchell et al., 1921). At this early juncture, G. O. May developed a visceral opposition to governmental intervention in business affairs (see Zeff, 1984), as noted in his 1926 writing with regard to regulating the accounting profession: Unless some effective steps are taken to meet criticisms . . . the result will be some sort of bureaucratic control, and I am satisfied that through proper cooperation methods can be devised, without resort to government, which will be more effective and at the same time less burdensome and vexatious than control by a governmental body is likely to be. (Letter to the New York Times, 1926) As early as 1926, G. O. May suggested that a coordinated effort be undertaken by the exchanges, bankers, and the Institute to establish

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standards that would be viewed as a set of best practices. Furthermore, in 1932, he suggested that such rules follow a broad spectrum of applicability, that where the precision of the rules followed matter less than that they are followed consistently from year to year, and that fi nancial reports are available from the exchanges to fee paying users (May, 1932). G. O. May’s initial accounting principles, while broad in nature, also encompassed some specific guidance: that realized and unrealized profit be kept separate, that income items would not be directly charged to equity, that pre-acquisition earnings of a target company are not part of consolidated earnings, that dividends declared do not enter income if from own treasury stock, and, finally, that accounts receivable from employees and affiliated companies are not part of general accounts receivable (May, 1943a). He was an initial believer of the need to have flexibilities in accounting. An early opponent of a “one-size-fits-all” format of fi nancial statements, his credo was to allow companies accounting methods that they best believed to reflect the requirements of their business (May, 1943b). As such, comparability was not of primary importance as compared with decision usefulness and representative faithfulness. His long tenure as a leading voice in accounting was often in confl ict with the role played by the AAA, especially that in his work, G. O. May often referred to the AAA as “composed mainly of accountants engaged in academic work” (May, 1954, p.17). For example, Accounting Research Bulletin 29 released by CAP, which adopted LIFO as an acceptable inventory valuation method, was never accepted by the AAA because it provided for improper matching between costs and revenues. His liberal and broad viewpoint also became a hindrance to May’s ability to progress with a common set of principles and standards, which allowed the AAA to set the stage and take the opportunity in forging ahead with its own drive to establish a set of commonly accepted accounting procedures. This liberal philosophy burdened May, and his CAP committee throughout, where he found it difficult to enforce a single set of practices, when multiple such practices existed among large firms and accounting practitioners. He left the committee in 1945 at the age of 70 after eight years of service. The liberal traditions espoused by G. O. May are widely evident in his writings, notions that persist to this day. He writes in “The Nature of the Financial Accounting Process” (May, 1943a) that “it (accounting) is an art, not a science, but an art of wide and varied usefulness.” Furthermore, he writes, “Accounting conventions should be well conceived in relation to at least three things: fi rst, the uses of accounts; second, the social and economic concepts of the time and place; and, third, the modes of thought of the people. It follows that as economic and social concepts or modes of thought change, accounting concepts may have to change with them.” His thoughts on the malleability of accounting and its contextual nature are in stark contrast to deterministic conceptions of accounting that dominated during those times (May, 1945).

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When it comes to the value versus cost debate that was a focal point of accounting discussions in those days, again, G. O. May consistently expressed an ambivalent attitude to the notion of the superiority of one over the other. Rather, he preferred an optimal combination of the two when discussing guiding principles (such as the lower of cost or market when it comes to inventories, an almost 100-year-old practice in the United Kingdom). His discussion on the valuation versus costing role of accounting offers insights on the recent debates surrounding accounting during the dot.com epoch. G. O. May argues that in pioneer economies, where capital is scarce and growth is rapid, the valuation role of accounting is more important; in contrast, in established economies, where fi rms are large and complex, valuation approaches are impractical and accounting is better suited for costing (May, 1943, p.192, para. 1). This provides a recent comparison to difficulties in valuing high-tech startups and the modest role offered by accounting in valuing such entities. Moreover, when discussing the stewardship role of accounting, he observes a decline in accounting’s role toward credit providers versus the rising role for equity providers, an observation that continued its trajectory until today (May, 1943, p.192, para. 4). After retiring from the CAP at the ripe age of 70, he remained active, writing extensively in challenges confronting practice. Writing on the concept of business income, G. O. May discusses the various approaches to the determination of profit, from the accountant to the economist to the businessman. An accountant would not accept a “discounting of the future” methodology when determining income because that would entail “counting chicks before they are hatched,” and because discount rates and realizations are subjective and hence unverifiable (May, 1954, p. 3, para. 1). His later work heavily discussed the notion of income due to changing values and separating income from components due to operations and other created surplus (such as price appreciation).11 Although still on shaky theoretic and practical grounds today, the current statement of comprehensive income, and mark-to-market accounting (and, to a lesser extent, mark-to model), repeat some of the early thinking criticized by May on price appreciation and whether it constitutes a component of income.

ANANIAS CHARLES LITTLETON Hall of Fame inductee in 1956, A. C. Littleton was a true giant in the world of accounting education, research, and practice. From establishing the fi rst graduate courses in accounting, and awarding master’s and doctoral degrees, to participating in the promulgation of accounting standards, writing on the structure and theory of accounting and accounting practice, to the president of the AAA, A. C. Littleton has cast a long shadow on accounting not only in the United States, but also on a global basis.

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Text Box 12.3 A. C. Littleton (1886–1974) Born: Bloomington, Illinois 1905: station agent and telegraph operator 1912: accountant with Deloitte, Plender, Griffiths & Co. 1915: joins University of Illinois as an instructor 1919: obtains CPA certification (Illinois) 1921: establishes fi rst master’s of accounting degree 1931: obtains PhD in economics (dedicated to Henry Rand Hatfield), with a dissertation about Accounting Evolution to 1900, University of Illinois, published 1933 1939: fi rst PhD student in accounting graduates under his supervision 1939: serves on the AICPA committee on accounting procedure, alongside G. O. May and A. W. Paton 1940: writes with A. W. Paton “An Introduction to Corporate Accounting Standards” 1943: president of the AAA Major contribution to accounting: fi rst successful attempt in laying a theoretical foundation for accounting; established accounting as a stand-alone discipline in graduate education

His views expressed in more than 100 articles and eight books have two consistent themes that run throughout: historic costs are the way to go, and practice has to be guided by principles that are founded on a unifying framework. As such, accounting theory, education, and practice form an inseparable body of knowledge. His work was continuously spurred by fi nding best practices for sound theories or creating sound theories for observed sound practices (Bedford and Ziegler, 1975). A. C. Littleton’s early work focused on theories of profit (Littleton, 1928a) and whether an income-based or a balance sheet-based view of profit is the more important one. His early work also touched on the notion of risk as a determinant of profits: He rejected the idea of relating business enterprise income (and its accounting representation) to risk. His main argument is here for a cost-based profit calculation in contrast to a valuebased one (since the latter is merely potential and hard to verify), an intellectual inclination that remains fi rm in his ensuing forty years of writing (see Littleton, 1928b; Littleton, 1935; Littleton, 1970). Although by the early 1930s the notions of cost, conservatism, and point-of-sale realization of revenue/income were commonly used concepts, the flexibilities that afforded the differential ways that companies could account similar transactions were chaotic and unacceptable for A. C. Littleton’s drive toward unifi cation and organization. His intellectual leanings suited well the prevailing regulatory mood, where the

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SEC sought streamlining of procedures and an elimination of diverse methodologies (Zeff , 1984). In 1936, the executive committee of the newly reorganized AAA published “A Tentative Statement of Accounting Principles Affecting Corporate Reports” (American Accounting Association, 1936b). Published in The Accounting Review, A. C. Littleton and A. W. Paton were contributors. The significance of this work was that it was a first major attempt to establish a structure for accounting principles. This original work was met with indifference by practitioners and businesses, because accounting was still viewed as a private affair among businessmen, fi rms, bankers, and practitioners (Zeff, 2007). Next came work on CAP with G. O. May and W. A. Paton in 1938–1939, which was charged by the AIA to formulate statements and principles. This committee came under criticism for its lack of theorizing when it came to promulgating standards, to A. C. Littleton’s disdain. However, the year 1940 saw the publication of his and Paton’s seminal work, “An Introduction to Corporate Accounting Standards,” which is extensively discussed later in this chapter. The next seminal contribution came in the form of the monograph titled “Structure of Accounting Theory” (Littleton, 1953), extended his prior work to philosophical underpinnings of accounting. The significance of this work rests on two issues: (1) it calls on researchers to provide empirical support for their conjectures (pre-empting the direction that accounting scholarship would take for the ensuing fifty years), and (2) it provides a more complete descriptive theory based on the periodic matching of costs to revenues, and it argues for the income statement as its most important concept. Given the auspices of the AAA and A. C. Littleton’s stature within the academic accounting community, this work spurred a flurry of research, including a commentary in The Accounting Review by a young Ray Chambers (Chambers, 1956).12 Although Chambers presents a range of misgivings on various points, he commends the author for stimulating research and researchers. Although a flurry of empirical research has been conducted for the past forty years, theoretical (or lack thereof) examinations of accounting have not reached the same development and attention as in the days of A. C. Littleton. Today, we certainly better understand the price relevance of certain disclosures/transactions, and we have learned more about managerial, CEO, and other stakeholder incentives when it comes to financial reporting choice (although these topics were as debated in the days of Littleton (e.g. Littleton, 1958)). However, when it comes to the optimal structure and nature of accounting standards, pressing questions still loom large. The significance of the work of A. C. Littleton, and his shared work with A. W. Paton, was the establishment of a fundamental framework that survives to this day. This was done in the not so friendly environment of the 1930s and 1940s, where a large multitude of alternative accounting practices existed.

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For one, double entry bookkeeping was not always assumed, and accrualbased accounting was possibly a minority of all fi nancial statements. Nevertheless, the concepts of “objectively determined income” and “accounting theory” as argued by A. C. Littleton time and time again became a selffulfilling prophecy.

WILLIAM ANDREW PATON A Hall of Fame inductee in 1950, W. A. Paton gets credit for establishing accounting as a research discipline in its own right. As the founding editor of The Accounting Review and a founding member of the AAA, his work and views, along with that of A. C. Littleton, have had the largest impact by an academic on the practice of accounting. Given that W. A. Paton’s contribution to accounting theory is discussed earlier (in his collaboration with A. C. Littleton) and later, when discussing their seminal contribution, in this section I will discuss the lesser known scholarship of W. A. Paton, which is his writings on valuation and, to a lesser extent, on conservatism and cash flows. In his writings on valuation, as early as 1936, A. W. Paton supported an income-based approach to valuation, ignoring the cost versus value debate

Text Box 12.4 W. A. Paton (1889–1991) Born: Calumet, Michigan 1912: after farm work, enrolls in University of Michigan 1914: starts work as an instructor 1916: founding member of the AAA 1917: PhD in Economics, with a dissertation about Accounting Theory— With Special References to corporate enterprise, University of Michigan. Published 1917, Ronald Press company 1922: president of the AAA 1926: main protagonist in launching The Accounting Review; fi rst editor 1927: obtains CPA certification (Michigan) 1939: serves on the AICPA committee on accounting procedure, alongside G. O. May and A. C. Littleton 1940: writes with A. C. Littleton “An Introduction to Corporate Accounting Standards” 1987: AICPA awards one-time “Accounting Educator of the Century” Major contribution to accounting: Formalized the role of accounting research, giving teachers a formidable voice in shaping practice. First successful attempt in laying a theoretical foundation for accounting.

320 Garen Markarian with regard to assets and liabilities, and focusing on “earning power,” signifying business income capacity and potential by the enterprise entity. His early work, “Valuation of the Business Enterprise” (Paton, 1936), appeared concurrently with another famous work, Preinreich’s 1936 article titled “The Fair Value and Yield of Common Stock” (also in The Accounting Review) and even preceded it by one issue. Moreover, it came only two years after Graham and Dodd’s book Security Analysis (1934). A. W. Paton distinguishes between value of the enterprise and the value of the fi rm with respect to common shareholders—and he proscribes valuation techniques for each one of them. He also discusses forecast periods and historical analysis as a means for sound forecasting. Moreover, from an accounting perspective, he advises paying special attention to administrative and research and development expenses, inventory policies, and depreciation charges, with a special focus on unusual gains/losses. For newly formed fi rms, he advocates the use of comparables. Finally, he points out the benefits of utilizing operating leverage, a concept that was only popularized in the second half of the twentieth century (e.g. Lev, 1974). With regard to determining a rate of return, he discusses its difficulty and articulates that only a rough estimate or range of estimates is often the only possibility. Preceding CAPM and developments in modern finance and portfolio theory—this notion still stands true today: Sixty years of fi nance have not provided us with better technologies than that proscribed by A. W. Paton, where the expected rate of return is almost always a point forecast from a “a range of acceptable possibilities” (see Damodaran, 2001). Most surprisingly, when it comes to valuation, A. W. Paton expresses value creation in terms of superior earnings above and beyond the normal rate expected on capital, discussing what is known as residual income today: “Earning power may be expressed in terms of the final amount, after all charges, accruing to the residual proprietary interest, in general that of the common stockholder in the case of the corporation” (emphasis added). He further discusses that competition is likely to erode superior earnings in the long run, and buyers should pay careful head when conducting valuations. In fact, the residual income model of valuation, which explicitly links earnings to rates of return and invested capital, initiated by Ohlson (1995) and summarized by Penman (2010), was based on earlier work by Edwards and Bell (1961), which in turn can be traced back to Marshall (1890) and Hamilton (1777). Although at this point it is not possible to determine the exact influence, if any, on Paton, by economic thinkers of a century earlier, it is almost certain that extant twenty-first valuation-related thought and practice appears to have been foreshadowed by Paton’s theorizing, and this can be considered a clear demonstration of his intellectual depth and breadth. On conservatism (Paton, 1948; Paton, 1952; Paton, 1963a), he writes that it is an understatement of assets and income—although he questions the correctness of conservatism as a scheme where income and assets are

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shifted from one period to the next. He objected to the inconsistent treatment of transactions—where losses are recognized before gains. For him, inconsistency is the antithesis of sound accounting, and realization and recognition should apply equally to both gains and losses: hence, referring to conservatism as “evil” (Paton, 1948, p. 278, para. 1). His work influenced later authors such as Devine (1963), which in turn trickled into modern day accounting scholarship on conservatism (see Watts, 2002; Beaver, 2005). Later work deals with current issues in accounting research and practice. For example, Paton (1963b) strongly opposed a cash-flow view of accounting, where campaigns that glorify cash at the expense of earnings run the fundamental fallacy that either depreciation is “non-cash” or the mistaken notion that it “provides cash.” Although admitting to the importance of sound cash management practices, which is the key purchasing asset, he sounded against those who glorify cash in order to mislead and hide true underlying performance.

THE CLASSIC ESSAY ON “AN INTRODUCTION TO CORPORATE ACCOUNTING STANDARDS” BY PATON AND LITTLETON A true classic of far-reaching consequences that was reprinted sixteen times, this work, more than any other, has shaped the world of accounting on a U.S. and international basis. Its most important contribution is that it set historic costs as the basis of accounting and influenced a generation of teachers, students, and practitioners in setting the core concepts that shape accounting today (Ijiri, 1980; Zeff, 2003). This work superseded the earlier 1936 monograph by the AAA titled “A Tentative Statement of Accounting Principles Affecting Corporate Reports” (American Accounting Association. 1936b), which was widely criticized for its lack of a basic unifying theory. As such, A. W. Paton and A. C. Littleton, as expressed in the preface, set out to fill this void. The book is composed of six chapters. Chapter 1 discusses the need for accounting standards, and Chapter 2 states the main assumptions. Chapters 3, 4, 5, and 6 discuss issues of cost, revenue, income, and surplus. These chapters are intertwined with theoretical concepts, while Chapter 7, titled “Interpretation,” formalizes what is known today as “footnotes” and supplementary material. The book also stresses the need for “verifiable and objective” information. This is elaborated on in Chapter 2 (in “Assumptions”), as the sixth (and likely as the most important) assumption in accounting. Consequently, historic costs are supported because they are verifiable and objective: based on a transaction that has occurred, unlike replacement cost, liquidation value, market values, and so on. In opposition to the latter, “appreciation” accounting is rejected as it provides no claims to meet creditors, suppliers,

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and customers. A fi nal argument for historic costs rests on the notion of accountability: Historic costs provide easily verifiable numbers that form the basis of sound accountability. The only departure to historic costs is offered through reorganization—where assets can be reassessed and revalued according to prevailing price conditions: a directive that survives until today in business combinations and acquisitions. The monograph designs income recognition starting from some fundamental assumptions. The fi rst assumption concerns “effort and accomplishment.” It prescribes to measure the sum of the pieces when assessing the whole, and to match effort to accomplishment (i.e., what is known today as matching revenues to cost). This focus on the productive process of the business enterprise leads to another assumption concerned with the accounting method and is called “costs attach.” This latter recommends to reorganize costs into different categories (i.e., interest costs in various plants and divisions into one measure of the debt burden). Regarding measurement issues involved by that accounting method, Paton and Littleton recommend “measured consideration,” dealing with the time lag between costs and revenues (i.e., allowances for receivables, return provisions, inventories, etc.). The assumption of “continuity of activity” enables the examination of business economic performance and position on a continuing basis (i.e., what is known as “going concern”). Finally, the overarching assumption of “business entity” defi nes the fi rm as the enterprise itself, an independent body, and not one that views it strictly from a shareholder basis. This monograph has shaped accounting thought to this day, as large sections of it form the underlying framework of present-day accounting. Historic costs still form the predominant form of accounting, with departures being fostered by the increased recourse to fair value accounting. A. C. Littleton and A. W. Paton allow for the capitalization of certain expenses only if such assets have future benefits, and the tests of such benefits must be done continuously. Furthermore, although the monograph rejects “value” accounting, it encourages that such information be disclosed in supplementary information: again, similar to notions of market value accounting today. The monograph also advises to split surplus into capital surplus and earned surplus, and not to mix the two. From ideas that have not survived to this day (and had critics then) is that all costs should be capitalized as product costs, including selling and administrative expenses. Also, the book emphasizes revenues and costs as a starting point, while a balance sheet view of the fi rm is demoted to secondary importance and depends on the income statement. A. C. Littleton and A. W. Paton patron an income statement view of the fi rm, where measuring business income is the primary purpose of fi nancial statements. In fact, this notion was not supported in the direct aftermath of publication, and it is still harshly debated today.13 The monograph received warm reception and had an enduring legacy for a number of reasons. First, it was done by the right people and came at the

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right time. The newly reorganized AAA provided the forceful conceptual/ theoretical direction needed, which was sorely missing in practitioner circles, and was not supplied by the AICPA and its intellectual leader G. O. May. In essence, G. O. May advocated unified principles and provided the platform for private bodies to influence standard setting, while it was A. C. Littleton and A. W. Paton who provided the greatest intellectual contributions. These were difficult times: The United States was on a rapid rise, but it still relied on foundations left from the farming days and, to a later stage, railroads and transportation. These were rich intellectual times with multiple viewpoints and no unifying theory. The work of A. C. Littleton and A. W. Paton came at a time when pressure from the federal government on private accounting bodies was at a maximum—hence, providing for a “lowest common denominator” solution of historic costs, which was quickly accepted by practitioners and academics alike. Although it is difficult to disentangle A. C. Littleton’s and A. W. Paton’s (and AAA’s) intellectual leanings from their reactivism to the SEC’s regulatory mood of the time, which strongly favored historic costs, nevertheless, their views certainly bode well with a post-Depression regulatory modus operandi that was still reeling from the scandals of Ivar Kreuger,14 newly created derivatives schemes, and volatile prices: historic costs provided the cheap and simple solution.15 The cooperation between the two authors proved fruitful. Although both are technically trained in economics, A. C. Littleton brought a historical and philosophical viewpoint—commensurate with his work in accounting and economic history—while A. W. Paton was more interested in a neoclassical economic viewpoint, and cost to him was useful so long as it indicated value—hence, his criticisms of accountants preferring costs to values. In contrast, for A. C. Littleton, accounting was comprised of bookkeeping and communicating, and valuation was of a secondary importance (Biondi 2011). The contribution to the monograph has been by both authors, and the influence of each is clearly evident. Paton contributed to the deductive approach that was followed, while the “verifiable objective information” is clearly A. C. Littleton’s (Bedford and Ziegler, 1975). It is unknown for what reason A. C. Littleton prevailed in the cost versus value debate. However, Paton (1980) provides two insights in “Statement by William A. Paton,” commemorating forty years of the publication of the monograph: First, he regrets that he did not discuss further issues relating to valuation, specifically stating that he wishes to discuss further the question: “What is the relation of the net (income) figure to the value of the resources employed in producing it?” Second, he writes, “I am writing this statement to make my personal stand clear. I have always been a value man . . . ,” perhaps regretting the fact that valuation-based research/practice exploded in the aftermath of their publication. Although the monograph truly presented a unifying framework, with a present-minded approach and twenty-twenty hindsight (e.g. Fleischman et al., 2003; Previts and Bricker, 1984), the monograph profoundly lacks

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the comparative welfare economic analysis of various formulations. The authors do not establish the superiority of their framework over those proposed by others, and they never refer to “convention” when discussing their proposed framework—as this would be antithetical to their proposed objectives (Ijiri, 1980). However, much of their formulating is an inductive-deductive approach to extant accounting thought and practice. Consequently, their proposals are theoretical representation that fit well then and extend until today. In conclusion, their representation of accounting remains a moot point in theory circles until today, being a social construction—phenomena are man-made, hence, observations are not of static phenomena that have fi nite explanations—but are dynamic reflections of business and its ever-changing environment (Sanders, 1963; Chua 1986). In their defense, A. C. Littleton and A. W. Paton provided a framework that largely contributed to the smooth functioning of markets and enterprises. These contributions were done in difficult times, with no prior foundation to build on, hence magnifying the challenges faced by the authors. Remarkably, their formulations (with minor variations) remain in active force until today. NOTES 1. 2. 3. 4. 5. 6. 7. 8.

9. 10. 11. 12. 13.

Interstate Commerce Act of 1887, ch. 104, 24 Stat. 379, approved 02–04–1887. Federal Trade Commission Act, 15 U.S.C §§ 41–58, 8–9-1914. Federal Reserve Act, ch. 6, 38 Stat. 251, 23–12–1913. Securities Exchange Act, 15 U.S.C. § 78d, 6–6-1934. See www.aicpa.org See Greer (1938), for further discussion on the institutional background surrounding this quotation, and the next one below. Although setting standards was entrusted to the private sector, the SEC always retained the fi nal say on overruling any promulgation. To this end, the then chief accountant of the SEC wrote to the director of research at the AIA, stating that “under these circumstances the Commission has authorized the staff to take exception to fi nancial statements which appear to be misleading, even though they reflect the application of Accounting Research Bulletin No. 32” (Pines, 1965). The notion of historic costs fit well in the regulatory mood of the time; for example, in 1935, the SEC had insisted on historic costs so that fi nancial statements do not contain “misleading disclosures” (Kripke, 1970). Established in 1950 at the Ohio State University, the Accounting Hall of Fame honors accountants who have made a significant contribution to the advancement of accounting. It currently includes ninety-four inductees. May’s current thought on this matter is partly influenced by the earlier work of Dickinson, Profits of a Corporation (1904), presented at the fi rst world congress of accountants in St. Louis, MO. At the time, the 39-year-old Chambers occupied the post of associate professor at the University of Sydney. See, for example, Holthausen and Watts (2001) for an extensive survey of research papers that implicitly or explicitly assume valuation to be the primary purpose of fi nancial statements. In contrast, see Basu (1997) for the

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stewardship, Lambert and Larcker (1987) for contracting and performance evaluation, and Shackelford and Shevlin (2001) for the tax-related purposes of fi nancial statements. 14. It is suggested that the bankruptcy of Kreuger and Toll (the largest on record at the time) led to the eventual passage of the securities acts after the big crash. Although a multibillion dollar entity with 400 subsidiaries, it kept little fi nancial records—facilitating its existence as a gigantic fraud (Flescher and Flescher, 1986). 15. The stock market crash of 1929, which was accompanied by fi nancial manipulations (especially asset write-ups), led to eventual SEC intervention. Robert Healy, one of the founding members of the SEC, disdained the creation of unrealized gains, many of which were accompanied by dividend payments and wreaked havoc during the above-mentioned crash. His strong views dominated the SEC’s intellectual direction in the 1930s and 1940s, where he wrote, “I think the purpose of accounting is to account— not to present opinions of value.” Although it is difficult to isolate the effect of the SEC from the workings of the AAA, the latter, in their 1936 statement, proclaimed, “If values other than unamortised [historical] costs are to be quoted they should be expressed in fi nancial statements only as collateral notations for informative purposes” (1936b: 189). Hence, Healy’s (and the SEC’s) stance on historic costs found its way in the 1930s and early 1940s. After Healy’s death in 1946, future generations of SEC members would continuously reject other than historic cost approaches on the basis of departures from objectivity. Hence, departures from historic cost accounting were rarely accepted by the SEC until the infl ationary periods of the 1970s, when an accounting and fi nance professor, Sandy Burton (ironically, a student of valuation guru Philip Bell), was appointed to the position of the chief accountant.

REFERENCES American Accounting Association. 1936(a). “A Statement of Objectives of the American Accounting Association.” The Accounting Review 11(1): 1–4. American Accounting Association. 1936(b). “A Tentative Statement of Accounting Principles Affecting Corporate Reports.” The Accounting Review 11(2): 187–191. Basu, S. 1997. “The Conservatism Principle and the Asymmetric Timeliness of Earnings.” Journal of Accounting and Economics 24: 3–37. Beaver, W. H. and Ryan, S. G. 2005. “Conditional and unconditional conservatism: Concepts and modeling.” Review of Accounting Studies 10(2–3):269–309. Bedford, N. M., and Ziegler, R. E. 1975. “The Contributions of A. C. Littleton to Accounting Thought and Practice.” The Accounting Review 50(3): 435–443. Biondi, Y. 2011 “The Pure Logic of Accounting: A Critique of the Fair Value Revolution.” Accounting, Economics, and Law 1(1). Bookholdt, J. L. (1978). “Influence of Nineteenth and Early Twentieth Century Railroad Accounting on the Development of Modern Accounting Theory.” The Accounting Historians Journal 5(1): 9–28. Briloff, A. J. 2010. “Accounting Classic: More Debits than Credits: The Gap in US GAAP.” International Journal of Economics and Accounting 1(3): 184–199. Broad, S. J., and Paton, A. W. 1936. “Valuation of the Business Enterprise.” The Accounting Review 11(1): 26–35. Byrne, G. R. (1937). “To What Extent Can the Practice of Accounting Be Reduced to Rules and Standards?” Journal of Accountancy: 364–379.

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Carey, J. L. 1969. The Rise of the Accounting Profession: From Technician to Professional 1896–1936, Vol. 1. American Institute of Certified Public Accountants, New York. Chambers, R. 1956. “Some Observations on ‘Structure of Accounting Theory’.” The Accounting Review 41(4): 584–592. Chua, W. F. 1986. “Radical Developments in Accounting Thought.” The Accounting Review 61(4): 601–632. Clikeman, P. M. 2009. Called to account: Fourteen fi nancial frauds that shaped the American Acccounting Profession. Routledge, New York. Damodaran, A. 2001. The Dark Side of Valuation. Prentice Hall, New Jersey. Devine, C. T. 1963. “The Rule of Conservatism Reexamined.” Journal of Accounting Research1(2): 127–138. Dickinson, A. L. 1904. “The Profits of the Corporation.” A paper read before the Congress of Accountants, official record of the proceedings of the Congress of Accountants held at the world’s fair, Saint Louis, September 26th, 27th and 28th, 1904. Edwards, E., and Bell, P. 1961. The theory and management of business income. Berkeley: University of California Press. Fleischman, R. K., Radcliffe, V. S., and Shoemaker, P. A. 2003. Doing accounting history: Contributions to the development of accounting thought. Oxford: JAI Press. Flesher, D. L., and Flesher, T. L. 1986. “Ivar Kreuger’s Contribution to U.S. Financial Reporting.” Accounting Review 61(4): 21–34. Flesher, D. L., Miranti, P. J., and Previts, G. J. 1996, October. “The First Century of the CPA.” Journal of Accountancy: 51–57. Flesher, D. L., Previts, G. J., and Samson, W. D. 2005. “Auditing in the United States: A Historical Perspective.” Abacus 41(1): 21–39. Graham, B. and Dodd, D., 1934. Security Analysis. McGraw-Hill, New York. Greer, H. C. 1938. “What Are Accepted Principles of Accounting?” The Accounting Review 13(1): 25–31. Guenther, D. A., and Hussein, M. E. 1995. “Accounting standards and national tax laws: The IASC and the ban on LIFO.” Journal of Accounting and Public Policy 14(2): 115–141. Hamilton, R. 1777. An introduction to merchandize. Charles Elliot, Edinburgh. Healy, R. E. 1938. “The Next Step in Accounting.” The Accounting Review 13(1): 1–9. Holthausen, R., and Watts, R. 2001. “The Relevance of the Value-Relevance Literature for Financial Accounting Standard Setting.” Journal of Accounting & Economics 31: 3–75. Ijiri, Y. 1980. “An Introduction to Corporate Accounting Standards: A Review.” The Accounting Review 55(4): 620–628. Kripke, H. 1970. “The SEC, the Accountants, Some Myths and Some Realities.” New York University Law Review 45(6): 1151–1205. Lambert, R. A., and Larcker, D. F. 1987. “An Analysis of the Use of Accounting and Market Measures of Performance in Executive Compensation Contracts.” Journal of Accounting Research 25: 85–125. Lev, B. 1974. “On the Association between Operating Leverage and Risk.” Journal of Financial and Quantitative Analysis 9(4): 627–641. Littleton, A. C. 1928(a). “What Is Profit?” The Accounting Review 3(3): 278–288. Littleton, A. C. 1928(b). “The Evolution of the Journal Entry.” The Accounting Review 3(4): 383–396. Littleton, A. C. 1935. “Value or Cost.” The Accounting Review 10(3): 269–273. Littleton, A.C., 1953. Structure of accounting theory. American Accounting Association, Sarasota, FL.

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Littleton, A. C. 1958. “Accounting Rediscovered.” The Accounting Review 33(2): 246–253. Littleton, A. C., 1970. “Factors Limiting Accounting.” The Accounting Review 45(3): 476–480. Marshall, A. 1890. Principles of economics. London: Macmillan. May, G.O. 1932. “Influence of the Depression on the Practice of Accountancy.” The Journal of Accountancy (November ):336–350. May, G. O. 1936. Twenty fi ve years of accounting responsibility. New York: American Institute Publishing Co. May, G. O. 1943(a). “The Nature of the Financial Accounting Process.” The Accounting Review 18(3): 189–193. May, G. O. 1943(b). Financial accounting. A distillation of experience. Houston, TX: Scholars Books Co. May, G. O. 1945. “Teaching Accounting to Non-Technical Students.” The Accounting Review 20(2): 131–138. May, G. O. 1954. “Concepts of Business Income and Their Implementation.” The Accounting Review 68(1): 1–18. McCraw, T. K. 1975. “Regulation in America: A Review Article.” The Business History Review 49(2): 159–183. Mitchell, W. C., King, W. I., Macaulay, F. R., and Knauth, O. W. 1921. Income in the United States: Its amount and distribution, 1909–1919, Volume 1: Summary. Cambridge, MA: National Bureau of Economic Research. Ohlson, J. 1995. “Earnings, Book Values, and Dividends in Equity Valuation.” Contemporary Accounting Research 11(2): 661–687. Paton, A. W. 1932. “Accounting Problems of the Depression.” The Accounting Review 7(4): 258–267. Paton, A.W. 1936. “Valuation of the Business Enterprise.” The Accounting Review 11(1): 26–35. Paton, A. W. 1948, April. “Accounting Procedure and Private Enterprise.” The Journal of Accountancy. Paton, A. W. 1952. Asset accounting. New York: The MacMillan Company. Paton, A. W. 1963(a). “Accounting and Utilization of Resources.” Journal of Accounting Research 1(1): 44–72. Paton, A. W. 1963(b). “The ‘Cash-Flow’ Illusion.” The Accounting Review 38(2): 243–251. Paton, A. W. 1980. “Statement by William A. Paton.” The Accounting Review 55(4): 629–630. Paton, A. W., and Littleton, A. C. 1940. An introduction to corporate accounting standards, Monograph No. 3. Sarasota, FL: The American Accounting Association. Penman, S. 2010. Accounting for value. New York: Columbia University Press. Pines, J.A. 1965. “The Securities and Exchange Commission and Accounting Principles.” Law and Contemporary Problems (3)4: 727–751. Preinreich, G. 1936. The fair value and yield of common stock. The Accounting Review 11(2): 130–140. Previts, G. J. 1980. A critical evaluation of comparative fi nancial accounting thought in America. New York: Arno Press. Previts, G. J. 1984. “Frameworks of American Financial Accounting Thought: An Historical Perspective to 1973.” The Accounting Historians Journal 11(2): 1–17. Previts, G. J., and Bricker, R. J. 1994. “Fact and Theory in Accounting History: Present mindedness and Capital Market Research.” Contemporary Accounting Research 10(2): 625–641. Previts, G. J., and Merino, B. D. 1979. A history of accounting in America. New York: John Wiley & Sons.

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Sanders, T. H. 1935. “The Development of Accounting Principles.” The Accounting Review 10(1): 100–102. Sanders, T. H., Hatfield, H. R., and Moore, U. 1938. A statement of accounting principles. New York: American Institute of Accountants. Scovill, H. T. 1941. “Reflections of Twenty-Five Years in the American Accounting Association.” The Accounting Review 16(2): 167–175. Shackelford, D. A., and Shevlin, T. 2001. “Empirical Tax Research in Accounting.” Journal of Accounting and Economics 31: 321–387. Sriram, R. S. and Vollmers, G. 1997. “A Reexamination of the Development of the Accounting Profession—Critical Events from 1912–40.” Accounting Historians Journal 24(2): 65–91. Watts, R. L. 2002. “Conservatism in accounting: explanations and implications.” Working Paper, Massachusetts Institute of Technology. Wolk, H. I, Dodd, J. L. and Rozycki, J. J. 2007. Accounting theory: conceptual issues in a political and economic environment. Thousand Oaks, Ca: Sage Publications. Zeff, S. A. 1965. American accounting association: Fiftieth anniversary 1916– 1966. Evanston, IL: American Accounting Association. Zeff, S. A. 1972. “Chronology of Significant Developments in the Establishment of Accounting Principles in the United States, 1926–1972.” Journal of Accounting Research 10(1): 217–227. Zeff, S. A. 1984. “Some Junctures in the Evolution of the Process of Establishing Accounting Principles in the U.S.A: 1917–1972.” The Accounting Review 59(3): 447–468. Zeff, S. A. 2003. “How the U.S. Accounting Profession Got Where It Is Today.” Accounting Horizons 17(3): 189–205; 17(4): 267–286. Zeff, S. A. 2005. “The Evolution of U.S. GAAP: The Political Forces Behind Professional Standards.” The CPA Journal. Zeff, S. A. 2007. The SEC rules historical cost accounting: 1934 to the 1970s. Unpublished manuscript, Rice University.

Part III

Comparative Analyses, Insights, and Implications for Accounting and Business Economics

13 Insights on German Accounting Theory Michael Hommel and Stefanie Schmitz

INTRODUCTION In the fi rst half of the twentieth century, Germany played a prominent role in the development of accounting theory (Mattessich and Küpper 2003: 106, 112; Evans 2005: 230). Numerous researchers, popular academic teachers, and interpreters of law built up Germany’s reputation for competence in this field. Some of them were consigned to oblivion. However, the early theories of the lawyer Simon and the accounting professors Schmalenbach and Schmidt endured over time (Ballwieser 2010: 79). They are well known in Germany to this day, and their fi ndings are still taught at German universities. The period beginning in the 1930s is marked by consolidation. German authors primarily endeavored to reach a deeper understanding of the original accounting theories, to develop them further, and to understand their impact on the practice of accounting. German researchers dwelled on the interpretation of existing theories instead of developing new ones. Due to all these academic achievements, this period of research can be named the “golden age” of accounting theory in Germany. Mattessich and Küpper (2003: 106) underline that “there seems to be little doubt that during the fi rst half of the 20th century,” the leadership of accounting “was claimed by Germany.” For example, Littleton (1941: 165 et seq.) emphasized Germany’s role in the establishment of the lower of cost or market rule, and Weiner (1929) turned to German ideas for the measurement of assets. Other book chapters show the influence of early German accounting scholars on the development of business administration studies in Europe and abroad before World War II (see e.g., Norström [1995] for Sweden and Wallerstedt [2000] for Norway). Thus, Germany’s leading role was obviously not limited to the discipline of accounting. German ideas were appreciated in the general development of business administration. Therefore, the discussion of the fundamental parameters of the new academic field was conducted in German language (Witte 1998: 733, 735). It took until the 1970s for the preoccupation with accounting theory to receive for the second time attention in the academic world of Germany. Law gave the impulse. After World War II, academic jurists developed the basics of legal methodology (Savigny 1951; Engisch 1956; Coing 1959; Larenz 1960; Canaris 1969; Esser 1970). They strengthened the interpretation methods for law codes, such as grammatical, systematical, and historical

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interpretation, and gave a deeper understanding of the hermeneutical approach, which is originally a method of understanding and interpreting literature in the arts (Larenz 1991: 165−231). The research in this field stimulated accounting theory in Germany. Famous academics, like Leffson (1964) and Moxter (1982a), and well known lawyers of the Federal Fiscal Court (Bundesfinanzhof [BFH]), like Beisse (1984, 1994) and Döllerer (1959, 1968), developed a legal doctrine of accounting (Bilanz im Rechtssinne) to interpret systematically the parts of the Commercial Code that relate to commercial accounting and to tax accounting as well (Handelsbilanzrecht and Steuerbilanzrecht). Their methodology was to analyze and systemize decisions of the German supreme courts. Despite its achievements, little has been published on German accounting theory (Bilanztheorie) in the English language (Evans 2005: 229 et seq.). This chapter tries to remedy this deficit. It focuses on German developments in accounting theory because it holds a strong position in both German accounting research and legal implementation of accounting provisions until today. The focus on theory describes literally a separate path that German accounting went along. Evans (2005: 230) states, “[T]he importance of theory and of an academic foundation to accounting, auditing and related subjects, is one of a number of historical factors which highlight the differences between the German language arena and, for example, the UK, where emphasis was on practice, rather than theory” (see also Potthoff 1993: col. 660). During the last century, numerous distinguished scholars developed accounting theories in Germany. This chapter cannot do justice to every one of them. The selection of scholars and their main input to accounting thought must remain fragmentary and subjective as well. Nevertheless, we intend to provide a broad overview of the main German protagonists who can be identified as pioneers in the field of accounting theory. The chapter is structured as follows. First, we draw attention to the most important accounting theories developed in Germany during the fi rst half of the twentieth century. Although a lot of renowned authors exist, we primarily elaborate on an outstanding court decision by Reichsoberhandelsgericht (ROHG) and the contributions of three leading scholars: Simon (static accounting theory), Schmalenbach (dynamic accounting theory), and Schmidt (organic accounting theory). Furthermore, we briefly touch on the main ideas of some of their supporters and critics, like Nicklisch, Rieger, Walb, and Kosiol. Second, we set out the accounting theory of annual accounts in a legal-economic perspective drafted by Moxter.

STATIC ACCOUNTING THEORY

ROHG and the Liquidation View Accounting in Germany is not governed by a private standard setting body (Ordelheide 1999: 99). It is predominantly legalistic and associated with

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interpretation of law. Hence, the General German Code of Commerce can be named as the starting point of the traditional accounting model in Germany, which is part of the legal system. The formulation of a uniform German accounting law dates back to 1861 (Allgemeines Deutsches Handelsgesetzbuch [ADHGB]—General German Code of Commerce), although the German Confederation still existed.1 The law code obliged all companies to keep accounts and to prepare an annual balance sheet in Articles 28 and 29 ADHGB. However, the Code did not provide for detailed recognition and measurement requirements. During the pre-legislative stage, a strong dispute occurred between the Prussian and Austrian delegates about the measurement criteria for assets and liabilities. The Prussians were in favor of the cost method taken from the Prussian Civil Code of 1794, whereas the Austrians went for measurement at true value, allowing the acquisition costs to be overcome (Richard 2005: 836). Article 31 ADHGB fi nally contained a rudimentary reference to current market price (Ordelheide 1999: 100). According to this provision, assets and liabilities were to be evaluated “at the value they have at the time the inventory is drawn up” (Richard 2005: 836). However, the meaning of the statutory wording was everything but clear. Just before the law was adopted, at the stage of the second reading, and after enacting the ADHGB, more than 500 proposals for modification of the accounting rules were submitted by the German states, without counting the petitions and suggestions of private institutions and individuals (Spindler 2005: 109). The proposals demonstrate the obscurity of the new wording and the deep reservations of the representatives against the new rules. Hence, the regulation left companies with a large scope for discretion in accounting issues (Ordelheide 1999: 99, 100; Eierle 2005: 283). The increasing demand for funding triggered the abolishment of governmental authorization for stock corporations in 1870 (Aktienrechtsnovelle— Stock Corporation Act). The governmental permission was replaced by more detailed accounting provisions for stock corporations: Recognition and measurement rules were set (Article 239a ADHGB) in order to protect creditors by limiting dividend payouts. Furthermore, the balance sheet needed to be published no later than six months after the balance sheet date (Article 239 ADHGB). In 1871, the General German Code of Commerce 1861, which was amended by the Stock Corporation Act 1870, was affiliated with the legal system of the newly founded German Empire (Ordelheide 1999: 100; Eierle 2005: 284). Despite putting more constraints on recognition and measurement, the law still left scope for discretion, as the abstract and short formulation of these legal norms necessitated interpretation. In this period, legal interpretation clearly belonged to the sphere of competence of judges and lawyers. The jurists interpreted the terms of assets and liabilities closely related to legal proceedings. They argued that the defi nition of an asset has to include the condition that it can be sold individually; in other words, it is marketable without restrictions and can be a singular object of legal transactions (Moxter 1977: 672). Consequently, they

334 Michael Hommel and Stefanie Schmitz supported valuation at exit price (selling value). Right “from the beginning of the use of the Commercial Code the principle of ‘disposal values’ ruled almost universally as the basis of valuation” (Weigmann 1932: 103). The German Empire’s Supreme Court of Commerce (ROHG) had authoritative support to interpret vague legal accounting terms. In 1873, the court decided in harmony with the prevailing doctrine of those days that “the value at the time of inventory . . . should be understood as the general trade/exchange value of the goods (allgemeiner Verkehrswert), which implies that goods with a market value or a stock market (Markt-oder Börsenpreis) be evaluated on the basis of these values” (Richard 2005: 837; ROHG, December 3, 1873, Rep. 934/73, ROHGE XII: 18). The ROHG interpreted the relevant value at the balance sheet date “in the context of a fictitious sale of all goods on the normal market” (Richard 2005: 837) without the consideration of costs that arise because of a forced sale. Hence, “value obtained in the context of liquidation should not influence the assessment of individual values” (Richard 2005: 837; ROHG, December 3, 1873, Rep. 934/73, ROHGE XII: 19). The main objective of accounting was to measure the ability of the fi rm to meet its (legal) obligations timely in case there is no future for the enterprise (Schuldendeckungspotenzial im Konkursfall). The merchant shall recognize only items that can be sold separately in the event of liquidation or bankruptcy and legal obligations that have to be satisfied under these circumstances. The quoted ROHG judgment became famous because it was the starting point of the fi rst (remarkable) discussion about the objectives of accounting in Germany (Moxter 1977: 672). The most renowned opponent of this kind of view came from the own ranks: It was the lawyer Simon.

Simon and the Going Concern View Stock corporations took advantage of the new latitude after the abolishment of the charter system. Speculative investments led to many bankruptcies so that shareholders were severely damaged. Accounting provisions were still not strict enough. A prominent problem was the measurement of assets. The existing rules allowing for fair value measurement facilitated overestimation followed by large dividend payouts. Consequently, an amendment of the Stock Corporation Act was enacted in 1884 that also amended the General German Code of Commerce. The Act introduced a profit or loss statement and an annual report (Article 239 ADHGB). Recognition and measurement were fully subordinated to prudence. From then on, assets had to be held at cost, respectively, at the lower of cost or market (Article 239b ADHGB). Fixed assets had to be depreciated. The Act obliged stock corporations to publish and fi le their balance sheets and profit or loss statements in the trade register (Article 239b ADHGB). However, there was still no mandatory audit for fi nancial statements of stock corporations in 1884 (Ordelheide 1999: 101; Eierle 2005: 284).

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In 1897, the German government issued a new Commercial Code (Handelsgesetzbuch [HGB]). Nevertheless, accounting law did not change a lot because the new code adopted the existing requirements. 2 Worth mentioning is the fi rst codification of a reference to principles of proper bookkeeping (Grundsätze ordnungsmäßiger Buchführung [GoB]), which had to be respected in keeping accounts (Article 38 HGB). This provision affected all kinds of business enterprises. However, the government felt no need to subordinate all forms of companies to the same recognition and measurement rules as stock corporations (Ordelheide 1999: 101; Eierle 2005: 285).3 During this time, reservations against the usefulness of liquidation accounting arose in the accounting literature. Opponents pointed out that the knowledge of hypothetical liquidation values was of little avail. The spokesperson of the critics of the legal interpretation given by the ROHG was the lawyer Simon. He drafted his exemplar of an asset and liability view in 1886, respectively, in 1898 (second edition), for stock corporations and partnerships limited by shares. Despite the codification of the historical cost principle in the German General Code of Commerce, Simon criticized measurement at general market value (exit price), which was formerly proclaimed by the ROHG in 1873 and recommended in principle a going concern approach based on the accounting representation of the business enterprise. The core of Simon’s theory is the determination of wealth in the balance sheet. Profit becomes the dependent variable because it is defi ned as an increase in wealth (Moxter 1984a: 5). Simon deserves credit for having supported the going concern principle, which was not a matter of course at the end of the nineteenth century (Richard 2012: 256, 259). He justified his reasoning by focusing on the entrepreneur. Simon argued that the entrepreneur is interested in the ongoing business value rather than on the capital amount that is available to creditors in a worst-case scenario (i.e., liquidation) (Moxter 1984a: 6). However, Simon gives no exact explanation for why the entrepreneur is interested in this figure (Moxter 1984a: 24). In order to determine the “enterprise value” from the perspective of the owner (Kaufmannsvermögen), Simon suggests recognizing assets only if the position offers future economic benefits (cash flows) and recognizing liabilities only if the management is (factually) forced to fulfi ll them in the future in case of going concern (Schuldendeckungspotenzial im Fortführungsfall). In principle, Simon tries to calculate the enterprise value from the bottom up through individual estimation of the positive and negative cash units of the fi rm. Profit or loss calculation stays in the background. However, the implementation of Simon’s basic ideas is difficult. It seems to be impossible to have an exhaustive enumeration of assets (liabilities) that offer future economic benefits (future sacrifices of economic benefits). And even if all relevant assets and liabilities could be identified, a second problem arises for the assignment of benefits. Future economic benefits are in general induced by a combination of several factors. Due to these

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synergies, future economic benefits can hardly be allocated to individual assets (Weiner 1929: 202; Moxter 1984a: 8). Simon eluded these difficulties by way of typifying assets. In other words, he prioritized reliability over relevance. First and without limitation, Simon supported the recognition of property and receivables. Second, he recommended the recognition of rights as long as their acquisition or production was not for free (Simon 1899: 168 et seq.). Other economic (legally not protected) benefits may only be recognized if they have been purchased. The market transaction demonstrates the existence of the benefit (Simon 1899: 169 et seq.). In conclusion, it is doubtful that Simon’s typified assets represent the sought-after future economic benefits of the company. Consequently, the enterprise value from the perspective of the owner cannot be determined (Moxter 1984a: 10, 25). For liabilities, Simon proceeds the same way. He restricts recognition to legal obligations (Simon 1899: 250−255). Constructive obligations are blanked out, although they are relevant future sacrifices of economic benefits. Furthermore, Simon accounts for onerous contracts (Simon 1899: 187). This seems to be an influence of prudence rather than Simon’s idea to determine the enterprise value. For measurement, Simon recommends focalizing the accounting statements on the ongoing concern of the business fi rm (Simon 1899: 303; Richard 2005: 842 et seq.). In order to evaluate assets and liabilities, Simon advocated a kind of value-in-use approach or value-to-the-owner approach. This point of view is in opposition to the prevailing opinion at the end of the nineteenth century. For the idea of liquidation and the focus on creditors, it was adequate to measure assets and liabilities at market price (Moxter 1984a: 15). However, Simon counteracts his own maxim (again) by typifying measurement. Clearly, he distinguishes between current and noncurrent assets (Weiner 1929: 201). Current assets are to be measured at the individual market price, whereby the cap is the common selling price (Simon 1899: 360 et seq.).4 Hence, Simon disregards the realization principle that rules out gains derived from changes in measurement (Moxter 1984a: 17). 5 For non-current assets, Simon adopted historical cost less depreciation and impairment loss (Simon 1899: 380−383, 408) that do not have a straight connection to future economic benefits (Weiner 1929: 202 et seq.; Moxter 1984a: 20 et seq.). For liabilities, Simon asks for a measurement at nominal value (Simon 1899: 435 et seq.). To conclude, Simon’s principles of objectification lead then to equity at book value and essentially fit with the historical cost basis of accounting. They are not appropriate to inform about the value in use (value to the owner) of the asset in particular and the enterprise value from the perspective of the owner in general. If we try to appreciate Simon’s merits, we have to keep in mind the academic and practical accounting environment of these days: The concept of assets and liabilities has been solidified in a legal manner. Accountants were not aware of the distinction between liquidation and going concern and its influence on the measurement of assets and liabilities. According to

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Moxter, Simon prepared with his measurement theory the way from exit price valuation to an approach close to an objectified value to the potential acquirer of the enterprise (Teilwert), establishing the foundation of modern accounting theory (Moxter 1977: 673).

The Enterprise Concept of Nicklisch Simon worked out the two fundamental approaches for measuring assets and liabilities in the balance sheet. The basis of valuation can be either a going concern or an upcoming liquidation. There is no room left for an additional approach. When the literature names a third variety of the asset and liability view (i.e., so-called “younger statics,” like Nicklisch [1932a], Le Coutre [1934], or Rieger [1928]), it draws attention to the fact that this group of static theoreticians tried to describe the objective of the balance sheet in another more economical way. Whereas older legally oriented static theorists (e.g., Scheffler [1879] and Rehm [1914] can be named alongside Simon) featured the balance sheet primarily as a “statement of wealth,” younger ones pointed out that it is to be interpreted as “a capital disposition statement expressed in money terms” (Schweitzer 1990: col. 878). The research work of Le Coutre and Nicklisch is of particular significance (Moxter 1977: 674). Their merits are elaborations on layout, nomenclature, terminology, and content of items in the balance sheet and income statement. Compared to the fundamental accounting theory of Simon and the accounting concept of the ROHG, the works of the younger static theorists have characteristic features of degeneration (Moxter 1977: 674) because they worked out neither the objective of accounting theory nor the principles of recognition and measurement for assets and liabilities. Moxter criticizes especially the theories of Nicklisch (1903, 1932a) and Le Coutre (1934) because they tended to evaluate assets at cost without answering the superior question, why this kind of information is relevant to the addressee (Moxter 1977: 879). Furthermore, it is not enough to know the principles of measurement if it is highly unclear what kind of items should be measured with the given evaluation schemes. Nicklisch left especially open how intangible assets and provisions are defi ned and whether they should be measured on a uniform basis (Moxter 1977: 674). Nicklisch’s fragmented principles of measurement lean on Simon’s theory and the going concern view (Nicklisch 1932a: 410−426). In order to free the evaluation of assets and liabilities from the personal bias of the evaluator, he, like Simon, rejects the pure value-in-use approach and favors the historical cost approach (Nicklisch 1932a: 429). Nicklisch and his followers argue that no fictitious value is able to replace cost permanently (Richter 1936: 23 et seq.). Surprisingly, Nicklisch offers no logical reason or main objective in order to deduct his valuation approach. One might argue in the fi rst place that Nicklisch’s theory aims to improve the decision usefulness

338 Michael Hommel and Stefanie Schmitz of the fi nancial statements in general, but this goal is still too vague to serve as a deduction base. Even though Nicklisch refused to name a precise goal of accounting, which can be used as a basis for deduction, he expressed strong concerns about the degree of implementation of the objectives of the balance sheet. Nicklisch states that it is a tragedy of business administration that the balance sheet is not able to inform truly about the interaction of the internal forces (Nicklisch 1932b: 4). However, the neglect of these crucial questions may be explained by Nicklisch’s research approach. In his eyes, accounting serves the purposes of business organization. In addition, Nicklisch highlights the close relationship between the two main double entry bookkeeping instruments (balance sheet and income statement). He interprets the balance sheet together with the income statement. Both are seen as two sides of the same coin. The positions of the income statement, revenues and expenses, are an integral part of equity because expenses can be interpreted as assets that have been consumed in the period, and revenues can be seen as assets that have been received through operational use (Nicklisch 1932a: 699−715). However, Nicklisch did not look systematically for adequate recognition and measurement principles. Instead, he asked how the manager should compose the balance sheet and the income statement in order to get a suitable guideline regarding the operational performance process of the fi rm. Financial statement elements should help the management to monitor, control, and plan the operational events of the fi rm. Nicklisch emphasized capital as a whole and did not differentiate between the informational interests of equity holders and debt holders “and thus diminished the distinction between liabilities and owners’ equity” (Mattessich and Küpper 2003: 108). Together with Schaer (1914), Nicklisch is regarded as the founder of ethical-normative business administration and developed a social philosophy of the organization of the fi rm. Hence, Albach (1990: col. 150) points out that “the merit of Nicklisch is to be seen less in his contribution to accounting theory . . . but in his attempt to outline a system of business administration built on the laws governing the collaborative work of human beings within the fi rm.” Not surprisingly, the German literature of the last decades points out the outstanding pioneer work of Simon in the field of static accounting theory; the supporting fi ndings of Le Coutre are sometimes appreciated among others, whereas the work of Nicklisch is hardly mentioned (e.g., Seicht 1970; Moxter 1982b; Schweitzer 1990; Ballwieser 2010). Furthermore, a closer look at the work of Nicklisch even raises serious doubts about whether Nicklisch can be called a promoter of the static view. In his article “Dethronement of the Balance Sheet” (our translation), Nicklisch (1932b: 2) castigates sharply the poor information quality of the balance sheet and demands concentration on the information given by the income statement because only a comparison between revenues and expenses might be able to tell the addressee facts about the life and state of the enterprise. Nicklisch claims that the income statement is to

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be seen as the center of fi nancial accounting and the “crowning glory of bookkeeping,” and he calls the income statement “the balance sheet of periodical values” (Bilanz der Periodenwerte) (Nicklisch 1932a: 708; our translation). Furthermore, he complains in a slightly ironical tone that he came to be regarded as a promoter of the static view, whereas he was and remains the foremost one who takes a dynamic view of fi nancial accounting (Nicklisch 1932b: 2).

The Nominal Approach of Rieger In static accounting theory, the balance sheet names and shows the assets and liabilities employed at the balance sheet date, whereas the income statement gives information about the changes in value of the invested and capitalized items. Rieger dissociated himself from this kind of interpretation of profit. He points out that the key objective of an enterprise is to maximize profit for its owners. In his eyes, the surplus in money, which the investor earned during the lifetime of the company, is the only valuation criterion for measuring the extent to which the enterprise has reached the named goal. Rieger’s intention is to look beyond the flow of resources that run through an entity. His concept is called a “nominal approach” because he “considered the fi nancial statements as a purely monetary calculation” (Küpper and Mattessich 2005: 359). He directly focuses on the cash flows that the entrepreneur wants to earn. In Rieger’s view, the success of a fi rm is measured as the difference between invested and received cash. Whether and to which extent the enterprise is successful is a fact that the investor can only evaluate at the end of the enterprise’s lifetime. In the meantime, the managers conduct a lot of parallel investments but with different runtimes. Thus, the fi rm is “an indivisible unit in time, and so there can be only one profit, a total profit” (Rieger 1928: 219; our translation). No one before Rieger expressed reservations against the spirit and purpose of periodical income and highlighted the limits of annual accounts in such a strong way (Forrester 2000: 112). Rieger favors a total-life and totalcash flow concept (Forrester 2000: 111) and describes the annual profit as a vague installment on the fi rm’s total-cash flow surplus. He underlines that the investor lives only with a secret hope that the cash returns paid are earnings in reality (Rieger 1928: 220). He is convinced that “precise valuation is something that goes beyond human capacity” (Mattessich and Küpper 2003: 118; Rieger 1928: 234). During the fi rm’s lifetime, it is impossible to assess in an objective way whether the investor realized a profit or a loss. Therefore, Rieger “argued that periodic accounts were dangerous as well as incorrect and infeasible” (Forrester 2000: 114). Consequently, he considers the income statement to be superfluous (Küpper and Mattessich 2005: 360), and he claims that the balance sheet is only a blend of myth and truth (Rieger 1928: 212). Rieger illustrates his fundamental reservations against periodical income

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statements and balance sheets with an example of a fi rm that exists for only two years and fi les for bankruptcy in the second year, with a total loss of the invested capital. In hindsight, it is senseless and misleading to declare that the investor has earned a profit in the fi rst year. Hence, during the lifetime of the company, “[t]he right value will never be found” (Rieger 1936: 134 et seq.). Despite his deep skepticism, Rieger expresses strong preferences to evaluate all investments in terms of anticipated cash flows, which are (hopefully) associated with them (Forrester 2000: 113). The net present value or the exit price is relevant for all kinds of assets (current and non-current) and liabilities. However, similar to Simon and Nicklisch, Rieger must confess that in most cases it is not possible to detect the net cash flows connected with the assets in use in a proper and objective way. Thus, he recommends measuring the assets at historical cost if the future cash flows associated with them cannot be determined. However, critics say that this enormous compromise disguises the expressiveness of the balance sheet that Rieger was supposedly striving to achieve (determination of the company value) (Moxter 1977: 675). Even though Rieger’s contribution to static accounting theory is small, the merit of his theory is to point out the relevance of the net present value of assets (and liabilities). With this pure theory, he foreshadowed the present value approach of modern theories of valuation (Küpper and Mattessich 2005: 360).

DYNAMIC ACCOUNTING THEORY

The Dynamic Approach of Schmalenbach Business economics professor Schmalenbach is often considered to be the founder of the revenue and expense view (dynamic accounting6) in German fi nancial accounting, although parts of his ideas had been anticipated earlier (Mattessich 2003: 134, 138; Mattessich and Küpper 2003: 109, 113 et seq.).7 Schmalenbach’s fi rst thoughts appear in (1908), and the model is fi nally established in (1919). Being one of the fi rst students of the business school in Leipzig8 —alongside with Nicklisch and Schmidt (Potthoff and Sieben 1994: 79)—he also represents the rise of business economics as an academic discipline and thereby replaces the (until then) primarily legal debate on fi nancial accounting by an economic discussion (Albach 1990: col. 249; Schneider 1995: 133; Busse von Colbe 1996: 415; Richard 2005: 844). At that time, accounting was at the heart of the newly created academic discipline (Busse von Colbe 1992: 27; Mattessich and Küpper 2003: 107). Schmalenbach’s international recognition is supported, for example, by an English edition of his major work Dynamic Accounting (Schmalenbach 1959).

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Schmalenbach’s business economics focus on accounting theory is evident only in his early years. In 1919, he set his ideas on accounting theory apart from commercial and tax law. He turned away from established “legal principles of proper bookkeeping” (GoB), that is, he recognized imputed costs as expense and rejected the lower of cost or market rule (Schmalenbach 1919: 37, 88 et seq.; Moxter 1982b: 195; Schneider 1995: 134). His attitude changed later on because he moved to consider the connection of accounting theory with accounting practice and regulation. Consequently, Schmalenbach’s dynamic accounting theory became more and more influenced by GoB. For example, he turned away from imputed costs. Finally, “the impression has been given that the improved dynamic profit is the only correct measure from business economics, commercial and even tax law perspectives” (Potthoff and Sieben 1994: 84; Schneider 1995: 134; Mattessich and Küpper 2003: 115). Therefore, although Schmalenbach is rooted in business economics, his (later) intention was to derive an accounting model that is suitable not only for business administration issues but also for commercial and tax law purposes, as both fields have a purportedly common objective (Moxter 1984a: 29). This change in attitude documents the strong position of legal standards for accounting in Germany (Mattessich and Küpper 2003: 107; Evans 2005: 230). Schmalenbach refers to the commercial law’s request to depict the fi nancial position of the company in the balance sheet in order to prevent it from becoming bankrupt (which is what the management controls for as well and thereby satisfies stewardship). He concludes that a company can comply best with this abstract legal request by tracing the changes in fi nancial position from year to year and especially the changes in performance (Schmalenbach 1962: 25 et seq., 49 et seq., 52). So, a major theme of his research work becomes evident: efficiency (Potthoff and Sieben 1994: 82).9 He points out that it is not the intention of the law to determine the going concern value of the company in the balance sheet. Rather, he engages the balance sheet to determine net income in the profit or loss account.10 The latter was supposed to be an indicator for the development of fi nancial position and performance (Schmalenbach 1962: 28, 48; Moxter 1982b: 194). Thus, Schmalenbach’s net income is not a change in net wealth as in the asset and liability view. As he was familiar with business valuation (Potthoff and Sieben 1994: 90), he argued that it is impossible to present (changes in) net wealth and dynamic net income in only one balance sheet.11 Hence, Schmalenbach supports a measurement of assets that contradicts the determination of net wealth, but is appropriate to represent performance (Schmalenbach 1962: 29, 44, 45; Moxter 1984a: 31).12 The distortion of wealth in the revenue and expense view is evident not only in asset and liability measurement but already in the recognition of debit and credit items in the balance sheet. Schmalenbach describes the balance sheet as the company’s energy or power reservoir. He sketches debit items (apart from cash and cash equivalents) as advance efforts to

342 Michael Hommel and Stefanie Schmitz future benefits (i.e., to future performance or cash inflows) (Schmalenbach 1962: 65 et seq., 74).13 Schmalenbach is primarily concerned with advance efforts (cash outflows) that affect prospective net income. Unfortunately, he is not precise in defi ning future performance. He certainly wants to measure how efficient the company operates over time. However, there is no distinct defi nition of net income because Schmalenbach is more concerned with the changes in efficiency than with the absolute yearly amount. Therefore, comparability comes to the fore (Moxter 1982b: 195, 197). Furthermore, it seems like Schmalenbach tries to control for both net income and expenses by means of the annual accounts. Both objectives are in some circumstances inconsistent, so that the allocation of expenditures to individual periods remains unclear. For example, Schmalenbach refuses to capitalize (large) research and development expenditures after an invention by chance (at nil costs) because he wants to trace costs as they occurred (Schmalenbach 1962: 147; Moxter 1984a: 33−35, 50). In contrast, the legal or material nature of an asset is irrelevant to the recognition procedure. This is evident in the capitalization of advertising expenses (Schmalenbach 1962: 43). Liabilities are inversely considered. They represent future charges, mostly cash outflows that refer to present performance (or cash inflows) (Schmalenbach 1962: 70 et seq.). Again, the legal or material nature of a liability does not matter in the recognition of a credit item. Schmalenbach capitalizes, for example, provisions for maintenance (Schmalenbach 1962: 173). Yet Schmalenbach opposes the recognition of foreseeable losses on the credit side of the balance sheet because of the realization principle (Schmalenbach 1962: 170). Thus, he blurs his concept of net income further. How can net income be an indicator of the development of future performance and fi nancial position if it does not contain the relevant information (Moxter 1984a: 36 et seq.)? The main aspect of Schmalenbach’s measurement concept and his major contribution to accounting theory is comparability over time (Moxter 1984a: 53). For measurement purposes, Schmalenbach is dedicated to the realization principle. Inventories are measured at cost until sale (Schmalenbach 1962: 76 et seq.). It is remarkable that he relies on the realization principle also for construction contracts. He objects to the percentage-of-completion method, although this reduces the comparability of net income (i.e., performance measures over time). He prefers a prudent measure over a consistent measure for his income concept because he fears investments based on paper profits (Schmalenbach 1962: 78, 99). Prudent effects—in service of comparability, that is, in order to eliminate extraordinary events (Moxter 1982b: 198 et seq.)—also appear in connection with the matching principle. The amount of depreciation is prudently determined. Schmalenbach is aware that both the useful life and the decline in value can hardly be estimated. Hence, he proposes a slightly excessive depreciation amount in order to avoid further write-off s. In his

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view, additional write-off s disturb the comparability of net income more than some missed depreciation amount beyond the end of the retained useful life (Schmalenbach 1962: 141 et seq.). Conversely, provisions are to be measured generously (Schmalenbach 1962: 172). Furthermore, inventories are measured at the lower of cost or (future) market price (Schmalenbach 1962: 150). However, he tends to write down the working capital slightly each year in order to ensure that the book value is continuously below fair value. This technique supports the generation of a steady net income amount (Schmalenbach 1962: 167, 198 et seq.; Moxter 1982b: 195). Alternatively, he suggests off setting write-downs of doubtful accounts receivable with an accrued expense (Moxter 1982b: 196). Inventories are only measured upward at current entry value when they are expended. This procedure ensures again that net income functions as a performance indicator (Schmalenbach 1962: 199). Interestingly enough, Schmalenbach wants to measure speculative inventories at fair value. So, in this regard, he is not in favor of the legally codified realization principle (Schmalenbach 1962: 194 et seq.; Moxter 1982b: 199). To conclude, Schmalenbach’s concepts of recognition and measurement evoked a lot of criticism (Potthoff and Sieben 1994: 84) mainly because the concepts remain rather vague and do not lead to reliable fi nancial statements. Schneider comments that dynamic performance measurement offers opportunities to smooth out net income over time and thereby to hide relevant information (Schneider 1995: 136). However, Schmalenbach is well aware that stewardship and determination of dividend payout need a reliable net income measure. Yet he does not discuss this trade-off (Moxter 1984a: 51). Nevertheless, Schmalenbach understands his concept of net income, which is mainly based on the realization principle, as a practical, convenient one. It meets the needs of accountants and companies because it does without estimates of future cash flows (Schmalenbach 1962: 170). “From that point of view the ‘dynamic theory’ is more an approach oriented towards real business life than a theory in the narrow sense” (Busse von Colbe 1996: 416). In other words, “[T]heoretical soundness was of less importance than comparability” (Graves, Dean, and Clarke 1989: xviii). This approach to accounting theory corresponds with his picture of business economics as an applied science. Nevertheless, Schmalenbach’s basic idea of matching revenues and expenses was sustained in German commercial and tax law (Schneider 1984: 426 et seq.). At the same time, Schmalenbach’s disregard for assets and liabilities did not prevail. Today, the Commercial Code recognizes in general only credit and debit items in the balance sheet, which have the quality of an asset or a liability. However, in line with Schmalenbach’s theory and his understanding of the realization principle, attempts to uncover hidden reserves in the balance sheet (e.g., by Kosiol and Schmidt) were not accepted for commercial/tax law (Schneider 1995: 137).

344 Michael Hommel and Stefanie Schmitz

Advancement of Dynamic Accounting Theory by Walb Being Schmalenbach’s student and starting his academic career in Königsberg and Stockholm (Dürrhammer 1980a: 948; Wallerstedt 2000: 419, 420−422), Walb’s publications are hardly known to the recent accounting generation (Dürrhammer 1980a: 947). Walb used to choose a historical approach to research meaning that his treatises frequently started with a historical investigation of the problem (Dürrhammer 1980a: 947; Dürrhammer 1980b: 966). He wrote his magnum opus Die Erfolgsrechnung privater und öffentlicher Betriebe in 1926 (Walb 1926). In his research, Walb illustrated the common grounds of cameralistics and double-entry bookkeeping (Potthoff 1980: 954, 963; Dürrhammer 1980b: 972). Furthermore, Walb considered various forms of capital maintenance for the calculation of income (Schneider 2001: 1004). In doing so, he preferred nominal capital maintenance and rejected measurement at current cost (Dürrhammer 1980b: 972). Of importance to this chapter are Walb’s contributions to dynamic accounting. He advanced dynamic accounting theory, thereby keeping the focus on income determination (Mülhaupt 1980: 975). In contrast to Schmalenbach, Walb did not begin his deliberations with a stipulated clean surplus in the accounts over the total life of the company. Rather, Walb emphasized the company’s position in the chain of economic value added. Profit results from exchange and hence from relationships among firms (Dürrhammer 1980b: 968). According to Walb, any accounting method— not only double-entry bookkeeping—has the ability to determine this profit figure (Dürrhammer 1980b: 969). Therefore, Walb assumes that income can be independently determined by means of the profit or loss account or based on the balance sheet (Walb 1926: 62, 68, 107; Seicht 1970: 140−142; Dürrhammer 1980b: 969). Based on the thoughts on the creation of value, Walb illustrates that two kinds of flow run through every company in opposing directions: flows of goods and services (performance flows) and cash flows (Dürrhammer 1980b: 970). Hence, Walb supplemented dynamic accounting by regarding cash flows in his research since they represent the counterparts of the performance flows (Mattessich and Küpper 2003: 115). However, Seicht (1970: 144) reminds that a strict segregation between the two domains may be difficult. Walb changes the characteristics of the balance sheet. Whereas classic dynamic accounting utilized the balance sheet as a link between the profit or loss statement and the cash flows, Walb’s theory describes the balance sheet as a funds statement containing all cash flows. The profit or loss statement represents the other hand of the business activity, that is, the performance flows. The advantage of Walb’s balance sheet interpretation is that cash and cash equivalents can be grouped together with the other positions easily and consistently (Walb 1926: 62, 68, 107; Seicht 1970: 142−144; Dürrhammer 1980b: 971; Mülhaupt 1980: 975).14 Since fi nancial statements are an

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artificial cut in the ongoing value-added process, Walb adjusts the cash flow in the balance sheet. He amends it by adding realized non-cash positions (Dürrhammer 1980b: 970). According to Walb’s interpretation of dynamic accounting, the equality between income determination via profit or loss statement and via balance sheet can be approved (Seicht 1970: 138 et seq.), whereas in classic dynamic accounting, there was an assumed logic primacy of profit or loss over the determination of balance sheet positions (Seicht 1970: 129).15 Walb admits that a large part of the positions in a balance sheet actually satisfies both dynamic and static recognition requirements, but to him measurement of wealth is secondary to tracing performance and fund flows (Dürrhammer 1980b: 971). Walb’s concentration on cash becomes even more evident in his later work Finanzwirtschaftliche Bilanz (Walb 196616), which concentrates on a certain type of balance sheet suitable for fi nancial analysis (i.e., analyzing source and disposition of funds). He supports for this purpose a statement of changes in fi nancial position (Bauersche Bewegungsbilanz). This idea of a balance sheet is based on an assumed equality between changes in balance sheet positions and changes in cash funds (Dürrhammer 1980b: 973). Walb concludes that a fi nancial analysis of the balance sheet is advantageous because such an interpretation is less jeopardized by earnings management and various margins of discretion (Mülhaupt 1980: 976 et seq.). Walb distinguishes sharply between two income defi nitions. He describes the fi rst one as income of the entrepreneur (Unternehmergewinn) and characterizes it as a prudent measure for dividend payouts. The income of the entrepreneur informs about the part of earnings that can be withdrawn from the enterprise without compromising nominal capital (entziehbarer Gewinn). This is the domain of the prudence principle. It reduces the danger that managers assume fictitious profits. Under these circumstances, the lower of cost or market rule fi nds its place (Walb 1926: 366 et seq., 384; Walb 1966: 75). However, Walb contrasts the income figure of the entrepreneur with the income of the enterprise, which disregards prudence and the realization principle (Walb 1966: 76, 80 et seq.). For the determination of the income of the enterprise, Walb demands to reveal the unrealized capital gains of storage. Only the base stock of inventories should be evaluated at historical cost, whereas the excess stock should be measured at current cost to show the ability of the management to anticipate changes in prices (Walb 1966: 80 et seq.). So, in order to reach an improvement of the information quality of fi nancial statements, Walb did not ask for a pure dynamic theory by letting down the prudence principle. Instead, he accepted like Schmalenbach the restriction given by law and demanded a breakdown of the figures reported in the income statement (e.g., to show extraordinary and aperiodic items in a separate line) (Walb 1926: 370). To conclude, Walb rejected Schmalenbach’s view that the goals of dynamic theory can be reached within the framework of legal requirements

346 Michael Hommel and Stefanie Schmitz like the prudence principle in general and the recognition-of-loss principle in particular. He worked out the confl ict between prudence and comparability and highlighted the incompatibility of these principles. Walb’s research work led to the insight that the entrepreneur needs at least two sets of fi nancial statements: one set in order to show the income of the enterprise for managerial monitoring purposes, and the other set to determine the distributable profit. However, the performance measures need to be analyzed thoroughly by the addressee in order to reach trustworthy information. Walb’s perspective prepared then the way to modern accounting and auditing.

Advancement of Dynamic Accounting Theory by Kosiol Being a student of Schmalenbach and Walb, mathematician and business economist Kosiol (Schweitzer 1999: 170) refined dynamic accounting from 1940 onward (especially Kosiol 1944) and could finally perfect his thoughts with his masterpiece Pagatorische Bilanz (Kosiol 1976). Kosiol’s works are also known in English-speaking countries, Japan, and Greece (Schweitzer 1999: 172). Kosiol’s accounting theory deals predominantly with the formal content of fi nancial statements. He explains the balance sheet items out of payment transactions and interprets the balance sheet as an instrument that contents transferred and/or anticipated items. The author bases the positions of the balance sheet on cash flows so that it is possible to interpret them uniformly: assets = receipts; equity and liabilities = expenditure (Schmidt 1967: 65; Moxter 1982b: 193; Potthoff 1993: col. 668). As a consequence of his cash flow orientation, Kosiol prefers measurement at historical cost (Moxter 1982b: 193; Mattessich and Küpper 2003: 115). The lower of cost or market rule is restricted to non-arbitrary undervaluation in order to avoid profit distortions (Schmidt 1967: 71 et seq.). Similar to Walb, Kosiol interprets receivables as anticipated receipts (Voreinnahme), accounts payable become an anticipated expenditure (Vorausgabe), the derecognition of a receivable is a redemption expenditure (Tilgungsausgabe), the de-recognition of a liability is a redemption receipt (Tilgungseinnahme), and so forth (Schmidt 1967: 65−70; Seicht 1970: 150−152). However, in contrast to Walb, Kosiol’s theory does not explicitly depend on performance flows (Seicht 1970: 148, 153). Like Walb, Kosiol distinguishes clearly between the determination and distribution of profits. The two concepts must not be intermingled (Moxter 1982b: 192). He understands profit as a measure for performance efficiency and favors the realization principle (i.e., historical cost) as a cornerstone of accounting (Schmidt 1967: 64). Accounting questions based on dividend payout calculation or asset versus capital maintenance come into play in a separate statement considering the utilization of profits (Schweitzer 1999: 171). The pure concept of historical cost accounting supports the differentiation between these two parts of accounting. Kosiol fi nds fault with

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the mixing of cost accounting and the impairment test. He points out that the lower of cost or market rule is part of net income appropriation. Kosiol castigates hidden reserves and current entry values as an intolerable blending of the determination and distribution of profits (Kosiol 1977: 9). With regard to content, Kosiol’s accounting theory stays rather vague. A significant point of criticism is that he missed to clearly defi ne the main objective of his accounting theory and only claims to measure performance efficiency (Umfang der Rationalität der Zielerreichung; Kosiol 1970: 293). Kosiol’s theory remains imprecise and open for interpretation as long as there is no clear defi nition of performance. Hence, it stays open whether, and if so, to which extent historical cost accounting is able to improve performance measurement. It is also unclear how expenditure needs to be passed through the income statement over the lifetime of the entity in order to support Kosiol’s favored goal of accounting (Moxter 1982b: 193).

ORGANIC ACCOUNTING THEORY ACCORDING TO SCHMIDT Inflation after World War I challenged accounting methods based on historical cost. Historical cost accounting could lose its information content. In times of hyperinflation, the net value of the fi rm shown by the balance sheet or the periodical net income figure derived from the profit or loss statement was accused to be meaningless without taking into account hyperinflation. In Germany, inflation accounting is connected to the header “organic accounting.” This accounting theory was designed by leading business economics professor Schmidt in 1921. His research results (Schmidt 1930a, 1931) had a strong impact abroad (e.g., on Sweeney and Hatfield in the United States or Limperg in the Netherlands) (Clarke and Dean 1989, 1994: 96, 102−106; Zeff 2000: 162 et seq.). The theory’s name can be explained regarding Schmidt’s academic background. Besides business economics, Schmidt also studied and taught economics, so his thoughts were strongly influenced by this field (Clarke and Dean 1994: 94 et seq.). He regards the individual fi rm as part of the whole economy, comparable to a cell being part of the whole organism (Schmidt 1929a: 47) and used to keep the whole economy in mind (Schmidt 1930b: 261−264; Clarke and Dean 1994: 96, 99). Organic accounting is comparable to the asset and liability approach insofar as both theories try to measure wealth in the balance sheet. However, both theories differ in their idea of profit. Whereas the asset and liability view by Simon presents each change in net wealth as profit, organic accounting recognizes profit only if the company has already maintained its position in the national economy (Schmidt 1929a: 139). Still, Schmidt sees no contradiction between the determination of wealth and the determination of profit—a view that Simon supported but Schmalenbach and his followers rejected (Moxter 1984a: 57). Unfortunately, Schmidt does not explain who the addressees of

348 Michael Hommel and Stefanie Schmitz organic fi nancial statements are. He seems to assume that organic fi nancial statements satisfy many needs, like being the basis for income taxation or corporate management (Moxter 1984a: 58).17 Though both Schmidt and Simon follow the going concern principle, Schmidt’s recognition criteria for assets differ from Simon’s ideas. In contrast to Simon, Schmidt does not restrict recognition due to objectivity and simplicity. For example, Schmidt agrees to capitalize organization expenses. In general, he recognizes intangibles as long as they have caused an expense, even if assignment of such costs is rather difficult to be achieved (Schmidt 1929a: 117−119, 129 et seq.). In total, Schmidt concentrates on reproducible wealth in a competitive environment (Schmidt 1929a: 88 et seq., 121, 124; Moxter 1984a: 60). Thereby, Schmidt distinguishes two reasons for imperfect competition: If the fi rm’s capitalized earning power is above the regular level due to management achievements, he ignores the surplus because he wants to measure the fi nancial position of the enterprise and not the entrepreneur. If the fi rm’s capitalized earning power is above the regular level due to a monopoly, Schmidt assumes an option for recognition. Only if the monopoly arose in a business combination, recognition of an intangible becomes mandatory (Schmidt 1929a: 128 et seq.). Altogether, Schmidt’s attempt to determine capitalized earning power in the balance sheet remains doubtful (Moxter 1984a: 72 et seq.). Schmidt supports current entry values as a measurement basis for assets. Hence, total assets give the amount that is today needed to reproduce the company in its current (depreciated) state (Reproduktionswert or cost of replacement) (Schmidt 1929a: 72, 74; Schmidt 1929b: 499 et seq.; Schmidt 1930b: 258 et seq.).18 Consequently, Schmidt approves the realization principle to some extent because he does not demand recognition of the selling price margin in opposition to Simon (Schmidt 1929a: 73). The Reproduktionswert “equals, under certain conditions, the ‘normal’ net present value of the invested capital” (Busse von Colbe and Fülbier 2012: 42) measured at the price level on the balance sheet date. At this point, a mistake in reasoning comes to the fore. Schmidt disregards that the idea of reproduction obviously does not suit to intangibles or other non-current assets. For these positions, there is no correlation between current entry value and capitalized earning power (Moxter 1984a: 73−75). Schmidt neglects a discussion of liabilities. The only credit item he describes is revaluation surplus (equity), which carries the revaluation differences between historical cost and current entry value of assets (Schmidt 1929a: 103; Moxter 1984a: 63). These holding gains and losses are not contained in the profit and loss statement. This way, profit is restricted to operating activities and presupposes physical reproduction of the entity (physical capital maintenance) (Schmidt 1929a: 73, 77, 319, 324). The separation of holding gains and losses and operating profit is Schmidt’s decisive achievement (Moxter 1984a: 75).

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THE THEORY OF ANNUAL ACCOUNTS IN A LEGAL-ECONOMIC PERSPECTIVE

The Authoritative Principle After World War II, the research fields of accounting changed dramatically. Consolidated fi nancial statements and issues of international accounting came to the fore (Ballwieser 2010: 81). Busse von Colbe and Ordelheide (1976) have to be named as prominent pioneers in these fields, whereas the academic work dealing with accounting theory was coined by revealing the limits of fi nancial reporting (Schneider 1963; Albach 1965; Moxter 1966; Stützel 1967). In the 1970s, Moxter and famous judges of the Federal Fiscal Court started to develop the theory of annual accounts in a legal-economic perspective (Bilanzrechtstheorie). The associated revival of accounting theory in Germany was promoted by a close relationship of German commercial law with tax law as single financial statements for commercial purposes and single financial statements for tax purposes have to fulfill similar objectives. Theoretically, the connection between both sets of fi nancial statements can be described as follows: The principles of proper bookkeeping are laid down in a section of the Commercial Code (Articles 243−263 HGB), which applies to all merchants “irrespective of such considerations as the legal form or size of an enterprise, or what industry it is in, or whether its shares are listed” or not (Ballwieser 2010: 66). Furthermore, there is a long-lasting influence of the rules of distribution to shareholders on the rules of accounting. In contrast to the United States and Australia, there is no special solvency test the manager has to run before he pays dividends. Instead, net income shown in the company’s individual accounts can basically be distributed to the owners. So, “if the profits of a company with limited liability are to be available for distribution, the German GAAP have to be interpreted in the light of precisely this purpose (the so-called teleological approach to law)” (Leuz and Wüstemann 2004: 458): The main objective of the legal accounting system is predominantly payout determination (Ausschüttungsbemessung). The main goal of the balance sheet and the income statement for tax purposes can be characterized in a similar way. The German Income Tax Law (Einkommensteuergesetz [EStG]) is restricted by the German Constitution, which protects the property of an individual. In addition, the German Constitution empowers the tax authority only to levy tax based on the entity’s economic performance (principle of equality). Therefore, the tax authority is only allowed to tax the annual surplus, which is fi nally earned and open for distribution. Döllerer (1971: 1333) argues that the tax authority can be compared with a minority shareholder. If the GoB recognize distributable income in the commercial balance sheet, the legal owners can ask

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for dividends. From a legal point of view, it seems to be fair that the tax authority can call in its part of the annual earnings as well. Hence, both commercial balance sheet and tax balance sheet determine the same kind of income and use the same principles. The authoritative principle or the principle of congruency (Maßgeblichkeitsprinzip) is the crucial link that enables management to build up single fi nancial statements for commercial and tax purposes based on the same GoB. Historically, the implementation of the authoritative principle was driven by simplification. During the initial stages of tax exemption (Saxon Income Tax Act of 1878 and Prussian Income Tax Act of 1891), the marginal tax rate was legally limited to a range from 0.67% up to 4%. As a matter of simplification, the entity was not forced by law to present financial statements especially for tax purposes. The corporate tax base was taken from the commercial balance sheet. In subsequent periods, the tax rate increased in a way that simply using the balance of business was no longer justified. Nevertheless, the close relationship between commercial financial statements and tax accounting was not abandoned. On the contrary, the relationship has been continuously justified by pointing to the similar objectives of both sets of fi nancial statements. Income taxes on corporate earnings are determined according to the Income Tax Law. In compliance with the fi rst sentence of Article 5 (1) EStG, “businessmen . . . who keep accounting records and regularly draw up accounts . . . shall at the end of the business year evaluate net assets . . . in accordance with the commercial law principles of proper bookkeeping” (our translation). The principles of proper bookkeeping apply not only to the taxation of income of sole proprietors and partnerships but also to the taxation of corporate profits. This is due to the reference made to the Income Tax Law in the Corporation Tax Law (Körperschaftsteuergesetz [KStG]). The commercial law “principles of proper bookkeeping” apply to tax accounting unless there are higher-ranking specific tax rules. The authoritative principle fi nally weakened the differential reporting concept for distinct kinds of enterprises in Germany. As the law did not provide detailed recognition and measurement regulations for general partnerships and sole proprietorships, these proprietors began to adhere to the norms for stock corporations that gradually transformed into principles of proper bookkeeping (Eierle 2005: 286). The process culminated in 1985 when the European Union Accounting Directives Act (Bilanzrichtliniengesetz [BiRiLiG]) was passed. The Act amended the Commercial Code and (belatedly) applied various basic accounting principles to all kinds of companies (Eierle 2005: 290). The dominance of fiscal interpretation shaped the development of the principles of proper bookkeeping. The struggle for reliable and litigable principles gained priority, and the question of whether GoB led to relevant and unbiased information in fi nancial statements was blanked out.

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Moxter and the Interpretation of Principles of Proper Bookkeeping (GoB) German accounting is regulated by law and is principles-based as well. Therefore, GoB “should not be regarded as synonymous with generally accepted accounting practice” (Ballwieser 2010: 67). As only a few articles of the Commercial Code (Articles 243−263 HGB) defi ne the main principles of proper bookkeeping generally, a need for interpretation arises. The Federal Constitutional Court (Bundesverfassungsgericht [BVerfG]) authorizes the supreme courts to refi ne code law through judicial decisions within the boundaries of the German Constitution (BVerfG, May 12, 2009, 2 BvL 1/00, BVerfGE 123: 123). In principle, the Federal Supreme Court (Bundesgerichtshof [BGH]) is the appropriate court in commercial law affairs. Yet there are only a few decisions dealing with the interpretation of principles of proper bookkeeping. In contrast, many lawsuits concerning different interpretations of GoB are heard before the Federal Fiscal Court (since 1950; formerly Reichsfinanzhof [RFH, 1918−1945] and Oberster Finanzgerichtshof [1945−1950]). Therefore, a lot of relevant judgments can be found in the files of this court that exercises an important influence on the development and interpretation of GoB due to the authoritative principle. Leuz and Wüstemann (2004: 457) point out that “German Courts have—in literally thousands of court rulings—established a system of sound accounting principles and detailed standards regarding the recognition and measurement of assets and liabilities”. The judgments “have to be in line with codified law and need to reflect the intention that the legislature had in mind when regulating fi nancial accounting” (Ballwieser 2010: 66). Largely, the work of interpretation of the Federal Fiscal Court aims to improve legal security (i.e., at the predictability of whether the chargeable event is fulfi lled). With reference to Moxter (2007), Ballwieser (2010: 66) states that the Federal Fiscal Court “has established an important and impressive system of principles of proper bookkeeping.” However, in German accounting law, neither the main objective of accounting is clearly and properly specified, nor are the principles of proper bookkeeping defi ned in their entirety (Döllerer 1959: 653 et seq.; Beisse 1984: 2). Only some major principles can be found in the Commercial Code (e.g., Article 252 HGB) or can be traced back to certain paragraphs. Due to the fact that the deduction basis is to some extent ambiguous, it is not possible to interpret the codified GoB using deductive reasoning from the start (Moxter 2003: 12; Ballwieser 2010: 66). Instead, the hermeneutical method, which demands the simultaneous and interdependent determination of the (main) objective of accounting and its underlying principles, is applied (Beisse 1984: 12; Moxter 1987: 363). In implementing this interpretation method, the reader has to perform what is called a hermeneutical circle. The aim of this method is to approach the essence of a text gradually:

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The reader has a certain preconception. After reading the text, he will have new knowledge that will alter and enhance his preconception. After reading the text a second time, his idea of the text’s essence will become even more refi ned. This procedure is repeated until the ultimate essence of the text reveals. While going through this circle, the context of the document is of utmost importance. The reader has to take into account, for example, the surrounding culture or economic system in order to reach a holistic interpretation. In fact, the result of the hermeneutic circle depends on where, when, and of whom the text is read and where, when, and of whom it was written (Larenz 1991: 165−231). In this context, two scholars should be named. With his monograph, Leffson (1964) established the new basis of a principles-based theory. The merit of Moxter (1982a) was to systematize the judgments of the fi scal courts dealing with accounting problems. His research work was directed toward the fundamental accounting objective serving as a central basis for deduction, which permits the derivation of sound principles shaping the content of the balance sheet and the income statement used for tax calculation and profit distribution. He filtered the supporting elements of the court decisions, isolated judgments, which were not consistent with a harmonious accounting system, and formed a new accounting theory out of the leading phrases of the remaining majority of judgments. Moxter’s view is widely shared among German accounting scholars (e.g., Böcking 1994; Euler 1996; Hommel 1998; Ballwieser 2001; Wüstemann 2002; Berndt 2005) and the judges of the fiscal courts. According to Moxter, the result of the hermeneutical interpretation of principles of proper bookkeeping carried out by the Federal Fiscal Court is a certain kind of asset and liability approach with a strong emphasis on a distributable income figure that is determined prudently and legally enforceable as well (so-called Ausschüttungsstatic) (Moxter 1987: 368). German accounting rests strictly upon the principles of historical cost and prudence. The main principles defi ned in Article 252 HGB are the realization principle (Realisationsprinzip), the recognition-of-loss principle (Imparitätsprinzip), and several principles of objectification (Objektivierungsprinzipien), such as adherence to the balance sheet date (Stichtagsprinzip), separate valuation, that is, no offsetting (Einzelbewertungsprinzip), and consistency (Stetigkeitsprinzip). All of these principles indicate the predominant objective of accounting, whose focus is set on the measurement of distributable profits (Moxter 1996: 231). German principles of proper bookkeeping give a prudent and reliable reckoning of earned profits (Beisse 1984: 4). The representation of an unbiased picture of the entity’s fi nancial position and performance takes a backseat, although Article 264 (2) HGB commits managers to give a true and fair view of the company’s situation (Moxter 1995: 34). However, in German accounting law, the true and fair view principle is not designed as a principle of proper bookkeeping. It is placed in a section of the Commercial Code that solely affects corporations.

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Only this kind of enterprise is legally obliged to give a true and fair view of the company’s situation, whereas other entities like proprietorships and partnerships are only obliged to adhere to the principles of proper bookkeeping. Nevertheless, there is a potential confl ict between the development of a distributable income figure driven by the prudence principle and the task to inform true and fair about the enterprise. Moxter solves the confl ict through the principle of disconnection (Abkopplungsthese). According to this view, there is a clear distinction between the tasks of the income statement and the balance sheet on the one side and the tasks of the notes on the other side. The objective of the income statement and the balance sheet has to be seen generally in the presentation of the distributable income figure, whereas, in case of conflict, insights on the true and fair view of the company are provided by the notes. Furthermore, the true and fair view principle is constrained by the principles of proper bookkeeping and is not an overriding principle (Moxter 1986a: 67 et seq.). In the German legal-economic version of the asset and liability approach, the realization principle represents the cornerstone of measuring profit. It attaches the recognition of profits to the delivering of goods or the rendering of services (Ballwieser 2002: col. 362). The manager is not allowed to recognize realizable (but not realized) earnings, neither in the balance sheet nor in the income statement (Moxter 1984b: 1781). Assets are measured at (amortized) cost (Anschaff ungskostenprinzip), and liabilities are measured with their (amortized) amount on initial recognition (Moxter 1980: 221; Moxter 2003: 147, 162 et seq.). Increases in the value of an asset above its historical costs and decreases in the value of a liability below its historical amount are irrelevant. Value changes are only accounted for in the balance sheet or income statement if the asset or liability is legally transferred to an independent party (Moxter 2003: 41 et seq.). The realization principle not only determines the crucial event for the recognition of revenues, but it also specifies recognition of assets and liabilities (Ballwieser 2008a: 163). Revenue recognition is triggered by the performance of the entity. Expenses necessary to obtain the receivables from delivered goods and services have to be recognized in the same period as the associated revenues (matching principle) (Moxter 2003: 47). Therefore, all future cash outflows related to earning activities up to the balance sheet date need to be anticipated and recognized as a liability (Moxter 2003: 48). Conversely, all fi nancial outflows of resources are to be capitalized as an asset if they are related to future revenues. Furthermore, the entity has to anticipate future inflows of resources due to realized earnings and to transfer received payments corresponding to future deliveries of goods or rendering of services to the future income statement (Moxter 1984a: 161). From this point of view, the theory of annual accounts in a legaleconomic perspective seems to be similar or nearly identical to dynamic accounting. However, the fi rst impression is wrong. A strong static influence comes into play in the next step. It can be attributed to the principles

354 Michael Hommel and Stefanie Schmitz of objectification (Beisse 1984: 2) that interact with the matching principle described above. On the one hand, the subordinate principles of objectification restrict extensive recognition of cash flows severely. On the other hand, the principles do not have the power to extend recognition beyond the scope of the matching principle (Moxter 1986b: 248). Eligible for capitalization as an asset is only that part of cost that entails a future economic benefit (increase in revenues and/or decrease of expenses). The future benefit needs to be manifest in a way that an independent third party is able to affi rm the existence of the advantage in a formal way. Its reliable measurement is the third requirement (Moxter 2007: 6). So, the GoB developed and interpreted by the Federal Fiscal Court are comparable to the defi nition and recognition criteria described in IAS 38, which are identifiability, control over a resource, probable flow of future economic benefits to the entity, and reliable measurement. In addition, future inflows (cash and cash equivalents) may only be anticipated if the enterprise can demonstrate at the balance sheet date that it is entitled to receive the payment because it has fulfi lled its legally owed material obligations (Moxter 2003: 43). The enterprise needs to prove that the future cash inflow is virtually certain. The Federal Fiscal Court assesses the certainty of the future cash inflows mainly by employing a risk-andreward approach. The future cash flow is deemed to be certain if the price risk passes to the contracting party: After transferring the respective item(s) to the customer, the purchaser has to fulfill his payment obligation even if the delivered item(s) is (are) destroyed or damaged by accident later (Preisgefahrenübergang) (Moxter 2007: 45). The principles of objectification also constrain the circle of liabilities to certain future economic outflows (Moxter 2003: 113). The enterprise needs to demonstrate in a clear way that it has no alternative to fulfi ll its obligation (Moxter 2007: 84−86). The principles of defi nition and recognition, which are employed to demonstrate the existence of the obligation in a formal way, are close to the criteria defined in IAS 37. Like IAS 37, German GoB demand a present obligation of the entity arising from past events. Its settlement requires a probable outflow of resources embodying economic benefits, and a reliable estimate has to be made. However, due to the prudence principle, the probability criterion is not defi ned in a mathematical or statistical way but is interpreted in a qualitative manner. The criterion is met if there are “good reasons” that the enterprise has to stand ready to fulfi ll the potential liability in the future (Eibelshäuser 1987: 863). Hence, the German defi nition and recognition criteria for liabilities (and assets) developed by the Federal Fiscal Court can be well compared to IFRS and lead to similar outcomes. The recognition-of-loss principle supplements the realization principle in the interest of a conservative reckoning of profit and loss (Moxter 1984a: 163). Therefore, unrealized losses have to be anticipated in the period in which they become known. In the system of German principles of proper bookkeeping,

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the recognition-of-loss principle is orientated toward the income statement. Hence, a provision for onerous contracts is only recognized if the unavoidable costs to fulfill the contract are higher than the expected revenues and gains resulting from its fulfillment, and an asset is only impaired if the potential future revenues and gains connected with it are lower than its book value. However, the recognition-of-loss principle will not recognize decreases of assets or increases of liabilities at the balance sheet date if they only anticipate a loss of future profits (Ballwieser 2008b: 199). To summarize, the theory of annual accounts in a legal-economic perspective links the main characteristics of the static and the dynamic view.19 Accordingly, balance sheet and income statement try to reach the same objective: determination of a distributable income figure calculated in a prudent and reliable way. The static and dynamic principles are complementary— with considerable consequences: Due to the influence of the principles of objectification, the aim of the income statement is no longer to show the up and down of the enterprise; and due to the influence of the realization principle, the balance sheet does not inform about the value of the firm. Both instruments aim to reach a goal that is much simpler than the individual objectives of static and dynamic accounting but more realistic instead.

CONCLUSION The history of accounting theory in Germany during the twentieth century is characterized by a declining influence on the international accounting community. Whereas German accounting professors and lawyers such as Simon, Schmalenbach, and Schmidt dominated developments in the newly created academic discipline at the beginning of the last century, this reputation could not be continued. The reason is twofold. On the one hand, accounting research turned away from normative problems after World War II. The importance of empirical questions was emphasized so that in accounting research the situation was reversed: German accounting scholars who were deeply rooted in accounting theory had to learn mainly from the United States where the new research methods spread out. On the other hand, the continued theoretical attempts in German accounting research after World War II were tailored to the particular needs of the German accounting system. As a legal and principles-based concept, it is ultimately subject to legislation and jurisdiction and subject to interpretation as well. In the last decades, German accounting theorists focused on the interpretation of national law, but often they did not publish their findings in English. However, international accounting attracted increasing attention during the last decades in Germany. On the one hand, German researchers today influence the international arena by contributing to empirical research studies on accounting or the discussion of an accounting theory underlying IFRS. On the other hand, the German Parliament became

356 Michael Hommel and Stefanie Schmitz aware of the importance of IFRS and its influence on national fi nancial accounting. In 2009, the Bundestag carried out an important accounting reformation act (Bilanzrechtsmodernisierungsgesetz [BilMoG]) in order to strengthen the asset and liability view and approximate the national accounting system closer to IFRS, but without abandoning its fundamental principles and objectives (Bundestag printed paper 16/10067: 32). Thus, the conceptual differences between German fi nancial accounting and IFRS have decreased. To conclude, it might be overhasty to assume that the results of the German theory of annual accounts in a legal-economic perspective are highly specific to German legislation and, hence, can contribute little to the international debate on accounting theory. Currently, the IASB moves toward a principles-based approach, looking for an asset and liability view but keeping the importance of the revenue and expense view in mind. This development could lead to a synthesis of static and dynamic accounting perspectives and consequently straight toward accounting principles that resemble the German theory of annual accounts in a legal-economic perspective. Thus, both the principles versus rules debate and the revenueexpense versus asset-liability debate nowadays may be enriched by insights from the fruitful German developments in accounting theory.

NOTES 1. The fi rst General German Code of Commerce was based on the French Code de Commerce of 1807 and also on the Prussian Civil Code of 1794 (Eierle 2005: 283; Schulte 2010: 119). 2. The publication and fi ling of the annual report in the trade register became mandatory (Article 265 HGB). 3. Private limited companies (GmbH) and limited partnerships with a limited liability company as general partner (GmbH & Co. KG) faced similar accounting regulations like stock corporations (Eierle 2005: 285, footnote 18). 4. Simon (1899: 362) makes an exception for work in progress. 5. Simon is well aware that stock corporations are regulated by law to hold assets at cost since 1884. But he interprets this regulation as a constraint on dividend distributions rather than a material accounting rule (Simon 1899: 335, 337). 6. Schmalenbach coined the term “dynamic accounting” in order to distinguish his approach from the asset and liability view that he called “static accounting” (Potthoff and Sieben 1994: 83). There might be differences in meaning between the English and the German terms. However, for simplicity, both notations are used equivalently in this chapter. 7. Schmalenbach explicitly regarded von Wilmowski (1907) as a predecessor of dynamic accounting (Mattessich 2003: 138 et seq.). 8. The business school in Leipzig was the fi rst one in a German-speaking country being founded in 1898. It was closely followed by Aachen and Vienna, then St. Gallen (1899), Cologne and Frankfurt (1901) (Busse von Colbe 1996: 414; Witte 1998: 731). Business education started earlier in the nineteenth century in Paris, Antwerp, and London (Wallerstedt 2000: 416).

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9. For example, Schmalenbach also asked the auditor for efficiency checks and hence broadened the auditor’s responsibility (Potthoff and Sieben 1994: 82, 85). 10. Presentation of profit or loss is not considered in detail by Schmalenbach. He only suggests roughly that expenses should be divided in overheads and variable costs related to a certain income category. Changes in prices should be presented separately (Schmalenbach 1962: 42). 11. The title of Schmalenbach’s treatise is at fi rst sight confusing because it only refers to the balance sheet (Dynamische Bilanz). The misunderstanding is due to the fact that the vocable Bilanz is often used as a proxy for the set of fi nancial statements in German language (Mattessich and Küpper 2003: 114). For example, accounting theory translates with Bilanztheorie. 12. According to Schneider, Schmalenbach also held the view that it is impossible to determine net wealth because profit is at the same time input and output of only one measure. Schneider criticizes Schmalenbach for overlooking that the present value of a company is derived from future cash flows and not from future profits. Furthermore, Schmalenbach supposedly understood the legal term “common value” as a proportionate individual earnings value, whereas lawyers interpreted it as market price. In the eyes of Schneider, Schmalenbach made again a mistake that led him to believe in the impossibility of net wealth determination. So, Schneider argues that there was in fact no need to distinguish between dynamic profit and change in net wealth (Schneider 1995: 135 et seq.). Furthermore, Lion advances a view that there is no difference between dynamic income determination (via profit and loss statement) and income determination via changes in capital—as long as capital is measured at cost (Lion 1928: 486 et seq.). 13. Seicht (1970: 116–128) criticizes Schmalenbach’s attempt to explain all credit and debit items in a balance sheet as advance effort or future charge. Examples include a purchase of a machine that has not been paid for yet but is already considered to be an advance effort (cash outflow), and long-term receivables, which still represent revenues in later periods. Fundamentally difficult is the categorization of cash and equity. 14. Whether equity fits into Walb’s general interpretation of the balance sheet, is a controversial issue. Moxter (1966: 32) lauded Walb for incorporating equity meaningfully, but in Seicht’s (1970: 144) eyes, Walb’s illustrations on equity are dissatisfying. 15. Nevertheless, Schmalenbach used the balance sheet as the major instrument of income determination (Seicht 1970: 138; Mattessich and Küpper 2003: 115). 16. Only the 1966 reprint of the second edition is well known due to post-war confusions. The fi rst edition was published in 1942/1943 (Dürrhammer 1980b: 972). 17. Schmidt (1929: 125) admits that organic fi nancial statements cannot picture the shareholder value of the company, Furthermore, organic fi nancial statements cannot be utilized as a basis for dividend distribution. In this case, the company runs the risk of distributing dividends although a nominal loss has occurred. Hence, claims of creditors are disregarded, and the company faces a higher risk of insolvency (Moxter 1984a: 69 et seq., 76). 18. Schmidt assumes implicitly that entry prices stay constant after the sale has occurred (Moxter 1984a: 77). Schmidt also analyzed the effects of changes in the general price level, but he did not incorporate them in his organic accounting theory. He only accounted for price level changes implicitly by matching monetary assets and liabilities (Clarke and Dean 1994: 100 et seq.). 19. At first glance, the new legal-economic theory seems to evoke partly the organic concept of Schmidt. Schmidt stated that it is possible to reach the aims of static

358 Michael Hommel and Stefanie Schmitz accounting through the balance sheet and the aims of dynamic accounting through the income statement by implementing the balance sheet position of revaluation surplus. Hence, balance sheet and income statement fulfill different objectives. This is contrary to the legal-economic perspective.

REFERENCES Albach, H. 1965. “Grundgedanken einer synthetischen Bilanztheorie.” Zeitschrift für Betriebswirtschaft 35: 21−31. Albach, H. 1990. “Business administration: History in German-speaking countries.” In Handbook of German business management (Vol. 1), ed. E. Grochla et al. Stuttgart: C. E. Poeschel/Springer, col. 246−270. Ballwieser, W. 2001. “Germany—Individual accounts.” In Transnational accounting (TransACC) (Vol. 2, 2nd ed.), ed. D. Ordelheide/KPMG. Houndmills: Palgrave, pp. 1395−1546. Ballwieser, W. 2002. “Bewertungsgrundsätze.” In Handwörterbuch der Rechnungslegung und Prüfung (3rd ed.), ed. W. Ballwieser, A. G. Coenenberg, and K. von Wysocki. Stuttgart: Schäffer-Poeschel, col. 353−375. Ballwieser, W. 2008a. “§ 252 HGB.” In Münchener Kommentar zum Handelsgesetzbuch (Vol. 4, 2nd ed.), ed. K. Schmidt. München: C. H. Beck/Vahlen. Ballwieser, W. 2008b. “§ 253 HGB.” In Münchener Kommentar zum Handelsgesetzbuch (Vol. 4, 2nd ed.), ed. K. Schmidt. München: C. H. Beck/Vahlen. Ballwieser, W. 2010. “Chapter 3: Germany.” In A global history of accounting, fi nancial reporting and public policy, ed. G. Previts, P. Walton, and P. Wolnizer. Bingley: Emerald Group, pp. 59−88. Beisse, H. 1984. “Zum Verhältnis von Bilanzrecht und Betriebswirtschaftslehre.” Steuer und Wirtschaft 61: 1−14. Beisse, H. 1994. “Zum neuen Bild des Bilanzrechtssystems.” In Bilanzrecht und Kapitalmarkt, Festschrift für Adolf Moxter, ed. W. Ballwieser et al. Düsseldorf: IDW, pp. 3−31. Berndt, T. 2005. Wahrheits- und Fairnesskonzeptionen in der Rechnungslegung. Stuttgart: Schäffer-Poeschel. Böcking, H.-J. 1994. Verbindlichkeitsbilanzierung: wirtschaftliche versus formalrechtliche Betrachtungsweise. Wiesbaden: Gabler. Busse von Colbe, W. 1992. “Relationships Between Financial Accounting Research, Standards Setting and Practice in Germany.” European Accounting Review 1: 27−38. Busse von Colbe, W. 1996. “Accounting and the Business Economics Tradition in Germany.” European Accounting Review 5: 413−434. Busse von Colbe, W., and Fülbier, R. U. 2012. “Accounting and the Business Economics Tradition in Germany.” In Accounting and Business Economics: Insights from National Traditions, ed. Y. Biondi, and S. Zambon. New York: Routledge. Busse von Colbe, W., and Ordelheide, D. 1976. Konzernabschlüsse (2nd ed.). Wiesbaden: Gabler. Canaris, C.-W. 1969. Systemdenken und Systembegriff in der Jurisprudenz. Berlin: Duncker & Humblot. Clarke, F. L., and Dean, G. 1989. “Conjectures on the Influence of the 1920s Betriebswirtschaftslehre on Sweeney’s Stabilized Accounting.” Accounting and Business Research 19: 291−304. Clarke, F. L., and Dean, G. 1994. “Fritz Julius August Schmidt.” In Twentiethcentury accounting thinkers, ed. J. R. Edwards. London/New York: Routledge, pp. 95–111.

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Coing, H. 1959. Die juristischen Auslegungsmethoden und die Lehren der allgemeinen Hermeneutik. Köln-Opladen: Westdeutscher Verlag. Döllerer, G. 1959. “Grundsätze ordnungsmäßiger Bilanzierung, deren Entstehung und Ermittlung.” Die Wirtschaftsprüfung 12: 653−658. Döllerer, G. 1968. “Statische oder dynamische Bilanz?” Betriebs-Berater 23: 637−641. Döllerer, G. 1971. “Maßgeblichkeit der Handelsbilanz in Gefahr?” BetriebsBerater 26: 1333−1335. Dürrhammer, W. W. 1980a. “In Memoriam Ernst Walb.” Zeitschrift für betriebswirtschaftliche Forschung 32: 947−953. Dürrhammer, W. W. 1980b. “Ernst Walbs Beitrag zur Bilanzlehre.” Zeitschrift für betriebswirtschaftliche Forschung 32: 966−974. Eibelshäuser, M. 1987. “Rückstellungsbildung nach neuem Handelsrecht: Ein Beitrag zur Auslegung von § 249 Abs. 1 Satz 1 HGB,” Betriebs-Berater 42: 860−866. Eierle, B. 2005. “Differential reporting in Germany: A historical analysis.” Accounting, Business & Financial History 15: 279−315. Engisch, K. 1956. Einführung in das juristische Denken. Stuttgart: Kohlhammer. Esser, J. 1970. Vorverständnis und Methodenwahl in der Rechtsfi ndung. Frankfurt am Main: Athenäum. Euler, R. 1996. Das System der Grundsätze ordnungsmäßiger Bilanzierung. Stuttgart: Schäffer-Poeschel. Evans, L. 2005. “Editorial: Accounting history in the German language arena.” Accounting, Business & Financial History 15: 229−233. Forrester, D. A. 2000 “Wilhelm Rieger and cash accounting: An essay in controversial ideas.” Abacus 36: 108−121. Graves, O. F., Dean, G. W., and Clarke, F. L. 1989. Schmalenbach’s dynamic accounting and price-level adjustments: An economic consequences explanation. New York/London: Garland Publishing. Hommel, M. 1998. Bilanzierung immaterieller Anlagewerte. Stuttgart: SchäfferPoeschel. Kosiol, E. 1944. Bilanzreform und Einheitsbilanz : Grundlegende Studien zu den Möglichkeiten einer Rationalisierung der periodischen Erfolgsermittlung. Reichenberg/Leipzig/Wien: Stiepel. Kosiol, E. 1970. “Bilanztheorie, pagatorische.” In Handwörterbuch des Rechnungswesens (HWR), ed. E. Kosiol, and K. Chmielewicz. Stuttgart: C. H. Poeschel, pp. 279−302. Kosiol, E. 1976. Pagatorische Bilanz: Die Bewegungsbilanz als Grundlage einer integrativ verbundenen Erfolgs-, Bestands- und Finanzrechnung. Berlin: Duncker & Humblot. Kosiol, E. 1977. Buchhaltung als Erfolgs-, Bestands- und Finanzrechnung, Grundlagen, Verfahren, Anwendungen. Berlin/New York: de Gruyter. Küpper, H.-U., and Mattessich, R. 2005. “Twentieth Century Accounting Research in the German Language Area.” Accounting, Business & Financial History 15: 345−410. Larenz, K. 1960. Methodenlehre der Rechtswissenschaft. Berlin: Springer. Larenz, K. 1991. Methodenlehre der Rechtswissenschaft (6th ed.). Berlin: Springer. Le Coutre, W. 1934. Zeitgemäße Bilanzierung: Die statische Bilanzauffassung und ihre praktische Anwendung. Vienna: Österreichischer Wirtschaftsverlag. Leff son, U. 1964. Die Grundsätze ordnungsmäßiger Buchführung. Düsseldorf: IDW. Leuz, C., and Wüstemann, J. 2004. “The role of accounting in the German fi nancial system.” In The German financial system, ed. J. P. Krahnen, and R. H. Schmidt. Oxford/New York: Oxford University Press, pp. 450−477.

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Lion, M. 1928. “Die dynamische Bilanz und die Grundlagen der Bilanzlehre.” Zeitschrift für Betriebswirtschaft 5: 481−506. Littleton, A. C. 1941. “A genealogy for “cost or market.” Accounting Review 16: 161−167. Mattessich, R. 2003. “Accounting research and researchers of the nineteenth century and the beginning of the twentieth century: an international survey of authors, ideas and publications.” Accounting, Business & Financial History 13: 125−170. Mattessich, R., and Küpper, H. 2003. “Accounting research in the German language area—First half of the 20th century.” Review of Accounting and Finance 2(3): 106−137. Moxter, A. 1966. “Die Grundsätze ordnungsmäßiger Bilanzierung und der Stand der Bilanztheorie.” Zeitschrift für handelswissenschaftliche Forschung 18: 28−59. Moxter, A. 1977. “Bilanztheorien.” In Handwörterbuch der Wirtschaftswissenschaften (Vol. 1), ed. W. Albers et al. Stuttgart: Fischer et al., pp. 670−686. Moxter, A. 1980. “Steuerliche Gewinn- und Vermögensermittlung.” In Handbuch der Finanzwissenschaft (Vol. 2, 3rd ed.), ed. F. Neumark. Tübingen: Mohr, pp. 203−237. Moxter, A. 1982a. Bilanzierung nach der Rechtsprechung des Bundesfi nanzhofs. Tübingen: Mohr. Moxter, A. 1982b. Betriebswirtschaftliche Gewinnermittlung. Tübingen: Mohr. Moxter, A. 1984a. Bilanzlehre: Vol. 1. Einführung in die Bilanztheorie (3rd ed.). Wiesbaden: Gabler. Moxter, A. 1984b. “Das Realisationsprinzip–1884 und heute.” BetriebsBerater 39: 1780−1786. Moxter, A. 1986a. Bilanzlehre: Vol. 2. Einführung in das neue Bilanzrecht (3rd ed.). Wiesbaden: Gabler. Moxter, A. 1986b. “Immaterielle Vermögensgegenstände des Anlagevermögens.” In Handwörterbuch unbestimmter Rechtsbegriffe im Bilanzrecht des HGB, ed. U. Leffson et al. Köln: Schmidt, pp. 246−250. Moxter, A. 1987. “Zum Sinn und Zweck des handelsrechtlichen Jahresabschlusses nach neuem Recht.” In Bilanz- und Konzernrecht. Festschrift für Reinhard Goerdeler, ed. H. Havermann. Düsseldorf: IDW, pp. 361−374. Moxter, A. 1995. “Standort Deutschland: Zur Überlegenheit des deutschen Rechnungslegungsrechts.” In Standort Deutschland : Grundsatzfragen und aktuelle Perspektiven für die Besteuerung, die Prüfung und das Controlling. Anton Heigl zum 65. Geburtstag, ed. V. H. Peemöller, and P. Uecker. Berlin: Schmidt, pp. 31−41. Moxter, A. 1996. “Entziehbarer Gewinn?” In Rechnungslegung–Warum und Wie. Festschrift für Hermann Clemm zum 70. Geburtstag, ed. W. Ballwieser, A. Moxter, and R. Nonnenmacher. München: Beck, pp. 231−241. Moxter, A. 2003. Grundsätze ordnungsgemäßer Rechnungslegung. Düsseldorf: IDW. Moxter, A. 2007. Bilanzrechtsprechung (6th ed.). Tübingen: Mohr Siebeck. Mülhaupt, L. 1980. “Von der fi nanzwirtschaftlichen Bilanz zur neueren Finanzierungslehre.” Zeitschrift für betriebswirtschaftliche Forschung 32: 975−988. Nicklisch, H. 1903. Handelsbilanz und Wirtschaftsbilanz, Diss. Magdeburg/ Tübingen: W. Ochs & Co. Nicklisch, H. 1932a. Die Betriebswirtschaft (7th ed.). Stuttgart: C. H. Poeschel. Nicklisch, H. 1932b. “Die Entthronung der Bilanz.” Die Betriebswirtschaft 25: 1−5. Norström, C. J. 1995. “Die Entwicklung der Betriebswirtschaftslehre in Norwegen unter besonderer Berücksichtigung des deutschen Einflusses.” Zeitschrift für betriebswirtschaftliche Forschung 47: 408−424.

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Ordelheide, D. 1999. “Chapter 5: Germany.” In Accounting regulation in Europe, ed. S. McLeay. Houndmills: Macmillan, pp. 99–146. Potthoff, E. 1980. “Zur Kosten- und Leistungsrechnung nicht erwerbswirtschaftlicher öffentlicher Betriebe.” Zeitschrift für betriebswirtschaftliche Forschung 32: 954−965. Potthoff, E. 1993. “Forscherpersönlichkeiten.” In Handwörterbuch des Rechnungswesens, Enzyklopädie der Betriebswirtschaftslehre (Vol. 3, 3rd ed.), ed. K. Chmielewicz, and M. Schweitzer. Stuttgart: Schäffer-Poeschel, col. 660−678. Potthoff, E., and Sieben, G. 1994. “Eugen Schmalenbach (1873−1955).” In Twentieth-century accounting thinkers, ed. J. R. Edwards. London/NewYork: Routledge, pp. 79−94. Rehm, H. 1914. Die Bilanzen der Aktiengesellschaften und Gesellschaften mbH, Kommanditgesellschaften auf Aktien (2nd ed.). München: Schweitzer. Richard, J. 2005. “The Concept of Fair Value in French and German Accounting Regulations from 1673 to 1914 and Its Consequences for the Interpretation of the Stages of Development of Capitalist Accounting.” Critical Perspectives on Accounting 16: 825−850. Richard, J. 2012 “The Three Main Schools of the French Financial Accounting Doctrine.” In Accounting and Business Economics: Insights from National Traditions, ed. Y. Biondi, and S. Zambon. New York: Routledge. Richter, A. 1936. “Betriebswirtschaftliche Zukunftsrechnung.” In Heinrich Nicklisch und sein Werk, ed. O. Hummel et al. Stuttgart: C. H. Poeschel, pp. 5−26. Rieger, W. 1928. Einführung in die Privatwirtschaftslehre. Nürnberg: Hochschulbuchh. Krische & Co. Rieger, W. 1936. Schmalenbachs dynamische Bilanz: eine kritische Untersuchung. Stuttgart: Kohlhammer. Savigny, F. C. V. 1951. Juristische Methodenlehre. Stuttgart: Koehler. Schaer, J. F. 1914. Buchhaltung und Bilanz: auf wirtschaftlicher, rechtlicher und mathematischer Grundlage für Juristen, Ingenieure, Kaufl eute und Studierende der Privatwirtschaftslehre. Berlin: Springer. Scheffler, H. 1879. “Über Bilanzen, Vierteljahreszeitschrift für Volkswirtschaft.” Politik und Kunstgeschichte 62: 1–13. Schmalenbach, E. 1908. “Die Abschreibung.” Zeitschrift für handelswissenschaftliche Forschung 3: 81−88. Schmalenbach, E. 1919. “Grundlagen dynamischer Bilanzlehre.” Zeitschrift für handelswissenschaftliche Forschung 13: 1−50, 65−101. Schmalenbach, E. 1959. Dynamic accounting (translated by G. W. Murphy, and K. S. Most). London: Gee and Co. Schmalenbach, E. 1962. Dynamische Bilanz (13th ed.), edited by R. Bauer. Köln/ Opladen: Westdeutscher Verlag. Schmidt, F. 1929a. Die organische Tageswertbilanz (3rd ed.). Leipzig: Gloeckner. Schmidt, F. 1929b. “The Valuation of Fixed Assets in Financial Statements.” International Congress on Accounting New York: 493−511. Schmidt, F. 1930a. “The Importance of Replacement Value.” Accounting Review 5: 235−245. Schmidt, F. 1930b. “The Basis of Depreciation Charges.” Harvard Business Review 8: 257−264. Schmidt, F. 1931. “Is Appreciation Profit?” Accounting Review 6: 289−293. Schmidt, R.-B. 1967. Erich Kosiol: Quellen, Grundzüge und Bedeutung seiner Lehre. Stuttgart: C. H. Poeschel. Schneider, D. 1963. “Bilanzgewinn und ökonomische Theorie.” Zeitschrift für handelswissenschaftliche Forschung 15 (new series): 457−474. Schneider, D. 1984. “Der Einkommensbegriff und die Einkommensteuerrechtsprechung.” Finanzarchiv 42: 407−432.

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Schneider, D. 1995. “The history of fi nancial reporting in Germany.” In European fi nancial reporting. A history, ed. P. Walton. London: Academic Press, pp. 123−155. Schneider, D. 2001. Betriebswirtschaftslehre: Vol. 4. Geschichte und Methoden der Wirtschaftswissenschaft. Kopenhagen: Hos & Gad. Schulte, M. 2010. Systemdenken im deutschen und französischen Handelsbilanzrecht : Ein systemtheoretischer Beitrag zur internationalen Rechnungslegung. Wiesbaden: Gabler. Schweitzer, M. 1990. “Financial accounting theories.” In Handbook of German business management (Vol. 1), ed. F. Grochla et al. Stuttgart: C. E. Poeschel/ Springer, col. 877–889. Schweitzer, M. 1999. “Erich Kosiol 100 Jahre.” Zeitschrift für betriebswirtschaftliche Forschung 51: 170−172. Seicht, G. 1970. Die kapitaltheoretische Bilanz und die Entwicklung der Bilanztheorien. Berlin: Duncker & Humblot. Simon, H. V. 1899. Die Bilanzen der Aktiengesellschaften und der Kommanditgesellschaften auf Aktien (3rd ed.). Berlin: Guttentag. Spindler, D. 2005. Zeitwertbilanzierung in Jahresabschlüssen nach dem ADHGB von 1861 und nach den IAS/IFRS. Sternenfels: Wissenschaft & Praxis. Stützel, W. 1967. “Bemerkungen zur Bilanztheorie.” Zeitschrift für Betriebswirtschaft 37: 314−340. von Wilmowski, B. 1907. Das Preußische Einkommensteuergesetz (2nd ed.). Breslau: Kern. Walb, E. 1926. Die Erfolgsrechnung privater und öffentlicher Betriebe: Eine Grundlegung. Berlin/Wien: Spaeth & Linde. Walb, E. 1966. Finanzwirtschaftliche Bilanz (3rd ed.). Wiesbaden: Gabler. Wallerstedt, E. 2000. “Schmalenbach’s Influence on Swedish Business Economics.” Zeitschrift für Betriebswirtschaft 70: 415−431. Weigmann, W. 1932. “Legal and Economic Concepts of the Balance Sheet in Germany.” Accounting Review 7: 103−106. Weiner, J. L. 1929. “Balance-Sheet Valuation in German Law.” Journal of Accountancy 48: 195−206. Witte, E. 1998. “Entwicklungslinien der Betriebswirtschaftslehre: Was hat Bestand?” Die Betriebswirtschaft 58: 731−746. Wüstemann, J. 2002. Institutionenökonomik und internationale Rechnungslegungsordnungen. Tübingen: Mohr. Zeff, S. A. 2000. Henry Rand Hatfi eld : Humanist, Scholar, and Accounting Educator. Stamford: JAI Press.

14 Accounting, Economics, and Law of the Enterprise Entity A. C. Littleton and the German-American Connection Yuri Biondi INTRODUCTION W. A. Paton and A. C. Littleton authored the most influential monograph of the American Accounting Association (AAA), titled “An Introduction to Corporate Accounting Standards” and published in 1940. Both were members of the Executive Committee of the AAA, which had issued “A Tentative Statement of Accounting Principles Underlying Corporate Reports” in 1936 (American Accounting Association 1936). The monograph can be seen as a detailed explanation of the relatively brief statement issued in 1936. In the preface to the monograph, the authors state, “We have attempted to weave together the fundamental ideas of accounting rather than to state standards as such. The intention has been to build a framework within which a subsequent statement of corporate accounting standards could be erected. Accounting theory is here conceived to be a coherent, coordinated, consistent body of doctrine which may be compactly expressed in the form of standards if desired.” Both Paton and Littleton have championed the entity theory of accounting. Both have influenced the development of accounting theory and method in the United States and abroad. In fact, they did not share the same understanding of the nature and role of the enterprise entity in accounting. Paton appears to link this notion to the marginalist revolution that had been spreading in economics at that time, aiming to refi ne the assets-liabilities accounting method. He goes further, regretting the publication of that monograph in a statement of 1980, especially the preference of cost over value (Paton 1980).1 Quite the contrary, Bedford (1997: 29) stresses the leading influence by Littleton on the AAA statements of 1936 and 1941 (American Accounting Association 1936, 1941). Since his articles in the late 1920s and 1930s, Littleton has contrasted proprietorship theory to entity theory, stock accounting method to flow accounting method, and accounting purpose of net worth valuation to income determination, developing an interdisciplinary approach that links law and economics to accounting. This chapter aims to pave the way to further investigation of Littleton’s contribution to accounting, economics, and law of the enterprise entity. It clarifies some fundamental insights driven by Littleton’s conception and

364 Yuri Biondi shows that, among others, his contribution was influenced by his connection with German accounting thought and network, as well as his interest in institutional economics and the so-called American institutional economic school, especially J. R. Commons. The rest of the chapter is organized as follows. The fi rst section analyzes Littleton’s accounting theory with special references to his interest in institutional economics and his German connection. The second section deals with his entity theory from an institutional economic perspective. The third section deals with his entity approach to the special economic and monetary process generated by the enterprise entity over time. Throughout this chapter, we will adopt his dualistic approach contrasting entity and proprietorship perspectives of accounting.

LITTLETON, OLD INSTITUTIONAL ECONOMICS, AND THE GERMAN–AMERICAN CONNECTION Littleton (1886–1974) started his academic career by joining the University of Illinois in 1915, serving as instructor (1915–1918), assistant professor (1920–1924), associate professor (1925–1930), and professor from 1931 until his retirement in 1952. While teaching, he especially served as assistant director of the Bureau of Economic and Business Research of the College of Commerce (1921–1942). When the fi rst issue of The Accounting Review was published, one of the five articles was Littleton’s article on “Research Work at the University of Illinois.”2 He completed his formal education with a PhD in Economics from the University of Illinois in 1931, titled “The Historical Foundations of Modern Accounting” under the supervision by Maurice H. Robinson, with Ernest Bogart, head of the Department’s signature just below Robinson’s. Littleton’s dissertation was published in 1933 under the title “Accounting Evolution to 1900.” The book is dedicated to “Henry Rand Hatfield whose ‘An historical defense of bookkeeping’ provides the inspiration and model for this book”—referring to the title of his classic paper of 1924 (Hatfield 1924).3 It opens by a quotation in German by the German accounting historian Ernst Jaeger: “Who wants to delve deeper into a science, must also learn to know its history.”4 Littleton is universally recognized as a champion of invested cost accounting,5 “an articulate and persuasive advocate of original cost-based accounting” (Bedford and Ziegler 1975: 435). His works published in the late 1920s and 1930s, between 1928 and 1938, help us to understand the foundations of this persuasive advocacy. As a matter of fact, Littleton’s thought has been developed during effervescent times in economics and accounting. At that time, economics was confronted with the marginalist revolution since the end of the nineteenth century and the emergence of institutional economic perspectives, especially in United States (Rutherford 2000). Institutional economists fostered a comprehensive approach to economics in its

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socioeconomic context and historical patterns (Gruchy 1947). Leading figures were T. Veblen, author of The Theory of Business Enterprise (1904), J. R. Commons, author of major treaties concerned with the fundamental relationship between law and economics such as The Legal Foundations of Capitalism (1924) and Institutional Economics (1934), and A. A. Berle, Jr., lead author of The Modern Corporation and Private Property (with G. C. Means, 1932), The 20th Century Capitalist Revolution (1954), and Power without Property (1959). In particular, U.S. institutional economists read their “manifesto” at the 1918 meeting of the American Economic Association (Hamilton 1919), when Hatfield served as vice-president of this association (1918) during J. R. Commons’s presidency, while Hatfield was serving as president (1919) and vice-president (1917, 1918) of the AAA, which he helped form in 1916.6 Littleton participated at least to the thirty-fi fth meeting of the American Economic Association in 1923, to present aims and methods of his bureau of business research at University of Illinois (Littleton 1923). At that time (Dorfman 1955; Rodgers 1998: 84 ff.; Bateman 2011), American economists often knew German (reading knowledge of German was mandatory for a PhD in economics in the United States until World War II) and connect to German networks by training or education, as did all the founders of the American Economic Association, as well as Hatfield, who knew German and visited Germany on behalf of the University of Chicago and at his expenses in 1898. At that time, accounting was also confronted to the accounting revolution fostered by Schmalenbach and Nicklisch, among others, who promoted a comprehensive understanding of the business enterprise and its nature and role in economy and society.7 Through Hatfield’s influence and his personal knowledge of German, Littleton paid attention to German accounting thought and network since the late 1920s, when he had been preparing his doctoral thesis. By answering the question “What is profit?,” Littleton (1928) opens a series of fundamental papers presenting his approach that integrates law and economics to accounting, and significant references are made to German scholars. Summarizing the research work at the University of Illinois in the inaugural issue of The Accounting Review, Littleton (1926: 31) stresses the needs to connect accounting, economics, and law at the beginning of his paper: Historical development of accounting. We need to know more about the manner in which accounting has evolved during its relatively long life. We need to see its development paralleling the development of civilization and to understand it as a part of civilization’s manifestations. [ . . . ] Accounting Theory in Relation to Other Subjects. There are a few scattered papers here and there which show evidence of some attempt at coordination between accounting principles and law, for example. They are too few. Little as I know of law, I am nevertheless convinced

366 Yuri Biondi that an astonishing amount of so-called accounting principles, if the truth were known, were threshed out originally in the law courts. I need only mention the relation of accounting theory to economics to indicate a field for additional work under this same heading. We ought to be grateful for what Mr. Paton has done in this connection and to a few others—a very few. A great deal more could very profitably be done. When some of these things are satisfactorily done in history and in theory, our subject will receive in a larger measure the recognition it deserves as a cultural and disciplinary subject. Therefore, it does not seem a hazard if Littleton (1929b, 1931, 1933) authored several book reviews of German works on the pages of The Accounting Review. In particular, “Der betriebswirtschaftliche Gewinnbegriff in seiner historischen Entwicklung” (Evolution of the Concept of Profit) by F. J. Dusemund of 1929, which deals with profit conceptions by Schmidt, Osbahr, Schmalenbach, Nicklisch, and Leitner; “Tendenzen zur Aussonderung von Vermoegenswertaenderungen in Betriebswirtschaftslehre, Wirtschaftspraxis and Steuerrecht” (Tendencies Towards Segregation of Assets Changes in Business Administration, Business Practice and Tax Law) by H. Horn, “Die nennwertlose Aktie” (Shares without Par Value) by W. Rusche, and “Erfassung und Verrechnung der Gemeinkosten in der Unternehmung” (Detection and Clearing of the Overheads in the Enterprise) by F. Henzel, all three of 1931; “Die Betriebswirtschaft” (Business Economics or, here, Entity Economy) by H. Nicklisch, “Bilans des Aktiengeselschaft” (Reporting of the Corporation) by R. Ruth and K. Schmaltz, both of 1932, and “Wirtschaftspruefung and Revisionwesen” (Economic Evidence and Auditing), the proceeding of a German symposium on auditing published by Die Betriebswirtschaft, one of the leading German periodicals in business administration, chiefly edited by H. Nicklisch8 and formerly named Zeitschrift für Handelswissenschaft und Handelspraxis (1908–1929). Even more significant here, Littleton (1929c) published an academic article on the pages of this latter journal in April 1929, titled “Die Entwicklung des Rechnungswesens in den Vereingten Staaten” (The Evolution of Accounting in the Unites States) and devoted to the interdependent evolution of accounting (Rechnungswesen), auditing (Pruefungs- und Revisionswesen), and stewardship (Treuhandwesen) in his country. In these reviews, regarding business income according to German accounting theories, Littleton (1929b: 207) appreciated the German historical method of inquiry, and its favor for “consistent, well thought-out theory,” and contrasts it with the American habit of “depicting good practices.” He also claimed for a comparative perspective for the sake of cross-fertilization (Littleton 1933: 89). Concerning Nicklisch, Littleton (1933: 88) especially stressed the author’s conception of accounting “as an instrument by means of which the structure of a business enterprise is kept understandable and its life movements measured and made comprehensible” and his favor for the centrality of enterprise entity and its operations in this accounting representation,

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instead of proprietorship. The Nicklisch’s masterpiece is then summarized as “a good, if long, interweaving of economic theory, corporation finance, and accounting principles. And these, after all, constitute the warp and woof of business administration” (Littleton 1933: 88). If these primary sources testify to a German–American connection, at least in the case of Littleton, his interest in connecting accounting and economics with law further points to his interest for American institutional economics, especially J. R. Commons. Sharing Commons’s preference for an evolutionary and a historical method of scientific inquiry, Littleton explains the evolution of accounting from the proprietorship approach to the entity approach as the shift from “balance sheet valuation” to “income determination” (Littleton 1945: 349a) and from fi nance to operations as the main focus of accounting: The early choice [in XIX century] of the balance sheet as the main statement tends to place fi nance above operations; and fi nance, in turn, looks upon value-in-exchange as basic. (Littleton 1935: 270) Concerning recognition and measurement, this shift involves focusing accounting not on value-in-exchange (or market-based valuations), but on invested cost (or value-in-use) specific to the enterprise entity. Another part of the explanation, no doubt, is the failure of accountants to distinguish “value-in-exchange” and “value-in-use.” ( . . . ) What we discuss in accounting as “cost versus value” is, in fact, “value-inuse versus value-in-exchange.” ( . . . ) It would seem, therefore, that accountants would have a direct responsibility for correctly disclosing value for use (original cost-prices) but very little responsibility for exhibiting an estimate of value for exchange (replacement or market price). (Littleton 1935: 270) It is important to notice that Littleton (1961) added here a reference to J. R. Commons for a certain understanding of this difference between “value” and “the arithmetic product of as number of physical units multiplied by a cost price per unit”: One important economist explained value as a product of quantity (a measure of use value) times price (a measure of scarcity value) and contrasts this with the “purchasing power” meaning of value. John R. Commons [1934], [Institutional] Economics, [vol. 1] pp. 516–519. (Littleton 1961: 229, footnote added to the text of Littleton [1935])9 Furthermore, Littleton (1937a: 17) refers again to the Commons’s (1934) masterpiece, Institutional Economics, on a somewhat similar topic. Interestingly, Littleton (1937a) was prepared for a symposium on “concepts of capital and income” jointly sponsored by the American Economic Association

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and the American Accounting Association, including a contribution of F. Fetter and chaired by Howard (1937). Stauss (1944, footnote 4) confi rms the connection between Littleton and Commons, as well as between entity theory and American institutional economics: I have used the word “proprietary” to refer to the characteristic of possession of title to the commodity resulting from employment of productive resources. Many economists consider this characteristic as an attribute of the entrepreneur as an individual; but such a point of view, while consistent with the older assumption that the fi rm is a collection of individual investors dominated by the owners, is contrary to the newer assumption that the fi rm is an entity distinct from the possessors of equities in it. (cf. Paton and Littleton 1940: 7–11)10 Both the German–American accounting connection and his interest in American institutional economics led Littleton to focalize on the legal-economic analysis of the enterprise entity to understand accounting and its nature and role in the economy and society. The next section will clarify his institutional analysis of the business fi rm by contrasting the proprietorship and the entity approaches thereof.

LITTLETON AND THE ENTITY APPROACH TO THE INSTITUTIONAL ANALYSIS OF THE BUSINESS ENTERPRISE The debate between proprietary and entity theories of accounting is constitutive of American accounting history in the fi rst half of the twentieth century (Previts and Merino 1995; Moehrle and Reynolds-Moehrle 2011). The proprietorship approach to the business enterprise requires a peculiar focus on its partners or shareholders. According to Gynther (1967) and Sprouse (1957 and 1958):11 Those who hold the proprietary concept perceive the firm as being owned by a sole proprietor, a set of partners, or a number of shareholders. The firm’s assets are looked upon as being the property of these people and the liabilities of the firm are their liabilities. [ . . . ] The proprietors are the center of interest at all times. [ . . . ] [P]rofit are perceived to be the property of the proprietors (and not the firm) at the time they are earned, whether they are distributed or not. (Gynther 1967: 275) According to this view, the legal entity of the corporation is merely a device of a representative nature by means of which the association’s business affairs may be conveniently administered with certain legal privileges and within certain legal limitations. (Sprouse 1957: 370)

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This view repeats widespread preconceptions even in the current theories of the fi rm, especially those based on “agency” and “property rights” (Biondi et al. 2007). In particular, the focus on one (or more) entrepreneur-proprietor and his interest in the enterprise, which has no economic autonomy but is a mere legal-economic device to manage his business; the business assets as owned by that proprietor; costs or debts as direct decrease of his invested wealth; and residual earnings as an increase of this wealth. Several scholars insist on the connection between this proprietary theory and the British classic economics and its idea of an entrepreneurproprietor and the accumulation of his wealth (Stauss 1944; Berle 1965; Moehrle and Reynolds-Moehrle 2011). This approach often claims “personification”12 and “stewardship,” transforming the managers into the agents of the proprietors, accountable for business results to them. In fact, Littleton (1961: 30–36) stresses the evolution from the notion of “stewardship” to the more abstract notion of “proprietorship,” the latter focusing on the business capital invested in running the business.13 At the end of the nineteenth and the beginning of the twentieth centuries, Sprague and Hatfield renew this doctrine when it is already overcome by featuring facts. Adopting a pragmatist perspective, Merino (1993) analyzes this accounting debate in the context of industrial concentration occurring at a time when pragmatism and social Darwinism (especially H. Spencer and W. G. Sumner) confront one to another. Accordingly, by justifying the corporate revolution while reaffi rming the primacy of the owner and his rights (no retention of residual benefits, distribution of dividends), proprietary theory aims to restore property rights and shareholders as the owners in the new context characterized by major mergers and acquisitions, the emergence of trusts and big corporations, “absentee ownership” (Veblen 1923), and the oligopolistic profits generated by an active control on the price system by enterprise groups and alliances. At the same time, especially in the 1920s and thereafter, entity theory is developed, somehow relating to the marginalist revolution in economics and its specific attention to the price system and the link among costs, revenues, and profits. Paton (1922: 8) seems to refer to this parallel theoretical advance to analyze the business enterprise and its management: If the tendencies of the economic process as evidenced in market prices are to be reflected rationally in the decisions of business managers, efficient machinery for the recording and interpreting of such statistics must be available; and sound accounting scheme represents an essential part of such a mechanism. . . . To put the matter in very general terms, accounting, insofar as it contributes to render effective the control of the price system in its direction of economic activity, contributes to general productive efficiency and has a clear-cut social significance, a value to the industrial community as a whole.

370 Yuri Biondi According to Littleton, instead, managerial action intends and is required to drive the enterprise, including dealing with transactable and transacted prices, through an active management of the specific economic and monetary process generated by the fi rm over time. From this perspective, Paton’s approach takes the risk to dilute the fi rm into the price system and deny then any economic existence and autonomy to the business enterprise as such. On the contrary, Littleton (1933, 1961: 75) aims to develop the contribution of accounting theory by focusing on this role of the enterprise entity in economy and society: The proprietorship theory was entirely appropriate to its day. The typical enterprise was not incorporated [either sole proprietorship or partnership]; the proprietor and the business were not legally distinct [i.e., unlimited liability]. In the modern setting, “ownership” loses its force; [a] the assets are corporation property; [b] ownership consists in certain rights to ultimate liquidation of prior investments and [c] of interim rights to share in enterprise earnings at the discretion of shareholder-elected directors. The entity concept is much more appropriate to twentieth century conditions. According to Moehrle and Reynolds-Moehrle (2011: 119–120), both Berle and Means (1932) and Paton and Littleton (1940) advocated for general acceptance of entity theory and historical cost accounting basis, endorsed by the fi rst SEC Commissioner Robert E. Healy (1938) and American Accounting Association (1936): The purpose of accounting is to account—not to present opinions of value. (Healy 1938: 6)14 Accounting is thus not essentially a process of valuation, but the allocation of historical costs and revenues to the current and succeeding fi scal periods. Each of the following propositions embodies a corollary of this fundamental axiom. (American Accounting Association 1936: 188) Several featuring points are stressed by entity theorists (Stauss 1944; Berle 1947, 1965). In particular, the entity economic autonomy and continuity, recognized by law through the limited liability of shareholders and their free exit, the legal prior protection granted to other stakeholders than shareholders, its legal capacity (through its legal structure) to enter contracts and obligations, its property of assets, and prior control on revenues and profits, the separation among ownership, control, and management, only the latter being allowed to dispose of assets and flows, and to organize the business, “absentee ownership” (Veblen 1923), that is, the huge number of shareholders holding only irrelevant value share of equities, without any

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material influence on decision making (Berle and Means 1932); regulatory and statutory constraints on dividend distribution and share buybacks, especially through accounting law and regulations, while net earnings can and usually are retained for securitizing the continuity of business and its development; the fact that, before liquidation, the fi rm must not refund the shares at their value (neither market, nor book or face value), shareholders being forced to sell them on the fi nancial market. Furthermore, we may add the distinction between dispersed shareholding and minority control, somehow pointed by Veblen through his “depredation theory of entrepreneurial gain,”15 especially in matters of control on business resources and flows. Concerning the economic role of shares, entity theorists acknowledge shares as financing sources remunerated by dividends, without special relation with property of assets and its intrinsic risks. Shareholders become a kind of fi nanciers, willing to bear a specific business risk class.16 What could be more logical therefore than to rest dividend law upon the profits test which would serve all parties at interest equally well? After all, those who supply the capital for modern corporations are not to be classified, as was the case long ago for single enterprises, into creditors and owners each with its different legal status. They are all suppliers of capital and they are all claimants against earnings and residual assets according to the terms of their respective contracts. They have more common than antagonistic interests. (Littleton 1929: 147) In accounting, the entity approach shifts from the balance sheet valuation focused on properties and debts to the economic and monetary flows, which are involved in overarching economic transactions, combinations, and events generated by the enterprise entity. Once again, while Paton accepts the assets-liabilities method focusing on the balance sheet, Littleton prefers the income statement and the revenues-expenses method of accounting. Nevertheless, for both authors, business income to the entity involves an allocation of flows between various claimants, be they shareholders, creditors, employees and managers, or the government. Following Paton, this leads to a specific class of net operating income related to the economic role of the fi rm as production of income and wealth from sales. This class is a sort of “value-added” net of salaries, involving distributions of such net revenue to all categories of capitals (long-term debts, obligations, and shares) and taxes. Moreover, the entity perspective also leads to a distinctive conception of the scope and purpose of accounting in economy and society. For the “proprietorship theory,” for example, Sprague (1907: 59) claimed that, “the whole purpose of the business struggle is the increase of wealth, that is increase of the proprietorship . . . the all important purpose of the proprietary accounts is to measure the success or failure in increasing wealth.”

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For the entity theory, instead, Littleton (1953: 34) underscores that, “The public accountant has an important moderator-function to perform . . . : he has the complex task of fashioning complex materials into a form that is useful to a mixed community of interests; he has the important social task of holding his independence in such high esteem that his report can be accepted by all parties.” The institutional economic primacy to the enterprise entity further leads Littleton to foster the original contribution of accounting to understand and the specific economic and monetary process generated by the enterprise entity over time, ignorance and hazard. The next section will clarify his analysis of this process by contrasting the proprietorship and entity approaches thereof.

LITTLETON AND THE ENTITY APPROACH TO THE ECONOMIC ANALYSIS OF THE BUSINESS ENTERPRISE Proprietary theory especially stresses entrepreneurial risk-taking that allows shareholders residual claims on business income. This analysis makes risktaking as such the criterion for both the entrepreneur and the enterprise, distinguishing the risk premium from the remaining business incomes to the fi rm. At that time, the most complete theoretical argument was the risk theory by Hawley, published in a series of articles and rejoinders on the Quarterly Journal of Economics between 1892 and 1901, later summarized in the book Enterprise and the Productive Process (1907). According to Schumpeter (1954: 894–897), Knight (1921) and Dobb (1925) were strongly influenced by this theory. Hawley disentangles the productive and entrepreneurial risk by the enterpriser from the risk taken by the speculator or the gambler. While salaries and debt interest may involve risks, their amounts are fi xed ex ante by contractual agreement. Only the profit is a residual income, determined by periodic balance sheets. For Hawley and J. B. Clark, the entrepreneur is the coordinator of capital and labor. Nevertheless, contrary to J. B. Clark, which makes capital assuming alone the enterprise risk, Hawley refuses to disconnect the entrepreneurial role from the property of assets and the uncertainty on the related income. An implicit tautology is involved in defining the link between risk and profit through residual claims. No rigorous connection exists between risk and profit because profitable business affairs can involve limited risks, for instance, by business alliances or government privileges or grants. Neither risk nor risk-taking is productive in itself. Risk points to existing but vague alternatives and does not generate profit by itself. Furthermore, enterprise risks and their taking are not limited to shareholders or entrepreneurs, but they concern all stakeholders, including employees, creditors, and longstanding clients. According to Littleton (1928: 283), risk-taking and the mastership thereof seem the concern of the enterprise entity as a whole and the management of that entity. Making relevant references to the German

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doctrine, Littleton (1928) develops this argument in a direct quarrel with Knight’s masterpiece, Risk, Uncertainty and Profit (1921). First, Knight resumes the distribution theory in static conditions, summarized in chapter four (joint production and capitalization), in order to further develop it under dynamic conditions in chapter nine (enterprise and profit). According to Knight (1921: 197–198): the failure of competition and the emergence of profit are connected with changes in economic conditions, but [ . . . ] the connection is indirect. For profit arises from the fact the entrepreneurs contract for productive services in advance at fi xed rates, and realize upon their use by the sale of the product in the market after it is made. [ . . . ] If all changes were to take place in accordance with invariable and universally known laws, they could be foreseen for an indefi nite period in advance in their occurrence, and would not upset the perfect apportionment of product values among the contributing agencies, and profit (or loss) would not arise. Hence it is our imperfect knowledge of the future, a consequence of change, not change as such, which is crucial for the understanding of our problem. Drawing on the distinction between measurable risk and uncertainty that is only assessed by estimates (developed in chapter seven), Knight argues for the fundamental relationship between entrepreneurial profit and uncertainty in chapter nine. He defi nes then his notion of internal organization that is being to be criticized by Littleton. According to Knight, the importance of “the internal organization of the productive groups or establishments” lays in managing uncertainty, which makes decision-making critical and different from mechanical application of “routines” introduced in static conditions (chapter four). In this context, In the fi rst place, goods are produced for a market, on the basis of an entirely impersonal prediction of wants, not for the satisfaction of the wants of the producers themselves. The producer takes the responsibility [i.e., decision-making with uncertainty] of forecasting the consumers’ wants. In the second place, the work of forecasting and at the same time a large part of technological direction and control of production are still further concentrate upon a very narrow class of the producers, and we meet with a new economic functionary, the entrepreneur. (Knight 1921: 268) This faculty to take decisions and bear their “responsibility” relates to the subjective capacity of judgment and forecasting held by some individuals, that is, to their entrepreneurial role because they are expected to be more capable than others to be confident and prompt people to follow them “to venture.”

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Yuri Biondi This fact is responsible for the most fundamental change of all in the form of organization, the system under which the confident and venturesome “assume the risk” or “insure” the doubtful and timid by guaranteeing to the latter a specified income in return for an assignment of the actual result [i.e., the profit]. (Knight 1921: 270)

The distribution of social product must then distinguish only two kinds of income: one contractual income, analogous to rent, fi xed ex ante by imputation through market competition; and a residual income, the profit, allocated to the entrepreneurs. Actually, Knight grapples with his own distinction between market allocation (and marginal cost pricing) and profit. He stresses the novelty of this latter kind of income (Knight 1921: 276), its determination only in value (284) related to forecasting (273–274) and disequilibrium (272–273) while speaking of specific offer and demand of entrepreneurial services (272–273, 282–284). The supply of entrepreneurs involves the factors of (a) ability, with the various elements therein included, (b) willingness, (c) power to give satisfactory guarantees and (d) the coincidence of these factors. (Knight 1921: 283) From this perspective, the justification of this revenue through entrepreneurs’ capacity and will (points a and b) appears to reduce it to the income of one factor or agent, or merely to a quasi-rent involved by mistakes and shyness by other people in the equilibrium adjustment process. It does by no means acquire an autonomous and a specific nature. Furthermore, his association between key decision making and securitization of other people’s incomes (point c),17 which enables entrepreneurs to direct their labor,18 is problematic when the corporation has to be taken into account. The latter is a legal form that centralizes control on managers and makes ownership dispersed. To solve this problem, Knight has recourse to a sort of archangels’ hierarchy, which brings upward every uncertain decision on the supreme head of the business (Knight 1921: 297). The only decision that matters would be this choice by that supreme hero,19 accomplished by externally controlling entrepreneurs who are now the owners of production means: In general practice the ownership of property is necessary to the assumption of genuine responsibility, and in the typical modern business organization the responsible owner furnishes no labor services to the business, but property services only. (Knight 1921: 309) At the beginning of the chapter, in a footnote (Knight 1921: 291, note 1), Knight acknowledges that, at least regarding the corporation, the property of assets belongs to the enterprise entity itself, not to its owners, but he neglects all implications of this feature throughout his analysis. He notices

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the emergence of “corporation accounting” and “scientific accounting” (Knight 1921: 25, 303 ff.), but he refers then to the proprietary theory of accounting. When Knight addresses the nature of residual income or profit, he links it through uncertainty to the solitary action of the proprietary entrepreneur, disregarding the active role played by the existence of the enterprise entity and its management. 20 On the contrary, by drawing on the entity approach under development, Littleton (1928) quarrels against Knight (1921), Hawley, and Simpson. Littleton argues that the nature of profit relates to the fundamentals of the economic system articulated among “division of labor,” “money economy,” and “subjective valuations of utility.” Accordingly, the existence of entrepreneurial risk is evidence and a fact. But are we entitled to consider risk as the factor which generates profit? The real function of the enterpriser is not merely to serve as a “shock absorber” between the changing conditions and labor, but rather his true purpose is to overcome naturally speculative conditions and to avoid losses. 21 This would let it seem that profit would come to the enterpriser in proportion to his skill in dodging the effect of risks rather in proportion to the size of the risk itself. The emphasis would seem to lie with choosing risks wisely, if profit is to emerge. If one is too venturesome, loss results; if one is not venturesome enough, there may be but meager profits, if any. It would seem, however, that uncertainty and change produce only an opportunity to profit [and its important seizure], that they call management into being, and that it is management which converts a mere possibility into a real actuality. (Littleton 1928: 281–282; 1961: 204–206) The entrepreneurial function does not seem to Littleton only devoted to absorbing shocks between business fluctuations and labor, but to play an active role in mastering those conditions in order to avoid losses. Profit results more from this active management of the situation and its evolution than from the passive risk-bearing claimed by Knight. Conditions such as uncertainties and profit opportunities can be advocated for evaluation of some securities, but they are not central to the working of business activity. Profit opportunities might remain lost opportunities without intelligent and effective action by management through the control of the enterprise entity and its working. The latter lays then at the heart of active mastership of uncertainties and avoidance thereof. On the contrary, Knight would be merely renewing J. B. Clark’s argument linking profit to dynamic changes: A modification of [the] explanation [provided by J. B. Clark, Distribution of Wealth] lays emphasis upon the unforeseen changes and attributes profit to uncertainty. Any foreknowledge of a change, it is pointed out, would cut off profits by calling forth-new supplies, etc.

376 Yuri Biondi Consequently, it is the unexpected, the divergence of actual conditions from those expected and upon which arrangements had been made, which constitute the principal element in profit. [ . . . ] when uncertainty is introduced the primary problem becomes one of deciding what to do and how to go about doing it—the problem becomes one of management; it becomes necessary to forecast consumer wants and to control the technique of production. (Littleton 1928: 283) According to Littleton, management and its functions of decision making, organization, and forecasting of needs, control of production, are the key element for profit. Uncertainty and change can create opportunity of gains (or threats of losses), but only management sizes these opportunities and transforms them into actual results. Business income then “is not the result of the simple speculative adventuring of an investment—the prudential casting of bread upon the waters. [It] is more than the change realization of a gain arising out of an ownership now transferred to another” (Littleton 1937a: 16–17). Furthermore, Incomes express in money-price [streams] the fruition of the enterpriser’s efforts—the ripening harvest as it were from a prior planting carefully cultivated. Quite a different condition this from a mere speculative venturing, even though the outcome of the husbandry may be subject to unpredictable and uncontrollable risks. (Littleton 1937a: 17) This perspective helps to defi ne and determine the specific income to the business entity. According to Littleton (1929: 150): Much of the loose usage of “value” in accountancy may perhaps be due to the generally held view that value in business has a cost base, that Price=Cost+Profit. As a matter of fact: Price–Cost=Profit. This latter expression is by no means equivalent to the fi rst one. Mathematically, the transposition of one item of the equation does not change the expression; arithmetically the results are the same when all three factors are known. But economically the equations are not identical. “Price” (value) is not a derived element; for “profit” is unknown until exchange occurs; and cannot be added in advance to cost; profit is not a percentage added arbitrarily to cost. Actual price and real profit appear together when an exchange has taken place. Until that time the fi rst equation really is: Offered-price=cost + expected-profit. But in reality, profit, rather than price, is the important unknown. After an exchange has occurred price is known, cost is known, and profit results from the subtractions of the two. Profit, not price, is the derivative. It is misleading, therefore, to think of the elements in the form of the fi rst equation, since there the plain indication is that price (or value) is the derivative. (emphases added)

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In this context, accrual accounting enables one to determine the business income based on economic monetary flows that are allocated to products and periods of reference. The causal perspective advocated by Littleton (1937a)22 surely refers here to the Marshallian “belonging”: The emergence of revenue and the incidence of expense are stressed in accounting in order to bring together the elements which belong together. But what is the clue to “belonging”? (Littleton 1937a: 20) If a person is engaged in business, he is sure to have to incur certain outgoings for raw material, the hire of labour, etc. And, in that case, his true or net income is found by deducting from his gross income “the outgoings that belong to its production [43].” footnote 43: See a report of a Committee of the British Association, 1878, on the Income Tax. (Marshall 1920, Book II, chapter IV “Income, Capital”, §2 “Net Income”: 72)) Like Walb (1926), Littleton does not understand the entity process through opposing (entry and exit) prices, but inflows and outflows. Accrual accounting is not properly considered to mean profit accounting, if profit is thought of merely as the difference between two specific prices. Accrual accounting is better described as income accounting for the reason that accounting is a method of computing the net result produced by two price-streams rather than a way of comparing pairs of individual prices. One stream is the outflow of services given, the other is the inflow of services received. (Littleton 1937a: 20) Accounting stresses the logical distinction between inflows and outflows, between revenues and costs. Accounting imputation is then based on the temporal process occurring among fi nancing, production, and sale. According to Littleton (1937a: 58): The appearance of output in a business today is not analogous to the simple speculative adventuring of an investment; and income is more than the chance realization of a gain arising out of the mere fact of transferred ownership. Output of services is the result of defi nitely planned work; it is the consequence of a prior input of services made with intent to create output; income is the earning flowing from the work done; it is the consequence of a prior outlay made with intent of generate income. ( . . . ) The key to this doctrine is the word “intent.” This approach makes the articulation between monetary and economic flows fundamental. As Littleton (1936: 12; 1961: 197)23 explains:

378 Yuri Biondi The practice of recording all transactions in terms of a standard money of account [not to be confused with money having a stable value]24 had the natural result of leading uncritical businessmen to confuse money with cash. They thus came to think of the accounts as showing cash collected (or cash to be collected from debtors) and cash disbursed (or to be disbursed to creditors). By an unconscious drift through a long period of time the fundamental process of business thus came to be thought of as collecting and disbursing rather giving and receiving goods as services. What the accrual system did was to correct that mistaken conception. Proprietary theory appears to follow those businessmen in understanding the business dynamics basing on cash and cash-equivalences: The business process is then reduced to a series of monetary inflows and outflows.25 The entity is anything but a treasury where lay values of properties (on the asset side) and claims on those values (on the liability side), and valuation is taken at some arbitrary moment of time. Business capital is then reduced to the static idea of individual wealth, that is, the net worth of his owner. On the contrary, the entity approach to accrual accounting leads to distinguishing monetary and non-monetary dimensions through the preference of price (cost) over value and the abandonment of “maintenance of capital intact.” Words and figures of accounting involve the use of money as a symbol, while businessmen utilize money as a medium of exchange. From the viewpoint of the entity, which is the viewpoint adopted by accounting, no questions of valuation and worth are involved: Money is only a mere sign and symbol representative of the reality of the underlying transactions, combinations, and events. “Accounting, in all of its analyses of an infi nite variety of transactions and in its records of innumerable fi nancial occurrences, seeks to embody the realities of the moment in permanent figure representations—in symbols which lend themselves to arithmetical summarization and manipulation” (Littleton 1929, 1961: 227). In this way, the reference to invested cost and actual price established in transactions does not require any reference to value. Here Paton (1946) disagrees with Littleton (1953): The first argues that “cost ( . . . ) is important as a measure of the value of what is acquired” (Paton 1946: 193), while the latter claims “an unending clash of the idea of value and the idea of cost” (Littleton 1953: 10). Paton (1980) further stresses his preference for the value basis. However, according to Littleton, cost is a quantitative element expressed in monetary terms and a keystone to track and assess managerial action over time:26 It is for sound, logical reasons, therefore, that accountants tend to cling to cost prices for accounting and fi nancial statement purposes. “Cost” is defi nite and, once expended, is unchangeable. It will afford a basis for a profit calculation whenever the other element (a sold-price) is also known. But “value” is indefi nite and as changeable as earnings since it

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rests primarily upon that basis. It can never be the starting point of a calculation of profit. (Littleton 1928: 287) Past prices (cost), being actual for the enterprise concerned, represent the prior decisions of its management and thus constitutes data about past experiences which are highly important elements in making present managerial decisions affecting the future. (Littleton 1953: 215) This entity approach points to the economic process specific to the enterprise entity and its management: The entity past is then linked to its present and future consequences and implications. However, the proprietary perspective adopts an instantaneous approach, based on an arbitrary moment of valuation, which refers to present values, not to that process. From the normative viewpoint, this latter approach pretends to assume the enterprise capable to instantaneously adjust to all events that change values of assets and liabilities. Furthermore, no such thing as permanent capital exists in this entity economic process. The logic of maintaining capital intact is overcome by the credit economy fi rms are embedded in (Littleton 1938). An accounting method of imputation can resolve to match flows to products and periods instead. The accounting method may then be explained through the idea of a total revenue on the overall business duration, accounted for by periodic decoupling in periods of reference; or trough the distinction between ongoing recording during the period according to cash and cash-equivalent flows, and accrual adjustments made at the end of the period to account for the underlying economic process. All business revenues must be linked to this enterprise process, including the distribution of dividends to shareholders, that is, dividends presuppose profits of a going concern as dividend base (Littleton 1934a, 1934b, 1937b). Quarreling against Preinreich (1935), 27 Littleton (1935b: 414) claims that, The corporation is an important institution of modern society, created, it is true, by law, and having no personality separate from those who supply its capital or carry out its avowed purposes. But it is hardly a fiction. Just as a family is more than the sum of its several members, and a home is more than a house, so a corporation is more than a mere aggregate of associated members. It is because it is something more that we may say with truth that the corporation is an entity. If the corporation is an entity, then neither it nor its assets can be completely identified with either a part (common stockholders) or the whole (all security holders) of its constituent membership. The corporation is more than an expanded proprietorship owing debts to its bondholders, as is implied by the author’s argument. It would be sounder to see in the corporation a social instrument which serves all who supply it with capital, labor, or sales.

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According to Littleton (1938a: 84), this entity approach to business profits and their distribution to shareholders “attempt(s) to bring corporation law, corporation management, and corporation accounting closer together”: It should be possible to visualize law and accounting as combining forces in setting standards which would aid management in giving well-balanced consideration to the interests of all parties concerned, as is fitting whenever fiduciary responsibilities obtain. (Littleton 1938a: 84)

CONCLUSIVE REMARKS Both his German–American connection and his interest in American institutional economics helped Littleton develop his entity theory that links law and economics with accounting of the business enterprise. These influences do not concern only Littleton: Schranz (1930, 1937), Weigmann (1932), and Hintner (1933) deal with German accounting and business economics. Furthermore, Hanson (1933) reviews Berle and Means (1932), while Kincaid (1935) reviews Institutional Economics by J. R. Commons (1934) and Kincaid (1936) reviews Economic Thought and Its Institutional Background by H. W. Peck on the pages of The Accounting Review. Interestingly, in the same period, Schmalenbach (1933) contributes to the Harvard Business Review to explain business economics and changes in business conditions in Germany, while Weidenhammer and Krebs (1930) refer to Schmalenbach and his “much discussed address in Vienna in 1928” (Schmalenbach 1928) on the pages of the American Economic Review. Drawing on those references to German business economics and accounting, and old institutional economics, Littleton disentangles the entity approach from the old proprietary approach by developing a distinctive institutional economic perspective. The enterprise entity is then understood as an institution and organization playing its special production role in the economy and society. This enterprise entity generates a specific economic and monetary process that accruals accounting aids to represent and govern. Littleton quotes Commons as a major reference of his thought. He and his students explore legal and accounting matters in the attempt to bring business law, economics, and accounting closer together. Beyond a doubt, Littleton was aware of the continental development on the enterprise entity and was its key promoter in the American context, as proved by his references to European business economists, his activity as reviewer, and his contribution to the German journal promoted by Nicklisch. The American and European developments on the matter thus appear to be related, as the legal-economic discourse also testifies. In particular, the European institutional school of the enterprise entity (Unternehmen an sich) fostered by W. Rathenau (1918) discussed legal-economic matters

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from a perspective that was influential at that time. In the fi nal chapter of their masterpiece, Berle and Means (1932) quote Rathenau as a key reference to support their own view of the fi rm (and of its peculiar corporate form) as a socioeconomic institution. NOTES 1. See also the commemorations in American Accounting Association (1992) and Anthony (1983). 2. With the support of the department head, Professor Hiram T. Scovill, he drew up the fi rst graduate courses in accountancy at the University of Illinois since the fall of 1921. Under his direction, the fi rst PhD program in accountancy in the United States was developed at the University of Illinois, and the fi rst such degree was awarded in 1939. Over his entire career until his retirement in 1952, Littleton supervised 92% of the Illinois PhD dissertations and 34% of the master’s theses (Bedford 1997: 21). 3. On Hatfield’s contribution to accounting thought and education, see Zeff (2000). 4. “ Wer tiefer in eine Wissenschaft eindringen will, muss auch ihre Geschichte kennen lernen.“ 5. Littleton explained his preference for “invested cost” in Littleton (1952; reprinted in Littleton 1961: 321–322). Zappa (1937: 71) agreed with him for his own “business income accounting system.” 6. Hatfield was appointed the U.S. representative to the International Congress on Commercial Education held in Amsterdam (1929), and he was an AAA representative to the Fourth World Congress of Accountants held in London (1933). Interestingly, the 1st World Congress of Accountants was held in St. Louis (United States) in 1904, the second one in Amsterdam (Holland) in 1926, the third one in New York City in 1929, and the fi fth one in Berlin (Germany) in 1938. 7. German (tax) law literature of the early twentieth century also discussed the question of entity theory against the background of group taxation (Organschaft). 8. At that time, other editors were G. Obst (Breslau), E. Heilfron (Berlin), E. Pape (Jena), W. Prion (Berlin), A. Schmid (Wien), R. Seyffert (Koeln), and F. Werner (Muenchen). 9. We attribute this footnote (one of the few in this book) to Littleton himself, since he was living at that time, not to the editor of the manuscript, C. A. Moyer. 10. Stauss (1944, footnote 21) associates “Paton and Littleton 1940: 9–11” with “John R. Commons 1924: 143–213.” 11. Since the 1960s, “foremost in advocating for the balance sheet approach was AAA President [1972–73] and future FASB member [1973–1985] Robert Sprouse” (Moehrle and Reynolds-Moehrle 2011: 131–132). 12. Neither proprietary nor entity theories ask for personifying the entity. However, Irving Fisher made this mistake (cf. Fisher 1906: 92) and was criticized by Sprague (1907: 48) and Zappa (1910: 192; 1920/1929: 222–223; 1937: 275–276). See also Kell (1953). 13. In Italian accounting, theory, this logical shift was accomplished by F. Besta. 14. This article was presented at the twenty-second annual convention of the American Accounting Association (Chalfonte-Haddon Hall, Atlantic City,

382

15. 16. 17.

18. 19. 20. 21. 22.

23. 24. 25. 26. 27.

Yuri Biondi NJ) on Monday, December 27, 1937, at 2:00 p.m. during a general topic session devoted to “Accounting in Transition,” chaired by Jacob B. Taylor. The session includes this article and Berle (1938) on “Accounting and the Law.” The Accounting Review issue further includes a piece by Littleton (1938b) on the same matter, titled “Tests for Principles.” Labeled by Schumpeter (1954). Modigliani and Miller (1958) consider that enterprise risk directly relates to its assets and only indirectly to its liabilities, including shareholders equity. This point refers to the shareholders’ obligation to refi nance the committed equity in case of losses. As a matter of fact, his obligation does not exist in every corporate law or statute, and it is limited to the legal capital that usually is only a small fraction of the whole shareholders’ equity. See Knight (1921: 270–271). It seems an implicit reference to A. Smith’s notion of commanded labor. In fact, another contrasting view of decision making is suggested later in the book (Knight 1921: 358–359). To be sure, Knight somewhat acknowledges the passive role played, through consolidation, by the size of the entity in reducing the impact of uncertainty. Littleton (1928) refers here to C. J. Foreman (1918: 321). “Thus original outlay-costs [expenditures] should become deferred costs [assets] only when they may reasonably be considered as causally related to future revenue-sources; they should become amortized costs [expenses or period-costs] only when they may reasonably be considered as causally related to current revenue-sources; and they should become abandoned costs [losses] only when they may be reasonably be considered as unlikely ever to be causally related to the production of any revenue” (Littleton 1937: 21, emphases added). See also Zappa (1924: 20–22). For Littleton or Zappa, the cost principle relates to the actual amount established by realized transactions and does not assume any stability of money purchasing power. Paton (1963) agrees with Littleton on this “cash-flow illusion.” Bonbright (1945) agrees with Littleton from a patrimonial, legal-economic perspective. See also Lang (1935).

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Bedford, M. N. 1997. A history of accountancy at the University of Illinois, Center for International Education and Research in Accounting. Champaign, IL: University of Illinois Press. Bedford M. N., and Ziegler, R. E. 1975, July. “The Contribution of A.C. Littleton to Accounting Thought and Practice.” The Accounting Review 50(3): 435–443. Berle A. A., Jr. 1938, March. “Accounting and the Law.” The Accounting Review 13(1): 9–15. (Reprinted in Accounting, Economics and Law: A Convivium (2012), available at http://www.bepress.com/ael/vol2/iss1/1) Berle, A. A., Jr. 1947. “The theory of enterprise entity.” (Reprinted in Y. Biondi et al. The firm as an entity: Implications for economics, accounting and the law. New York and London: Routledge, 2007.). Berle, A. A., Jr. 1954. “The 20th Century Capitalist Revolution.” USA: Harcourt, Brace and Company. Berle, A. A., Jr. 1959. “Power without Property.” USA: Harcourt, Brace and Company. Berle, A. A., Jr. 1965. “The impact of the corporation on classical economic theory.” (Reprinted in Y. Biondi et al. The fi rm as an entity: Implications for economics, accounting and the law. New York and London: Routledge, 2007.) Berle, A. A., Jr., and Means, G.C. 1932. The modern corporation and private property. New York: Harcourt, Brace & World. Biondi, Y., Canziani, A., and Kirat, T. 2007. The firm as an entity: Implications for economics, accounting and the law. New York and London: Routledge. Bonbright, C. J. 1945, October. “Original Cost as a Rate Base.” The Accounting Review 20(4): 441–447. Commons, R. J. 1924. Legal foundations of capitalism. New York: Macmillan. Commons, R. J. 1934. Institutional economics. Its place in political economy. New York: Macmillan. Dorfman, J. 1955. “The Role of the German Historical School in American Economic Thought.” The American Economic Review 45(2). Dusemund, Franz Josef (1929), Der betriebswirtschaftliche Gewinnbegriff in seiner historischen Entwicklung [Evolution of the Concept of Profit], Stuttgart: C.E. Poeschel VerlagDobb, Maurice (1925), Capitalist Enterprise and Social Progress, Londons School of Economics and Political Science Studies No. 81, London: Routledge Fisher, I. (1906) The Nature of Capital and Income, New York: Macmillan. Foreman, C. J. 1918, June. “The Profits of Efficiency.” American Economic Review 8(2): 317–334. Gruchy, G. Allen (1947), Modern Economic Thought, New York: Prentice-Hall Inc. Gynther, S. R. 1967, April. “Accounting Concepts and Behavioral Hypotheses.” The Accounting Review xlii(2): 274–290. Hamilton, W. 1919. “The Institutional Approach to Economic Theory.” American Economic Review 9(Suppl.): 309–318. Hanson, W. A. 1933, September. “Review of The Modern Corporation and Private Property by A. A. Berle and C. G. Means.” The Accounting Review 8(3), September: 255. Hatfield R. H. 1924, April. “An Historical Defense of Bookkeeping.” The Journal of Accountancy 37(4): 241–253. Hawley, Frederick B. 1907, Enterprise and the Productive Process, New York: Putnam. Healy, E. R. 1938, March. “The Next Step in Accounting.” The Accounting Review 13(1): pp. 1–9. Henzel, Fritz (1931), Erfassung und Verrechnung der Gemeinkosten in der Unternehmung, Berlin: Spaeth und Linde

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15 Accounting Relativism The Unstable Relationship Between Income Measurement and Theories of the Firm1 Stefano Zambon and Luca Zan

INTRODUCTION It is well known that accounting is relative to and contingent upon organisational and social contexts. In particular, critical approaches have focussed on the variety of uses and effects of accounting in space-time settings, and especially on the instrumental claims on, and opportunistic adaptation of, accounting within power interplays at various levels and in different environments. It is also widely recognized that this vested use of accounting is allowed by its inherent flexibility. This flexibility is perceived to be linked to the ‘softness’ of year-end valuations and more generally, of all allocation processes attached to accounting. However, relatively little attention has been paid to the ‘flexibility’ of accounting stemming from its knowledge foundations. Certainly accounting is characterised by an unstable technical content on which most of the theoretical interest concentrates from different analytical perspectives. The technical surface, though, conceals alternative knowledge-based explanations of the way in which accounts are ‘assembled’ and presented. Accounting technology relies in fact on conceptual premises which are rarely spelt out. Indeed, accounting can be seen as being contingent upon other forms and structures of knowledge which by tradition and by discipline have been held distinct from accounting. This is the case, for instance, with cognitive disciplines in relation to accounting for decision-making, and with social identities and management styles with respect to the role played by accounting in organisations. The multifaceted and unsteady interaction between different bodies of knowledge and accounting, affects the representation of the object of accounting itself, the aims it seems to be pursuing, and the information needs which are reckoned to be most relevant. The paper is concerned with the knowledge foundations of accounting, with reference primarily to fi nancial accounting. It deals with knowledge rather than power, with theoretical structures affecting accounting calculations rather than partisan uses of accounting in social contexts. The authors believe that the analysis of these foundations may shed some further light on the very roles of accounting. In fact, it is contended here that

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accounting can potentially serve many interests as a tool of power, because its knowledge bases have an ambiguous theoretical status. As such they are the logical premises of the instrumental usage of accounting. It is the unstable knowledge underpinnings of this technique that can open up room for its discursive use in terms of power (Hopwood, 1987, 1992). As an example of the problematic knowledge foundations of accounting, the paper focuses on those emerging from economics, here considered a distinct tradition of thought. In particular, the focus is on the implicit ways through which the conceptualization of the fi rm may condition surplus measurement in accounting. The paper assumes that there exists a subtle but complex relationship between theories of the fi rm, accounting theories and income measurement. If it is recognized that accounts provide a representation of the fi rm, it is accounting theory which conceptualizes this representation and, in so doing, tends to introduce elements of a theory of the fi rm. In this sense, Coase (1990) states that accounting and the theory of the fi rm are not clearly separable. 2 In the literature such a relationship seems to be disregarded and is rarely investigated. However, some important exceptions to this prevailing perspective can be found. Indeed, in some continental European traditions the relationship between accounting and theories of the fi rm is institutionally framed within a wider discipline which studies the economics of institutions as a whole. In these conceptual contexts accounting is seen as a part of the fi rm’s economy, and as being intertwined with other aspects and activities of the fi rm (organisation, operations, management, and so on). This is the case, for instance, of the Italian School of Economia Aziendale, the German tradition of Betriebswirtschaftslehre, the Dutch Bedrijfseconomie, the Swedish Företagsekonomi, the Finnish Liiketaloustiede (Hopwood & Schreuder, 1984, Zambon, 1996b and Zan, 1994), all of which can hardly be reduced to mere accounting theories. In the Anglo-American tradition, the relationship between accounting and the theory of the fi rm tends to be tacit, and it is not part of a wider theoretical framework. However, some authors have posed the need for an orientation postulate to make explicit the reference point to which accounting should relate (Zeff, 1978). The entity and proprietary theories are the most relevant expressions of the orientation postulate, and represent different conceptions of the fi rm which inform the way the accounting process is conceived and carried out. In this respect, the entity vs proprietary debate within the American accounting literature can be interpreted as a theoretically important example of the juxtaposition of different conceptual approaches to the fi rm. The analysis of, and the comparison between, underlying conceptions of the fi rm seems to be relevant also in policy and practical terms. As the choice between technical procedures is not neutral in terms of power and influence, so it is not also in terms of knowledge, since it is grounded on the (implicit) preference for a given theory of the fi rm. This implies that

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practice is never just ‘practical’, but it has theoretical implications at the level of the fi rm concept which is more or less explicitly or consciously adopted. On practical grounds however the above relationship is virtually ignored. Accounting practice appears to have internationally adopted (apart from a few national experiences mainly in the past, such as the ‘value added event’ and social reporting) a monolithic stance in favour of a proprietary approach. The underlying theoretical dimensions of the accounting representation are willingly or unwillingly disregarded. After all, one might say that accounting practice reflects where the power is in business. Yet, even if the issue of different concepts of the fi rm underlying accounting is virtually ignored by every day practice, there are examples of its operational relevance when practitioners deal with fi nancial reporting of foreign companies, group accounts and the potentially different perceptions of the users of fi nancial information.3 Also the ongoing debate in the US about the establishment by the FASB of a revised standard on consolidation policy and procedures (FASB, 1995), indicates that practitioners have been recently forced to confront the problem.4 An analysis of the implications and the linkages between theories of the fi rm (or group) and the construction of fi nancial statements, may then offer a different perspective from which to look at this debate in the US and, more generally, at some of the issues emerging in the realm of practice. This paper advocates a relativistic view of accounting. Accounting relativism is referred to here as the co-existence of different theories of accounting representation and, as a consequence, of divergent income measurements, which are not objectively rankable in a conceptual or practical hierarchy, because of the incommensurability of their knowledge bases. Accounting relativism stems not only from the technical contents of accounting, but also, and mainly, from the indeterminism of its underlying knowledge structures. In order to investigate the modes and consequences of the ‘translation’ of economic concepts, such as the theories of the fi rm, into accounting values through the use of non-neutral accounting theories, the paper will focus on two national accounting traditions: the Italian literature of Economia Aziendale and the US entity vs proprietary debate. These present interesting examples of contrasting ways of setting and understanding that relationship in diverse theoretical and national contexts.5 The structure of the argument will unfold according to the following sequence. In the next section the Italian tradition of Economia Aziendale is briefly presented with particular reference to the relationship between theories of the fi rm, accounting theories and surplus calculation. Thereafter, the American entity vs. proprietary debate will be revisited, highlighting the basic concepts underlying these two approaches and their theoretical and practical implications for surplus measurement. As a way for falsifying the exposed theories, we will then apply them to income calculation of cooperative societies. A simple numerical exercise, which is fully developed in

390 Stefano Zambon and Luca Zan Appendix A, is also used to offer concrete evidence of the different income measurements originating from dissimilar, or even related, conceptual premises and different forms of enterprise. In the fi nal section, the importance of accounting relativism will be presented and discussed in the context of its theoretical and practical implications.

THE THEORY OF THE FIRM AND INCOME CALCULATION IN THE ITALIAN TRADITION OF ECONOMIA AZIENDALE Few things are as difficult to analyse as a ‘tradition’ of thought. Such a powerful and ambiguous term evokes a complex of meaningful but loosely coupled relationships between concepts, contributions, and scholars. At least some similarities between the members of the tradition must exist, in order to distinguish it (and them) from other traditions or scientific contexts, and from ‘outsiders’. The relationship between ‘insiders’, however, is not so strong as in the case of a tight group of scholars: several schools of thought and rather different perspectives could co-exist within a tradition. Referring to a ‘tradition’ implies indeed a process of social construction of reality, whereby similarities and differences are analytically organised and manipulated in defi ning the identity of a particular tradition: what is considered to distinguish and characterise it, and what is not. The process, of course, also shows a political dimension, as it implies the defi nition of alliances between scholars and groups in their approaches to research, in defi ning standards for research validations (Whitley, 1984), criteria for affiliation, belonging, and ‘citizenship’ to the tradition, sometimes justified in the name of ‘uninterested hostility’. In the context of investigating the relationship between the theory of the fi rm, accounting theory, and income measurement, by referring to the ‘Italian tradition’ of Economia Aziendale we share the vision of significant similarities between Italian scholars as opposed to other traditions, as for instance the Anglo-Saxon one.6 A fi rst step will then be that of trying to outline these similarities between representatives of the Italian tradition. However, our view of the tradition tends to be a highly pluralistic one, and we are prone to underline serious differences between various views within the tradition. Thus the second step will be to single out major differences in the representation (or in the theory) of the fi rm within the Italian tradition. A subsequent step will be to describe possible different patterns of the relationship between the theory of the firm, accounting theory, and income measurement that cohabit within the Italian tradition. The institutional tone of Economia Aziendale is one of the basic features characterizing the Italian tradition. Its contributions tend always to deal with the issue of the nature of the fi rm—or, better, of the ‘azienda’—and with theoretical premises and consequences of key assumptions in conceptualizing the fi rm. In the Italian literature it would be difficult to fi nd any

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accounting concept, position or relevant statement not supported by a reference to the basic elements characterising the theoretical representation of the fi rm within the ‘doctrine’. At a general level, the basic object of analysis of Economia Aziendale deals with the ‘aziende’, the elementary units of production and consumption (see for instance Galassi, 1984 and Canziani, 1994). The historical process of division of labour is recognized, through which during many centuries the activities of production and consumption have tended to be separated and located in different economic institutions or economic organisations. Thus, the economic activity devoted to the direct satisfaction of human needs tends to be carried out in organizations which basically act as units of consumption (aziende di consumo), such as for instance the family. The production activities tend to be located in different organisations, which are basically units of economic production (aziende di produzione, or generally, ‘fi rms’), and which aim towards an indirect satisfaction of human needs. Despite this crucial difference, it is important to note that both the consumption and the production units tend to be treated within a unitary approach, as institutions.7 For the sake of simplicity, from now on we will focus only on production units or fi rms, leaving aside the units of consumption. In order to stress further the theoretical characterisation of the Italian tradition, some important differences can be pointed out between the basic conceptualizations shared in the Economia Aziendale literature and the neoclassical theory of the fi rm, which is generally taken as a frame of reference. First, rather than viewing the fi rm as a mere production function or logical operator as in the neoclassical theory, the fi rm itself is viewed as an organisation and institution (similar to Williamson’s definition of a structure of governance). Second, while the fi rm in the neoclassical theory is a universal, a–historical and a–contextual entity, within Economia Aziendale the fi rm tends to be located in its time–space setting. Third, such a view leads to an explicit and conscious consideration of the nature of the fi rm as a unitary system. Analysing the concrete features of the ‘real fi rm’, a central emphasis is given to actual interdependencies between the several components of the fi rm (in terms of system of factors, operations, processes, etc.) and to the actual economic coordination expressed by each specific fi rm. It is interesting to note that such a ‘systemic view’ of the fi rm emerged some decades before the diff usion of the ‘general theory of systems’ in social sciences. Already in Zappa (1927), what is now currently labelled (Morin, 1977) as the concept of ‘emerging properties’ of the system can be found: income itself is seen as a particular result of the specific coordination of a fi rm, emphasizing the complementarity of its production factors in the processes of economic transformation (cf. Zan, 1994). Such an intrinsically systemic view of the fi rm is perhaps the major difference between Economia Aziendale and the neoclassical theory of the fi rm (and perhaps also other national approaches to accounting). Fourth, the very institutional character

392 Stefano Zambon and Luca Zan of Economia Aziendale tends to underline the variety of economic factors and actors (Amaduzzi, 1947), resulting in the consideration of the fi rm as a multi-interest and multi-objective phenomenon. If the above gives some insights into the core assumptions which are shared between scholars of the Italian tradition, internal differences are equally real, despite the self-portrait of a highly consistent doctrine. Particularly relevant for this paper is that such a shared general conception of the fi rm as institution nonetheless gives rise to several theories of the fi rm (and, more generally, theories of the aziende) which are significantly different from each other. Within the highly deductive approach of the Italian tradition, there exists a long standing debate about the conceptual ‘defi nition’ of the fi rm, which is probably surprising for Anglo-Saxon scholars who are generally used to more pragmatic-inductive approaches.8 For our purposes, it will be sufficient to draw selectively on the major arguments pointed out by Ardemani (1968) when analysing the evolution of the Economia Aziendale literature over the last century.9 According to this author (pp. 412–413), different representations of the fi rm over time tend to stress particular aspects which are perceived as crucial in different periods. Historically speaking, from the second half of the 19th century up to now the fi rm was successively conceived as: a ‘centre of legal relationships’; a ‘centre of production factors’; a ‘centre of economic operations’; and fi nally a ‘centre of interests’. Furthermore, Ardemani (1968, pp. 417–425) points out that each of the different conceptions of the fi rm, by focusing on a particular aspect of the fi rm, suggests a specific, ad hoc defi nition of the concept of soggetto economico—here translated as Main Economic Actor, abridged as MEA.10 In general, the concept of MEA tends to identify those people who should not be considered as third economies or third parties visà-vis the fi rm; i.e. those who should be considered as the bearers of primary interests towards the fi rm in contrast to those that can be defi ned as external parties. What Ardemani stresses is that the general concept of MEA as non-third parties in the Italian literature tends to be operationally defi ned in rather different ways, according to the underlying conception of the fi rm which is chosen or preferred. In other words, the concept of MEA reflects the essence of the Economia Aziendale theories of the fi rm and, therefore, it is the crucial element necessary for investigating the relationships between theories of the fi rm, accounting theories, and income calculation within the Italian tradition. Ardemani associates the establishment of the fi rst concept of the fi rm as ‘a centre of legal relationships’ with the diff usion of a personified view of ownership in the context of the emerging new State after Italian unification in 1861. The accounting implications of this can be tracked in the theory of ‘accounts personification’ proposed by Cerboni (for a review cf. Zan, 1994). Indeed, in this case it is hard even to talk about an MEA concept, for the fi rm overlaps with the physical person carrying out the business.

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Rather, the other three representations of the fi rm singled out by Ardemani tend to give rise respectively to the concept of MEA as proprietor, as group in control, and as institutional interest bearers. The configuration of the MEA concept as proprietor is strictly linked to the view of the fi rm as a centre of production factors, taking into account the variety of factors and actors of production within a system of exchange relationships in a context of high uncertainty (the time reference according to Ardemani is about the turn of the century). In such conditions it would indeed be difficult for a fi rm to live under a condition of ‘universally shared risk’ (the so-called ‘Brentano’s principle’: Pantaleoni, 1925), where all the actors carrying out transactions with the business would share the risk. Within such an institutional framework the emergence of a group of actors willing to directly assume the risk of the business is seen as a practical solution in the operational problems of the fi rm: concentrating residual uncertainty within one category of actors is a condition of viability for the enterprise. Thus, a sort of risk hierarchy must emerge, where a particular group of factor bearers (actors) act as catalyst of the short-term risk on their transactions, accepting a residual remuneration for the production factor they bear and leaving contractually pre-defined remunerations to the other groups. Note that the long-term risk involves instead all actors carrying out transactions with the fi rm (Zappa, 1957). In this theoretical context, a configuration of the concept of MEA can be found which, albeit often implicit in the literature, seems to play a crucial role in the overall framework. The MEA is here conceived as the proprietor actor, which is the owner of the factor assuming the short-term risk, and therefore the owner of the fi rm’s wealth (not of the fi rm itself, which acquires in this view an individuality of its own). Looking at the fi rm as a centre of economic operations tends to stress the coordinating activity performed in the management process (Ardemani, 1968). Thus the concept of MEA is here conceived as the group in control, i.e. ‘the group of individuals actually controlling the fi rm’ (Zappa, 1957). In this respect, interesting logical analogies may be found with the literature concerning the separation between ownership and control (Berle & Means, 1932). However, it should be noticed that there is not an explicit reference to that literature (in a sense it seems to be a ‘parallel’ theoretical development); furthermore, considering the historical features of the Italian capitalistic system at that time, reference is often made to the contrast between majority and minority groups of shareholders rather than to that between owners and management. Finally, looking at the fi rm as a centre of interests leads to a defi nition of the MEA concept as institutional interest bearers, i.e. the ‘set of individuals bearing institutional interests towards the fi rm’, a position Ardemani explicitly sees as acquiring visibility and legitimation after World War II. In particular it was linked to social movements for the emancipation of the lower classes and minorities. In principle, all kinds of actors could be seen

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as participating in the processes of economic production and in long-term risk sharing. Beyond ethical and social aspects, at a theoretical level this is one of the implications of the systemic conception of Economia Aziendale thought. To some extent, an analogy might be found with the concept of constituents (Cyert & March, 1963) or stakeholders that emerged in the Anglo-American literature (economics, organisation theories and strategic management). However, a narrower meaning is usually given to such a defi nition of MEA, focussing, as it does, on the two main ‘original factor’ bearers: capital and labour (Ardemani, 1968 and Masini, 1970). Some aspects of this brief reconstruction of the evolution of the Italian literature over this century are worthy of emphasis. First of all, within Economia Aziendale at least three concepts of MEA can be found. This implies three partially different theories of the fi rm, which reveal dissimilar conceptions of the fi rm and of its relevant subjects (or actors), objectives, constraints, etc. Second, these different conceptions emerge at different times, to some extent reflecting the underlying empirical evolution of the Italian economy. Rather than a linear evolution they represent a non-sequential formation of concepts over time, thus producing a co-existence of the ‘old’ concepts with the ‘new’ ones, with possible controversies.11 The accounting implications of the different concepts of MEA can be analysed in terms of both accounting theory and accounting practice. The latter is easily summed up: no implications can be found. Accounting practice completely ignores such issues, always referring to the implicit proprietor concept of MEA. The reasons for that are not difficult to identify.12 In terms of theory, it is interesting to distinguish between implications which could be derived logically from the different definitions of the MEA concepts, and those implications which actually have been treated in the literature. In abstract terms, the different concepts of MEA imply dissimilar definitions of what is to be intended as surplus, which should be internally consistent with the basic view of the firm adopted. In fact, as ‘income’ is generally understood as a residual variable (revenues less costs arising from exchanges with third economies), then its definition is dependent on ‘who’ is considered as a third party and thus not as a component of the MEA concept. The concept of MEA as proprietor considers as third parties all the actors involved, except for the proprietor of the fi rm’s wealth, which is here seen as the risk-bearer. Thus the concept of surplus tends to coincide with what is normally defi ned in textbooks as income, i.e. the residual economic quantity after deducting explicit costs (those which are incurred or derived as a result of exchanges with third parties). And, no doubt, this is the way in which most accounting theorists in Italy would defi ne the fi rm’s surplus. Interestingly, while the concept of MEA as proprietor tends to be underemphasized, the commonly prevailing income configuration is the very one associated with it. In this sense, the domination of the proprietor conception in the Italian current theoretical debate can be pointed out. The concept of MEA as the group in control could lead in principle to two different definitions of the surplus. First of all, by interpreting a ‘pure

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entrepreneur’ as performing the coordinating activity (i.e. as the bearer of the organising factor), this would suggest considering other actors as third parties. Thus, the surplus would be conceived as ‘net surplus’ or profit, after deducting all the costs (including also implicit costs), in accordance with Marshall’s (1936, pp. 71–75) defi nition of ‘income’ as a residual amount after the deduction of capital expenses.13 Alternatively, considering the differences between the majority versus minority shareholders, as is usually the case in the context of Italian family-centred capitalism, third parties would include the minority itself. Thus within this defi nition of MEA, a sort of ‘majority income’ could emerge as the consistent defi nition of the surplus. Curiously enough, the concept of surplus as profit gains some attention in the Italian tradition, but in a rather implicit way. For instance, when addressing shareholders’ interest to invest in a particular fi rm, a reference to the interest on risk-free investments is suggested to measure the comparative terms of convenience of their investment, thus implicitly referring to the concept of profit. It should be stressed, anyway, that this kind of economic evaluation is not merely based on the result presented as such by the Profit and Loss account. The latter ends up with a configuration of surplus as income; the former is based on further manipulation of the result of this statement, according to what is labelled as ‘extra-accounting system calculations’ (determinazioni extra-contabili). The alternative defi nition of surplus as ‘majority income’ cannot be found in the literature, and at fi rst sight appears odd. However, such a view emerges in the context of group accounting in terms of parent company result, and not just in the Italian literature. The concept of MEA as institutional interest bearers could lead to different configurations of surplus, according to the degree of radicalism in the defi nition of constituencies. In the more radical view, the very concept of surplus would lose its meanings: all actors and factors are non-third parties, and nothing will be left to be deducted from revenues. In a narrower defi nition of MEA as ‘particularly interested’ actors, third parties will be all but capital and labour bearers (as for instance Masini, 1970); thus the surplus will be conceived as value added. The radical view leads to what can be thought of as an odd conclusion, a train of reasoning that actually cannot be found either in the Economia Aziendale debate or in any other accounting literatures all over the world. However, the economist’s concept of GNP is exactly the aggregation of a similar variable; and if the suggestion made by strategic management scholars to consider the customer as a core stakeholder is not banal, some of the implications of the radical view are not perhaps uncalled for. Some controversies in the Economia Aziendale literature concern the accounting implications of the MEA concept as institutional interest bearers in the narrow definition of capitalists and workers. It is interesting that in Masini’s thought, the value of ‘labour’ should be considered as a remuneration of a party composing the MEA rather than a cost. Capital and labourfactor bearers are remunerated together by the residual ‘income’. However,

396 Stefano Zambon and Luca Zan Masini does not arrive at explicitly proposing an accounting system centred on value added—which would be more consistent with his position—but he simply recommends that labour be included in the income statement not as a cost but as a mere ‘negative element of income’ (Masini, 1970). Ardemani’s (1968) contribution is more resolute and coherent, explicitly calling for a value added-centred accounting system. It is more resolute, as this is an exception in Italian accounting theory. The value added debate got very little attention in Italy compared to elsewhere, for instance in the UK accounting literature.14 Ardemani’s work is more coherent in the sense that the accounting system proposed leads to an ‘income’ calculation internally consistent with the theory of the firm explicitly evoked, i.e. that considering the firm as a community of interests (MEA as capital and labour bearers). The accounting system advocated results in a direct measure of the value added, which is not calculated as an ‘extra-accounting’ figure based on a traditional, proprietary-based, Profit and Loss statement. Instead it is expressed as a unitary value to be split between labour and capital remunerations according to a subjective process of logical, abstract considerations. In conclusion, a curious contradiction may be underlined in the Italian accounting theoretical debate: the accounting implications of the different ways of conceiving the fi rm are not always developed. The richness and variety of perspectives on the MEA concept do not lead to an equally rich appreciation of the alternative accounting solutions.15 Indeed, a sort of reluctance to abandon the accounting implications of the proprietor concept of MEA can be observed. There are certainly political and ideological reasons for explaining such a reluctance; but also from a theoretical point of view it raises the question about the continued relevance of the proprietor configuration in the fi rm’s life. In order to simplify the exposition and to illustrate the magnitude of differences in income measurements under different sets of theoretical assumptions, a basic numerical exercise on ‘income’ measurements is introduced in Appendix A. Table 15.1 summarises the income results of the exercise over the total life of the economic unit. Within this elementary framework, a further object of the exercise could be expressed as a critique of the largely accepted statement that total-life income is an objectively determined economic quantity. On the contrary, we try to show that, notwithstanding the simplifications, the ‘income’ figure and indeed the configuration of ‘income’ itself will change according to the conception of the fi rm that the analyst embraces, in a more or less explicit and conscious way.

AN ‘OLD’ ISSUE REVISITED: THE US ENTITY VS PROPRIETARY DEBATE If talking about a national accounting tradition is intrinsically problematic, it is even more so with reference to the United States, since in that country academic accounting has never been structured within an individual

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school of thought equivalent to the Italian Economia Aziendale. In this respect, American accounting research appears—at least until recently— much more fragmented, coming from specialized approaches and scholarly communities. An emphasis on pragmatic and empirical matters, as well as a widely shared perception of accounting as a self-contained body of knowledge with well-identified disciplinary boundaries, are likely to have contributed a great deal towards both this lack of unitary conceptual schemes of reference and the generalized absence of a clear relationship between accounting and business or micro-economics. Therefore, when addressing the American accounting ‘tradition’ it is not surprising that the relationships between the theory of the fi rm, accounting theory and income measurement are not central to theoretical debates, or that a concept similar to the Italian MEA cannot be found. Notwithstanding these general observations, the US proprietary and entity theories and their long-standing contrast could be interpreted as manifestations of these relationships and, as such, reveal some interesting elements for comparison with the Italian tradition. Even if someone may think that entity and proprietary theories are nowadays relatively old-fashioned subjects, there are some remarkable signs of their renewed importance in the literature. For instance, to some writers they appear useful for addressing current issues concerning the income statement as well as the balance sheet (Stewart, 1989). Some point out the enduring validity of Paton’s entity position in the ongoing US querelle on the distinction between liabilities and equity (Clark, 1993). Still others discover the parallel between income calculation according to entity theory and the recent developments in economic income measurement (the so-called ‘earned economic income’ model by Grinyer; for a review cf. Peasnell, 1995). In addition to this there is the already mentioned FASB exposure draft on consolidation policy and procedures, which can be interpreted in the light of the contrast between entity and proprietary theories (FASB, 1995). In the last years a socio-political interpretation has been put forward, suggesting that the scholarly and practical success of these two approaches should be seen as embedded in the wider American context of the 1910s and 1920s and in the rise and fall of the ideals linked to the Progressive Era (Merino, 1993). According to the prevalent views of American accounting historians (Chatfield, 1977 and Littleton, 1966), the origin of these two theories is traceable to the contribution of several European scholars during the 18th and 19th centuries. Later, since the beginning of this century, the two approaches have been taken up and developed in the American literature as opposing ways of looking at the fi rm and constructing an accounting model. Over the years the two approaches have been thoroughly investigated and many interpretations have been given of their contents and implications (see, among others, Coughlan, 1965; Gilman, 1939; Gynther, 1967; Hendriksen, 1982; Lee, 1980; Lorig, 1964; Meyer, 1973; Sprouse, 1957; Viganò, 1966; for a comprehensive revisitation see Zambon, 1996a).16

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However, it should be pointed out that neither the proprietary nor the entity approach can be reckoned as a fully-fledged theory of the fi rm, but each is an assumption—or a postulate—as to the manner in which the business enterprise should be conceived; hence, in this respect the two ‘theories’ implicitly express conceptions about the fi rm and the relationships between its main constituents.

Some elements of the proprietary theory Original advocates of the proprietary theory in the US are traditionally held to be Sprague (1907), Hatfield (1909) and Kester (1917–1918). According to the conventional interpretation of the proprietary theory, an enterprise is the proprietor’s (i.e. owner’s) investment. All assets are owned and all liabilities are owed by the proprietor. In other words, the fi rm is not separated from its proprietor and it is only a convenient means to him or her in order to undertake a business venture through the investment of his or her wealth (Chow, 1942, p. 157). In this view, the proprietor corresponds to the equity capital bearer. The primary objective of this viewpoint is the determination and analysis of the proprietor’s net worth. Accordingly, the basic accounting equation—fi rst proposed in similar terms by the Englishman Cronhelm (1818)—is: Assets – Liabilities = Proprietorship Given the nature of the terms in such an equation, in the US literature several authors underline that the proprietary view tends to be ‘asset centred’ (Anthony, 1987, p. 76; Belkaoui, 1985, p. 224; Welsch et al., 1963, p. 14), and hence ‘balance sheet oriented’. Proprietorship increases (revenues) and decreases (expenses) mean literally gains and losses, and thus income is the net increase in the proprietor’s equity as a result of the fi rm operations. To the proprietor figurative interest charges are never costs. Only monetary outflows to third parties are considered as costs according to this approach. Therefore, taxes and interest on debts are expenses to the proprietor, while dividends are withdrawals of his or her own capital. In this sense, the proprietary approach has a strong internal coherence, since the proprietor is the economic organism for and to whom the accounting process is effected and directed.17

Some elements of the entity theory The entity theory, which was fi rst proposed in a consistent way in the US by Paton (1922), represents another point of view on the relationship between accounting and the concept of the fi rm.18 According to this approach, a fi rm is an independent unit, or entity, distinct from its owners. Assets and liabilities (including shareholders’ funds) are conceived respectively as owned

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and as assumed by the enterprise. Correspondingly, income belongs to the fi rm as an entity, until it is distributed as dividends to the shareholders. As Paton describes it, the equities are sources of the assets and consist of liabilities and the stockholders’ equity. Accordingly, the basic accounting equation will be: Assets = Equities The primary objective of the entity theory is the determination of the ‘income’ for meeting the claims of equity-holders (shareholders and creditors). In this respect, this approach is said to be ‘income centred’ (Anthony, 1987, p. 76; Belkaoui, 1985, p. 225; Welsch et al., 1963, p. 13) and, consequently, ‘income statement oriented’. In opposition to the proprietary theory, the entity theory attempts to de-emphasize the owners’ role in the fi rm and tends to treat the owners as mere outsiders like the creditors, customers, etc. Management is striving for the owners’ as well as for others’ interests. The owners are hence considered as one of the fi rm’s constituent groups, although conceptually separated from the entity.19 Beyond the shared idea of the autonomy of the company from its owners, within the entity theory a number of different ways of conceptualizing this separation with respect to the assumed ‘beneficiary’ of fi nancial reporting can be identified: the proposed beneficiary can be either all capital suppliers (equities) or the entity itself (cf. Zeff, 1978). Thus, one could argue about the existence of several competing entity theories. For our ends suffice it is to present the interpretation given to the entity theory by Staubus, Li and Anthony, all of whom identify the interest of the fi rm-entity as the pre-eminent one. 20 According to Staubus (1952) and Li (1960a, Li, 1960b), the fi rm is seen as completely decoupled from its proprietors and has its own distinctive objectives: its survival and growth (Li, 1964). To this end, all the monetary outflows weaken the entity’s financial position and have to be considered as costs. Taxes, interest and even the dividends are period expenses. What remains is the corporation’s income which accrues to the ‘corporation’s proprietary equity in itself’ (Husband, 1954). It should be noted that in this approach all factor suppliers receive a remuneration which is to be treated as a cost to the entity. Implicitly, one would argue, the residual amount is the profit (as we have defi ned it) that the entity earns from and for its activity of self-coordinating. Anthony (1975) brings the entity view to its radical consequences. The logic remains the same as Staubus and Li, but instead of using the dividend actually paid as a rough measure of the equity cost of capital, Anthony argues for the use of an implicit cost of capital. This would permit one to eliminate temporal discontinuites in income calculation due to the uneven dividend stream, giving at the same time an appropriate and ‘neutral’ recognition to the cost of equity compared to market parameters, independently

400 Stefano Zambon and Luca Zan from the institutional form taken by an enterprise (for an empirical test of Anthony’s proposal see Bartley and Davidson, 1982).21 Between the different interpretations of the entity theory, Anthony’s position seems the most consistent with the conceptual premises of the entity point of view: all the constituents are considered as ‘third-parties’, and the ‘beneficiary’ of the accounting process is the fi rm itself. A consistent entity approach to income calculation should in fact be indifferent—as is Anthony’s (1975)—to the institutional form which is taken by a fi rm to run its business. In doing so, this approach reflects in a more appropriate way the economic raison d’être of the fi rm, i.e. its ‘net’ profit. That is why hereinafter we will refer only to this author’s position when mentioning the entity approach.

THE ‘ANOMALY’ OF CO-OPERATIVE SOCIETIES AS THEORY FALSIFICATION The co-operative society is an unusual, anomalous institutional form for running a business—compared to the usually taken for granted assumption of the capitalistic fi rm. From a methodological point of view, the particular institutional and legal features of a fi rm so organized may be seen as an interesting tool for verifying (or, better, for trying to falsify, in a Popperian sense) any theory of the fi rm. In this respect, it is interesting to question whether the Economia Aziendale theory of the fi rm and the US entity vs proprietary debate can be applied to the anomaly of co-operative societies (for a similar methodological usage of the co-operative anomaly see Aoki, 1984 and Williamson, 1986). A co-operative enterprise is here intended as a fi rm in which the members are the bearers of specific transactions toward the fi rm. The remuneration for these specific transactions is not defi ned a priori, rather it is a residual value. With reference to ideal-types of co-operative societies, in the case of the workers’ co-operative the remuneration of labour is determined ex post considering the value difference arising between contractually pre-defi ned relationships with third parties (revenues from customers less costs linked to other specific factor bearers, financial capital bearers included). In the ideal-type of the consumers’ co-operative, the members accept to defi ne ex post the value of their transactions with the co-operative, i.e. the ‘price’ of the products they acquire, after paying contractually pre-defi ned values to all factor bearers (e.g. capitalist, workers, etc.). Such a defi nition of a co-operative society (Tessitore, 1968) differs from that of a ‘workers’ managed fi rm’ sometimes used in the literature (Williamson, 1986, pp. 266–268), which is based on organisational variables such as ‘democratic participation’. Similarly, our defi nition does not refer to any ‘socialist’ feature of co-operatives (as for instance in Vanek, 1972; and Williamson, 1986, pp. 160–161). The focus is rather on the particular kind of proprietorship characterising the co-operative society, which is assumed to

Accounting Relativism

401

operate in a capitalistic economy. The label ‘capitalistic fi rm’ as opposed to ‘co-operative society’ will therefore be used with exclusive reference to the factor assuming the proprietorship role in the different institutional forms of enterprise.

The anomaly of co-operatives and the Italian tradition Applied to the Italian tradition, the anomaly of co-operatives can be used in order to falsify the different concepts of MEA, and then investigate the related accounting implications with regard to different MEA concepts. Of the three MEA concepts, only the fi rst (MEA as proprietor) has some connection to the proprietor structure of the fi rm. It follows that only this fi rst configuration will be sensitive to different proprietorship configurations. In this sense the co-operative society is an interesting case: it is a fi rm where the short-term risk is assumed by specific-transaction bearers (Zan, 1990), i.e. either the bearers of specific factors (labour, raw material, etc.) as opposed to the fungible nature of fi nancial capital factor, or by the consumers themselves. In other words, risk bearing and coordination can also be performed in principle by constituents other than the ‘ordinary’ fi nancial capital bearers. (On the other hand, economists sometimes recognize that under perfect competition it does not matter whether ‘capital hires labour’ or ‘labour hires capital’: Samuelson, 1957, p. 894). If the concept of MEA as the group in control is applied to the co-operative society, this can hint at processes of separation between management and ownership, similar to what happens in the case of the capitalistic fi rm. While at the social and organisational level this may involve some element which is specific to the case of co-operatives—somehow implying a sort of identity crisis given the particular culture and ideology of participation and mutualism—in economic and institutional terms it is just a question of a different class of ‘owners’ (workers in the co-operative vs. capitalists in the capitalistic fi rm) possibly in confl ict with the same class of management élite. Applying the concept of MEA as institutional interest bearers to the cooperative case would be more problematic and intriguing. Indeed, under a ‘radical’ view no difference would emerge between the capitalistic and the co-operative fi rm. The question is one of a joint satisfaction of the conflicting interests of the owners (workers, consumers, capitalists in the workers’ co-operative, consumers’ co-operative, and capitalistic fi rm, respectively) and of the other stakeholders, where each of the institutional forms faces a similar problem in satisfying workers, consumers, and capitalists simultaneously. Serious conceptual problems emerge, however, with reference to the less radical view of this defi nition of MEA as capital and labour bearers—according, for instance, to the contributions of Masini and Ardemani. This restricted view of institutional interest bearers shows a bizarre result when applied to the co-operative anomaly: it does not distinguish between

402 Stefano Zambon and Luca Zan the capitalistic fi rm and the workers’ co-operative. Furthermore, the meaning of such a framework may be questioned when referring to the case of a consumers’ co-operative society, totally ignoring its distinctive features. While in the other cases the view of MEA as capital and labour bearers seems to soften the centrality of the proprietor toward a more comprehensive account of the interests of relevant others, here the proprietors—the consumers—are by defi nition excluded from such a configuration of MEA, being neither capital nor labour factor bearers. In short, applying the Economia Aziendale framework to the co-operative anomaly, some interesting conclusions emerge. While on the whole the theory of the fi rm implied by the different MEA concepts could be extended to the co-operative anomaly, some useful insights arise in terms of accounting concepts of surplus. The co-operative anomaly helps to clarify the meaning of the concept of income, emphasising what is usually put in a rather implicit way when talking about the ordinary capitalistic fi rm: income should be intended as the residual remuneration of the factor assuming the short-run risk, while an analysis in terms of profit is needed at the same time to give a more comprehensive view of the fi rm. Furthermore, the latter still evidences some kind of ambiguity: what is clear is that profit is not univocally related to capital, since it can be conceived as the over or under remuneration of labour for the members of the workers’ co-operative, or as the over or under value for the products transferred to the members in the consumers’ co-operative. A claim could indeed be raised as to whether profit is to be interpreted as the over or under remuneration of one out of a multiplicity of production factors. Alternatively, it should be conceived as the over or under remuneration of all factors involved, since it arises from the particular systemic configuration of the firm, i.e. from its specific economic coordination. 22 However, serious problems arise concerning the third defi nition of MEA, which gives a particular emphasis to the bearers of capital and labour amongst the variety of potential stakeholders: this is a questionable mis-representation of the ‘relevant others’, as for instance consumers, which is difficult to sustain theoretically. 23

The anomaly of co-operative and the entity vs proprietary debate When applied to the American entity and proprietary theories, the co-operative anomaly is also an interesting conceptual tool which helps to shed some further light on the characteristics of these two approaches. It should be pointed out that a double effort of abstraction is necessary before getting into the ‘falsification exercise’ of the US theories. A first effort is needed in order to read the entity and proprietary views in terms of the underlying theories of the fi rm at which they hint; a second effort relates to the fact that both the American approaches have never been, to the writers’ knowledge, conceptually applied to co-operative societies and their accounts.

Accounting Relativism

403

The proprietary theory seems to face problems in explaining the cooperative anomaly, since in the US approach the proprietor is identified as the owner (and the bearer) of the financial capital. Therefore, when facing the co-operative anomaly, the American proprietary theory falls into an irresoluble indeterminism—the notion of proprietor to whom it refers is not compatible with this alternative institutional form for carrying out business. This confi rms the intrinsically capitalistic orientation of the US proprietary theory, which is not able to cope with different notions of proprietorship based on factors other than financial capital. As to the entity theory, its various and competing configurations reveal a different applicability to the co-operative society. 24 The Staubus and Li version of the entity theory seems to maintain a certain significance also vis-à-vis co-operative society. Dividends, being a distribution of surplus, which here corresponds to the remuneration of specific transaction bearers (e.g. labour, goods), could be treated as costs to the entity-co-operative and taken (tacitly or explicitly) to the income statement before calculating the net surplus of the period which is attributable to the ‘entity-co-operative’ itself (cf. the following). Anthony’s interpretation of the entity theory is the most easily and immediately applicable to the co-operative anomaly, since it does not require any adaptation at all. According to the different form of co-operative society, the expression of ‘implicit cost’ will be referred to as either the cost of labour in the workers’ co-operative, or the sale revenues in the consumers’ co-operative. The co-operative profit would appear, then, as the over or under remuneration of labour (or the over or under price for the products transferred) to co-operative members, which has been permitted by the specific factor combination achieved, and the organizational self-coordination realized, by the ‘entity-co-operative’. In this respect the usual numerical exercise applied to the co-operative societies would produce, for the Anthony position, the same result as before when referred to capitalistic fi rms (see Exhibit 15.4 in Appendix A).25 In conclusion, the problematic comparability of income measures for different institutional forms, is confirmed also from the above conceptual ‘testing’ of the US entity and the proprietary theories. Notwithstanding that, it should be pointed out that only the Anthony approach can offer a consistently meaningful result over a variety of enterprise institutional structures. Indeed, the constant value of the ‘profit’ according to Anthony is a coherent reflection of the posed hypothesis of equal efficiency in running the business under a capitalistic firm and a co-operative society. The consistency of Anthony’s profit is amenable to its aforementioned nature of over or under remuneration of the labour or of products transferred to co-operative members. Another interesting implication to emerge from the above exercise of using co-operatives as a theory falsifying tool, is that the notion of proprietor is not always—as often it is perceived—an unambiguous guide to drawing up accounts vis-à-vis any institutional configuration of the enterprise.

404 Stefano Zambon and Luca Zan DISCUSSION AND CONCLUSIONS The focus of the paper has been on demonstrating accounting relativism stemming from the knowledge foundations of accounting. In this respect we found a variety of income measurements existing within accounting traditions, such as the Italian and the US ones, and also between them. In parallel, a numerical exercise has been introduced into our discussion (see Appendix A), whose results are summarised in Table 15.1. Such a manifestation of accounting relativism deserves here some further comments. Despite the extremely simplified assumptions (total life period, only four transactions involved, unambiguous value of each transaction, equal efficiency between institutional forms to run the business), the diversity of ‘income’ measurements under different theoretical perspectives clearly emerges in the figures: income varies from five to ninety-five units. While this range is partially contingent on the particular figures of our numerical exercise, it is fi rst of all a consequence of distinct approaches to ‘income’ measurement, based on varying assumptions about the fi rm itself. Apart from the magnitude of the variation of results, what is particularly interesting to note is their different behaviour when analysed by column and by row. Reading Table 15.1 by columns, and focusing on the capitalistic fi rm, the various theories involved lead to an extreme conceptual variety in the defi nition and measurement of the surplus: twenty units (income as commonly defi ned) under the MEA as proprietor and the US proprietary views; seventy units (surplus as value added) under the MEA as interest bearers perspective; five units (surplus as profit) under the US entity view (as mentioned, the implications of the MEA concept as group in control have not been investigated in the Italian literature, and thus no data appear in the second row of Table 15.1). Reading Table 15.1 by rows, and referring to the Italian view of MEA as proprietor (fi rst row), a substantial variance emerges in measuring the same conceptually-rooted income: twenty units in the capitalistic fi rm, fifty-five in the workers’ co-operative, and ninety-five in the consumers’ co-operative. Even more intriguing is the different behaviour of the other rows compared to the fi rst one. The third row (MEA as interest bearers) defi nes the surplus as value added (seventy units) for both the capitalistic firm and the workers’ co-operative, but also—in a way that we found inconsistent—for the consumers’ co-operative. The fourth row (US proprietary view) does not seem to be applicable to the co-operative society, as it is strictly related to the capitalistic fi rm. The last row (US entity view) shows a surplus as profit for five units for all the three kinds of fi rm. Arising from this data three important relativistic properties of accounting calculation can be identified. First, ‘incomes’ of different legal or institutional forms under which the business can be run, are in themselves not comparable (Zan, 1990). Despite the ceteris paribus assumption—i.e. the assumption of equal efficiency in the cases of the capitalistic fi rm, the workers’

Accounting Relativism

405

co-operative, and the consumers’ co-operative—income does differ (5, 20, 55, 70, 95 units). Second, as a consequence, income as determined according to the ‘traditional’ view does not appear to be a meaningful indicator of the economic efficiency of a fi rm, as is often stated. Third, there emerge varying degrees of sensitivity to enterprise institutional forms shown by the different accounting theories and the associated surplus measurements. Referring to the Italian tradition, it has been observed that the co-operative anomaly can be handled by enlarging the concept of MEA as proprietor, where the proprietor is not necessarily the capital bearer. On the contrary, such an anomaly seems to be disruptive toward the MEA concept as institutional interest bearers narrowly defi ned (as capital and labour bearers): in a sense, such an arbitrary confi nement of all constituents to capital and labour seems to be theoretically inconsistent. Referring to the US debate, an explicit and radical lack of sensitivity to different institutional forms—and thus to dissimilar proprietorship structures—characterises the entity view as a consequence of its very focus on the entity itself. A more subtle relativistic element of accounting calculative procedures refers to the very nature of the measurement of income (strictly defined) and profit. The former is computed as a difference between ‘objective’ values—at least under the total-life assumption—arising from actual exchanges with third economies; the latter requires a conjectural process, an abstraction26 about potential alternative uses of the factor assuming the short-term risk in running the business. For the sake of simplicity focussing only on the capitalistic firm, this process implies comparing income with the current interest rate in the financial market, as if capital were negotiated into a market-like transaction—or splitting value added into its ideal components. Taking a more systematic viewpoint, it is clear that the variety in income calculations derives from diverse underlying theoretical frameworks.

Table 15.1 Income Calculation: Different Solutions. Summing up the Income Calculation of the Examples in the Appendix CONCEPT OR THEORY OF THE FIRM

Surplus definition

Capitalistic Workers’ Consumers’ firm co-operative co-operative

Italian view: MEA as: Proprietor

income

20

55

95

group in control

(not defined)

–

–

–

interest bearers (capital + labour)

value added

70

70

(inconsistent)

Proprietary theory

Income

20

?

?

Entity theory

profit

5

5

5

U.S. Tradition:

406 Stefano Zambon and Luca Zan However, these give a different representation in accounting terms to the crucial problem of the remuneration of the fundamental function of shortterm risk bearing, which has to be carried out by some of the constituents in order to make the enterprise viable. More precisely, the problem lies in the analytical elicitation of the above remuneration. The proprietary view does not recognize the issue at all, since the remunerations of the two functions (coordination and short-term risk bearing) are indistinctly coupled within income. The entity view identifies a separate contribution of the coordination function by attributing a fictitious value to equity and treating this value as a cost incurred with an external party. Thus, the entity view neglects the foundational function of short-term risk bearing which has to be performed by an ‘internal proprietor’ (being the capital or the labour bearer, or even the consumer). And here perhaps lie the merits and at the same time the limits of the entity view: it allows one to abstract from the proprietor structure, analysing the economic coordination in itself, but the hierarchy of risks affecting the various constituents of the fi rm is then ignored. When turning to the reasons explaining accounting relativism, it could be noted that the co-existence of several accounting approaches within the same context is the result of the underlying complexity of the fi rm and of the knowledge about it. In this respect, any theory cannot be other than a partial representation of the composite phenomenon under investigation. Indeed, as a consequence of this complexity, relativism emerges already at the level of the theory of the fi rm: there is not any ‘superior’ model, but several partial theories, hardly comparable, let alone rankable (cf. Loasby, 1976, and for a similar subjectivist position in management studies see Astley, 1984, Zan, 1995 and Zan & Zambon, 1993). Again, it is the very complexity which makes different accounting representations of the firm acceptable and evenly ‘sustainable’ from a conceptual point of view. In other terms, the indeterminism and ambiguity of the accounting representation depend on the multidimensional and non-verifiable character of the knowledge about the fi rm, which generates theoretical pluralism and then relativism in terms of its conceptualizations. As a further explanatory factor of accounting relativism, it should be observed that also the relation between theories of the fi rm, accounting theory and income measurement does not appear to be of a necessary and deterministic type. On the one hand, the relationship between theories of the fi rm and accounting measurements allows for more than one alternative, apart from ‘inconsistent’ interpretations arising from the difficulty of maintaining an internal coherence in these passages. 27 On the other hand, the theoretical variety shows up in similar contexts in different forms (coexistence of entity and proprietary views in the US context; co-existence of several configurations of the notion of MEA in the Italian debate). In this regard, it has been observed that, if different income measurements can derive from similar theories of the fi rm, dissimilar theories of the fi rm can be said to generate comparable surplus calculations (e.g. the US proprietary

Accounting Relativism

407

theory and the notion of MEA as the proprietor). In other words, the economic concepts condition surplus measurement, but their ‘transformation’ in accounting terms is not taking place through an obvious and linear process: accounting theories have indeed an autonomous role and vitality. Facing accounting relativism and its reasons, it seems to us that rather than choosing ‘the one best’ or simplistic solutions to such a puzzle, it would be more advisable to stress the partial, relative meaning of each individual theory, where the choice between theoretical accounting approaches is left to a priori epistemological preferences. In fact, within a relativistic conceptual position, the issue of evaluating and choosing between the theories of the fi rm available is in itself a problem, insofar as these different but limited representations are largely incommensurable and not objectively verifiable (see above). The selection between competing frameworks depends therefore on the kind of abstraction processes that the analyst decides to embrace, as well as on the kind of questions addressed. In this respect, then, the choice between competing theories of the fi rm—and indeed accounting theories—reveals itself to be to a large extent a pre-scientific, if not ideological, assumption, an individual adhesion to certain ways of conceiving the fi rm which can be mediated by context and history. 28 In a more institutional perspective, a persistence of a theoretical variety over time should be underlined: rather than theories which overcome the previous ones, they tend to co-exist even when the environment in which they were generated has changed. However, one thing can be pointed out, namely the loss of theoretical hegemony of proprietary theories, and the emergence of alternative ‘candidates’. While the proprietary view is still dominating, a phenomenon of abandoning it as the paradigm in accounting thought can also be traced. Indeed, this phenomenon is common to both the Italian and the US context, though undertaking different patterns of evolution: toward entity positions in the US debate, in an environment where the separation between ownership and control has a major relevance; toward positions which are close to the value added logic—as for instance the Masini and Ardemani defi nitions of MEA—in the European debate, in a context where historically speaking the confl ict between capital and labour has gained central attention. 29 As a concluding remark, it should be noticed that accounting relativism can also shed new light on the emergence of national varieties in accounting. In fact, the existence of distinct traditions seems to be based also on the possibility of shaping in different ways the relationship between theory of the fi rm, accounting theory and income measurement, which become locally entrenched and succeed in getting institutionalized within academic and professional accounting curricula (cf. the Economia Aziendale School in Italy, and the proprietary-rooted ‘textbook approach’ in general). This creates then a case for international accounting studies, aiming indeed at inquiring into national differences in a comparative perspective. In this sense, accounting relativism may contribute towards the establishment and the understanding of distinct patterns of accounting theory and related

408 Stefano Zambon and Luca Zan institutions (e.g. the relationship between accounting and business economics, cf. Zambon (1996b), adding further insights into the interpretation of dissimilar national accounting histories and historiographies thus suggesting a history of accounting histories perspective: Zan 1994). In a similar vein, the analysis of the relativistic nature of the relationship between theories of the fi rm and accounting calculation could be interpreted as a contribution towards the problematization of the more general interconnection between accounting and economics. In particular, the recognition of a less ‘dispersed’ view of the fi rm and of the various conceptual bodies revolving around this institution is here contended, in contrast to the practice of academic disciplines in these fields which is often prone to knowledge fragmentation and the creation of secluded territories.

APPENDIX

A Numerical Exercise Table 15.A defi nes the set of data concerning the economic co-ordination of different production factors performed by a generic fi rm. The data will be applied to income calculation for the capitalistic fi rm using the different concepts of MEA outlined above. Subsequently, it will be referred to the case of the capitalistic fi rm considered in the light of the American entity versus proprietary debate. Finally, the same data will be applied to the “anomaly” of co-operative societies. To narrow down the kind of questions to be analyzed, an important simplifying assumption will be put forward: Reference will be made here to the total life of a given fi rm. That is a “methodological stratagem” that is used by some Italian scholars—and by curious coincidence in the Finnish accounting tradition as well (Lukka 1990)—which allows us to focus on the total income of the fi rm instead of the periodic income. Under such an assumption, there is a mathematical coincidence among (1) income generated throughout the life of the fi rm, (2) the change in equity between the beginning and the end of the fi rm’s life, (3) the sum of total dividends and withdrawals in favor of the fi rm’s shareholders, and (4) net cash inflows and outflows. The “total life income” is thus a different methodological stratagem from the “double take-over” (Hicks 1979) for analyzing similar issues. The originality of the former is that depreciation of physical assets can be completely ignored. Indeed, in the long run, considering the “total life” of the fi rm, the purchasing of long-term production factors does not differ at all from the purchasing of raw material and other factors contributing to period costs. This way such a methodological option tends to stress the particularity of fi nancial capital as a totally un-specific and fungible factor—as a sort of “monetary flywheel” to run the operations, “filling up” the time lags between expenses and receipts. Thus, a less ambiguous defi nition of “capital” emerges.

Accounting Relativism Table 15.A

409

Income Calculation: Data and Assumptions

The fi rm transforms raw materials and labor in fi nal goods, using a certain amount of fi nancial capital to operate the business. The market values of transactions, expressed in monetary units, are as follows: • • • •

raw materials: 30 units labor: 50 units sales: 100 units current cost of fi nancial capital employed: 15 units

Different assumptions about the institutional forms—capitalistic fi rm, workers’ co-operative, consumers’ co-operative—under which the business is run will be introduced. The element characterizing each institutional form taken by the business (capital in the capitalistic fi rm, labor in workers’ co-operative, transactions with consumers in consumers’ co-operative) is assumed as being contributed under full risk conditions and subject to residual remuneration. Finally, the whole needs for the element characterizing each of the three institutional forms are fully satisfied by the respective “proprietors:” (i.e., all the fi nancial needs of the capitalistic fi rm are funded by equity holders, all the labor needed in the workers’ co-operative is supplied by the worker members, and all the products are acquired by the consumer members in the consumers’ co-operative).

Given the aims of this chapter, the above methodological option appears useful, for the focus is on basic concepts, analyzing the logical chain— whether implicit or explicit—linking theories of the firm, accounting theories, and income measurement. In this sense, all the consequences brought into play by the calculation of periodic income can be ignored. Thus, further complex questions can be avoided, whether they are accounting issues (e.g., inventory valuation and asset depreciation, and, in general, the implications of the “accrual principle”; inflation etc.), finance issues (e.g., discounting economic values of differently time-located events; problems in determining share values, capital gains, etc.), or other economic issues (e.g., the importance of intermediate variables such as market shares and others indicators of economic performance or competitive advantages, etc.). Rather than enlightening the problem that is being considered here, these additional questions would require its solution as a starting point for further investigations. Income Measurement in the Italian Tradition Applying the exercise of income calculation to the data in Table 15.A, it is clear that only two accounting systems emerge from the three concepts of

410

Stefano Zambon and Luca Zan

Exhibit 15.1

Income Calculation: MEA as Proprietor Income Statement

Raw materials

30

Labor cost

50

Total costs

80

Income

20

Sales 100

MEA. The MEA concept of proprietor tends to measure income in the same way as the traditional textbook approach shown in Exhibit 15.1, while the third MEA concept of capital and labor bearers tends to determine “income” on the basis of a value added approach as shown in Exhibit 15.2. Only indirectly can some sort of income measurement that is consistent with the concept of MEA as a group in control be inferred, starting from the surplus defi ned in Exhibit 15.1. The well-known methodology of Exhibit 15.1 does not need much of an explanation. According to these data, current accounting practice leads to a “total life” income determination of twenty units. Note that for such an income determination, no information is needed on the physical quantity of resources and outputs, nor on the amount of financial capital used to run the business. If the latter information is available together with the current rate of interest, the implicit cost of capital could be inferred (as supposed in Table 15.A, fifteen units). By abstraction—and to some extent forcing the internal coherence of this accounting representation—income (twenty units) could be conceived as composed of interest (fi fteen units) plus profit (five units). With some degree of inconsistency with the overall framework, profit itself (five units) then tends to be interpreted—especially in accounting practice—as the over or under remuneration of risky capital compared with its alternative uses in the capital market. Thus, drawing on neo-classical understanding, profit is often seen as the remuneration of the two basic functions performed in running a business (i.e., risk bearing and co-ordination), and often it is implicitly assumed that these functions are performed only by risky capital bearers. According to the conception of the fi rm as a community of interests and defi ning MEA as capital and labor bearers, as in the contributions of Masini and Ardemani, what is measured as the fi rm’s economic performance in Exhibit 15.2 is the value added, here calculated as seventy units. Two aspects of this are to be emphasized. Compared to the previous accounting procedure, less information is needed (i.e., the value of the labor factor used in the co-ordination). Furthermore, from a logical point of view, capital and labor remunerations may be inferred only by a process of abstraction, which recalls the political bargaining processes in dividing value added between the two factor bearers. Such a process of inference is surprisingly

Accounting Relativism Exhibit 15.2

411

Income Calculation: MEA as Institutional Interests Bearers. The Value Added Approach by Ardemani Income Statement

Raw Materials

30

Income as Value added

70

Sales 100

close to contributions in terms of a “co-operative game theory of the fi rm” developed in economics (Aoki 1984). In this context, too, an explicit reference is made to the bargaining process in sharing out the value added between owners-management-employees, where value added is equal to the current market remunerations for owners, managers, and employees plus the organizational rent. Accounting Implications of the Entity and Proprietary Theories Referring to the data in Table 15.A and assuming that the business is still run under the form of an ordinary capitalistic corporation, the income calculation according to the proprietary theory in its traditional form would be as in Exhibit 15.3. Interestingly enough, according to the proprietary theory, income is identical to that resulting from the aforementioned Italian “textbook” approach (see Exhibit 15.1). An example of the income calculation within the entity theory is given according to Anthony’s approach (Exhibit 15.4). Note that as to Paton’s and Staubus and Li’s interpretations of the entity view, the relative simplicity of the basic example would not permit a full illustration and appreciation of their accounting implications. From the limited data of the example, it is not possible to calculate a distinct entity’s “result to equities bearers,” as Paton’s approach to entity theory would require. Given the simplifying assumption of a total fi nancing by equity, and thus the absence of interest on borrowed capital, the Paton “net income” will not differ from the “proprietary surplus.” Similarly, the Staubus and Li entity view is not numerically

Exhibit 15.3

Income Calculation: The Proprietary View Income Statement

Raw materials

30

Labor cost

50

Total costs

80

Income

20

Sales 100

412

Stefano Zambon and Luca Zan

Exhibit 15.4

Income Calculation: Anthony’s Entity view Income Statement

Raw materials

30

Labor cost

50

Interests

15

Total costs

95

Income as profit

Sales 100

5

illustrated here since the relevant income calculation would not specifically emerge within the “total life income” hypothesis, which has been assumed here. In fact, with regard to this hypothesis, the comprehensive amount of dividends equals the total income earned by a fi rm in its whole life. Total income, in turn, corresponds to the fi rm’s net increase in cash and in shareholders’ capital since the inception of its activity. In this sense, there cannot be any quantitative difference between income and dividends in the example, and, as a consequence, subtracting the latter as a cost would then bring the “bottom line” to zero. One could wonder whether Anthony’s profit should be interpreted as the over or under remuneration of all production factors (including equity capital) in comparison with their market values, or rather as the remuneration of the self-coordinating activity played by the entity itself. As previously clarified, this figure of “income” could be more correctly defined as “profit” to the entity. However, there is a problematic aspect to Anthony’s position. In order to arrive at this income calculation, a subjective abstraction process is needed for valuing the implicit cost of the factor bearing the short-term risk (i.e., the equity capital). Income Measurement for Co-operative Societies The accounting implications of the three different definitions of the MEA concept in the Italian tradition as well as of the U.S. entity versus proprietary theories can now be analyzed with reference to the case of co-operative society using the data provided in Table 15.A. The following necessary modifications in the set of initial assumptions have been made to maintain the internal coherence and the level of simplification of the example. First, it is assumed that no differences in efficiency exist between the various institutional and legal forms under which the economic unit is carried out. Second, the transactions characterizing the institutional form are totally subject to risk. This means that in the workers’ co-operative all the labor is supplied by the members (with residual remuneration), and in the consumers’ co-operative, all goods are

Accounting Relativism Exhibit 15.5

413

Income Calculation in Workers’ Co-operatives Income statement

Raw materials

30

Interests

15

Total costs

45

Income

55

Sales 100

transferred to the members (at a value determined ex post). Third, the fi nancial capital needed to run the operations is totally supplied by third economies as borrowed capital. Depending on the current rate on capital markets, a cost for interest is thereby given—which is now assumed to be an actual cost rather than an implicit one as in the case of the capitalistic fi rm—of fi fteen units. The defi nition of MEA as proprietor when applied to the legal and institutional form of a co-operative society results in the income measurement shown in Exhibit 15.5. The income will be measured as fifty-five units in the case of a workers’ co-operative and as ninety-five units in the case of a consumers’ co-operative. Note that the information concerning the current market value of either labor (for the workers’ co-operative) or final goods (for the consumers’ co-operative) is not needed for income calculation. If that information were available—in analogy with what has been observed for the capitalistic fi rm—the concept of surplus amenable to the definition of MEA as the group in control could be inferred. In fact, the income of Exhibit 15.6 could by abstraction be disaggregated as follows: (1) in the workers’ co-operative society, a figurative cost of labor (fifty units) plus profit (five units), with the latter intended to be the over or under remuneration of labor compared to its alternative employment in the labor market; and (2) in the consumers’ co-operative society as the value of goods at current market prices (100 units) less profit (five units), which is intended to be as the inferior or superior value at which goods have been provided by the co-operative to its members.

Exhibit 15.6

Income Calculation in Consumers’ Co-operatives Income statement

Raw materials

30

Labor cost

50

Interests

15

Total costs

5

(balancing item) 95

414

Stefano Zambon and Luca Zan

If Masini’s defi nition of MEA as capital and labor bearers is applied to the numerical exercise, the result will be identical to that of Exhibit 15.2. Whether referring to a capitalistic fi rm or a co-operative society, the surplus will be expressed as value added (in this case, seventy units). But if this is a consistent result in the case of a workers’ co-operative, the meaning of this measurement in the consumers’ co-operative is rather obscure (what does this mean to its members, the consumers?). Turning to the U.S. approaches, while the proprietary theory would be conceptually incompatible with the co-operative society case, the entity view according to the Anthony position would lead to the same result shown in the case of the capitalistic fi rm (see Exhibit 15.4), for all factor bearers are considered as third parties.

NOTES 1. The authors would like to gratefully acknowledge for their comments and suggestions Margaret Abernethy, Frank Clarke, Allen Craswell, Graeme Dean, Anthony Hopwood, Keith Houghton, Jane Hronsky, Kari Lukka, Christopher Nobes, Stephen Schaefer, George Staubus, Steve Zeff. Special thanks are due to Marcia Annisette for her precious and invaluable help in improving the incisiveness of the paper. 2. By theories of the fi rm we here refer to basic ways of conceiving the fi rm, and not necessarily to those developed by particular communities of researchers (economists, sociologists, management scholars, and so on). On the tight relationships between accounting and economics, see also Klamer & McCloskey (1992). 3. Indeed, the widely adopted user needs approach to fi nancial reporting underestimates the possibility that, depending on their relationship with the fi rm, different groups of users may not have comparable views of what is a fi rm and what is relevant in its activity and for its survival. 4. The choice of the FASB would be for an entity approach, while the resistances opposed to its project by many of the audit firms are based on the US traditional view of groups and consolidated accounts which is proprietary-veined. 5. Incidentally, it is interesting to observe that the necessity to select from the wide variety of national accounting approaches could itself be interpreted as implicit evidence of the relativistic nature of accounting and, as a consequence, of the existence of accounting relativism. 6. Perhaps it is questionable whether something defi nable as an ‘Anglo-Saxon’ tradition in accounting or management studies exists, given the serious differences between the American and the British traditions. Nonetheless, this is a taken-for-granted standpoint amongst Italian scholars, who tend to strengthen the differences between the self and what is perceived as other. Perhaps in social and linguistic terms the reference to ‘Anglophone’ tradition would be more correct. 7. Such a conception of the economic system as cycles of production and consumption activities and exchanges between production and consumption units could suggest interesting analogies with other institutional approaches, as for instance the American institutional tradition (Langlois, 1986), and also with some of the basic approaches in the tradition of economic history (Cipolla, 1988) and of business history. More specifically, the concept of

Accounting Relativism

8.

9. 10. 11.

12. 13.

14.

15.

16.

415

azienda appears to be similar to the concept of Betrieb of the German tradition. This is not the case of the management and business studies tradition, wherein the consumer tends to be seen as a person rather than a family (e.g. a family even in the case of a single’s family unit), as an individual rather than an organised economic process. To give an example for non-Italian readers, consider the more-than-a-hundred-page paper by Giannessi (1969)that is focused on the evolution of the concept of azienda in the fi rst half of this century within the Economia Aziendale tradition. Given the aim of this paper, may we address the reader to Ardemani’s work for direct bibliographic references. It has been argued that the literal translation as ‘economic subject’ risks theoretical ambiguity, becoming (another) example of what Hopwood and Schreuder (1984) refer to as ‘awkward English usage’. As Ardemani himself underlines, stressing some particular aspects of crucial significance in a certain period does not mean the denial of other analytical dimensions under which the fi rm might and should nonetheless be analysed. In fact, more than clear-cut successions over time, they are theories that exist alongside one another, showing the presence of a theoretical variety in looking at the fi rm. For instance, Ferrero (1968, pp. 63–65) openly disagrees with the Masini’s MEA configuration. As he puts it, “the flaws of the previous configurations of MEA are not actually eliminable simply transferring powers from the one to the other ‘interested party’”, i.e. from capital to labour bearers (Ferrero, 1968, p. 63). In this sense the writers share the criticism levelled by those scholars assessing the power meaning of accounting practice, but not the ‘market for excuses’ perspective as to Italy (Zambon, 1992). What will be here called as ‘implicit’ or ‘figurative’ cost refers to the nonmonetary expense relating to both equity (cost of equity, in a sense the opportunity cost of using capital in the economic coordination) and entrepreneur’s salary for the coordination activity. According to the debate within the Italian community of Economia Aziendale, in order to arrive at the notion of ‘pure profit’, one should deduct these ‘implicit’ or ‘figurative’ costs from ‘traditional’ income. See Burchell et al. (1985) which gives an explanation of the value added debate in UK as a historical phenomenon (the value added event) within the context of socio-economic-political conditions. Referring to that approach, albeit in a partially different perspective, in this paper a particular component of what Burchell et al. (1985)defi nes as ‘accounting constellation’ will be further analysed, i.e. the role played by ‘the bodies of knowledge’ in terms of ways of conceiving the fi rm. This does not prove the absence of a relationship between theories of the fi rm/accounting theories/income measurements; rather, it means that this relationship is not always consciously developed: simply, it is hard to be consistent. According to Zeff (1978), both the entity and the proprietary theories are the most important and successful interpretations of what has been labelled as orientation postulate. The author defi nes this postulate as follows: ‘inherent in the theoretical schema of accounting writers is a perspective from which the accounting process is to be viewed. Some writers make explicit their choice of perspective, occasionally giving reason therefor; other writers leave the matter unsaid. But a perspective must fi nd expression somewhere in the theoretical construct, for accounting must relate to one or more persons, organisations, or activities’ (Zeff, 1978, p. 1).

416

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17. A distinction within the shareholders’ equity has also been proposed in order to focus only on the common shareholders’ capital, i.e. the so-called residual equity (Staubus, 1959). In this modified version of the proprietary theory, the dividends assigned to preferred shares are to be treated as costs with respect to the ‘real’ proprietors, namely the common shareholders. 18. In historical perspective, it is worth observing that Paton’s ideas preceded by ten years the publication of the Berle and Means’ book on the separation between ownership and control in American corporations. Furthermore, Paton’s proposal to identify a surplus measurement which was aimed at assessing management capability to run the business, was contemporary with the introduction of a more sophisticated system for managerial performance appraisal: perhaps it could be worthwhile to investigate elsewhere the possible existence of a relationship between the fi rst presentation of the entity theory at the beginning of the 1920s and the emergence of more refi ned methods of managerial evaluation (e.g. Donaldson Brown at Du Pont and his extensive application in organisational terms of accounting ratios such as return on equity and return on investment). 19. It should be noted that the entity theory does not coincide with the ‘entity concept’, even though the latter is a necessary precondition for the former. The ‘entity concept’ has been defi ned as the economic unit to be accounted for and, hence, it corresponds to a unit of accountability, the choice of which is indispensable even to a proprietary theorist (Concepts and Standards Research Study Committee, 1965). Therefore, setting the accounting boundaries of an area of economic interest to a particular individual or group does not imply per se the adoption of the entity theory in fi nancial reporting (Zambon, 1996a). 20. An alternative view to that highlighted in the text is of course the Patonian one (Paton, 1922). As mentioned, Paton fi rst proposed in the US a comprehensive entity approach (or, as he called it, a ‘managerial point of view’) to fi nancial reporting. According to Paton, the primary purpose of the fi rm’s accounts should be to permit an evaluation of the management performance in utilizing a ‘given’ set of assets, leaving aside the sources of fund raising (Zeff, 1978, p. 187). In Paton’s view, ‘net income’ is then the return to all fi nancial capital bearers, not only to equity holders, since accounting has to provide a measure of the effectiveness with which all the assets have been utilised. Net income for Paton was hence the additional wealth which may be distributed to all suppliers of funding. Correspondingly, the amounts of taxes, interest and dividends were to be conceived as distributions of income. Therefore, the main ‘beneficiary’ of fi nancial statements is the group of equities suppliers (shareholders and creditors). The firm-entity is conceptually considered as separated from its proprietors only to allow a more detached evaluation of the managerial performance. The emphasis is placed on a new way of carrying out the ‘old’ stewardship function, reflecting the social recognition of the management role in creating and running company economic activity. 21. Within the entity theory the position by Suojanen (1954) appears peculiar. This Finnish-native author proposes his ‘enterprise theory’ as a development of the entity approach towards a more institutional and societal vision of the fi rm in its socio-economic contexts. Starting from this point of view he stands for the use of the value added as the measure of the fi rm’s economic performance (alongside with the ‘traditional’ income), since that measure would reflect in a more appropriate way the social role played by the enterprise. However, Husband (1954, p. 560) clearly points out the internal contradictions of certain ‘false’ entity positions, tending to degenerate towards

Accounting Relativism

22.

23.

24.

25.

26.

417

the value added logic: “Developments in this direction, however, appear, as stated, to be contrary to the entity point of view. From the stand-point of the latter the entity is a person separated from all others: shareholders, creditors, and wage earners alike. There is no reason why it should be conceived as acquiring the services of any of these groups without costs. Contrary to justifying the treatment of dividends, interest, and wages as distributions of income, the entity point of view would seem to require the treatment of all three as costs”. In this respect, Suojanen’s ‘enterprise theory’ seems then to be methodologically inconsistent with the entity approach, since in his view the contrast between the ‘entity’ and all the ‘others’, which is the distinctive point of the entity position, tends to disappear and the whole set of constituents—including workers—are conceptually considered within the fi rm boundaries, as the use of value added as a measure of fi rm surplus suggests. For a similar result see also Aoki on organizational rent: moving from a transaction cost perspective, this author focuses on the fi rm-specific character of the collaboration between the constituents of a given fi rm. In this framework, the particular internalisation process of resources which is adopted by a given fi rm is conceived as the source of distinctive competences, skills, capabilities and of a fi rm’s differentiation elements. Similarly to what Schumpeter pointed out, these idiosyncratic elements cause the long run profit to differ from zero—significantly Aoki talks about organisational rent. Profit being the consequence of specific resources and competences, “the next logical step is to ask who appropriates this rent? The answer seems to be obvious: the holders of the fi rm specific resources” (Aoki, 1984, p. 31). It is here interesting to remind readers that Aoki himself recognised the lack of reference to the customer role as a serious limitation of his framework, leading him to call for further theoretical developments (Aoki, 1984, p. 195). Paton’s view has hardly any relevance to the co-operative, since the attempt to identify a ‘result to net equities bearers’ would be meaningless in respect to these anomalous institutional enterprise forms. In fact, in the workers’ co-operative case, the workers cannot be considered as equities bearers in the Patonian sense, i.e. they are not bearers of any fi nancial capital to the co-operative society. The value of their contribution does not appear in the credit side of the balance sheet, where all the equities are to be found. Thus, the ‘result to equities bearers’ would remain indeterminate for the logical impossibility of treating workers as equities bearers and their remuneration as part of this (so defi ned) surplus. In the consumers’ co-operative case, the actual sale value is missing and, hence, the Patonian ‘result to equities bearers’ would equally remain indeterminate. Therefore, in both forms of cooperative society Paton’s approach to the entity theory is not conducive to a meaningful result, and it is then bound to indeterminism with reference to these enterprise institutional forms. Following up from the previous note, in the case of Paton’s approach, the numerical example would then not arrive at any solution, because of the indeterminism intrinsic in this approach when applied to co-operatives. For different reasons, also the Staubus and Li’s proposal cannot be meaningfully applied to co-operatives using the numerical example in Appendix A, because of the simplicity of its figures. Their approach would in fact collapse into Anthony’s profit. Curiously enough, the notion of ‘fiction’ is used in both the Italian and US context: see the notion of ‘fiction-hypothesis’ by Masini (1964) and Ferrero (1968) and the qualification of the ‘entity’ as a fiction by Husband (1954). In particular, the Italian tradition utilizes such a notion when distinguishing

418 Stefano Zambon and Luca Zan accounting values according to their nature: objective quantities (quantità economiche) such as the physycal inventory or individual cash flows; estimates (stime), which are merely proxies of objectives quantities, e.g. approximations in measuring certain physical inventories; and conjectures (congetture) which are valuations derived from a set of fictitious hypotheses concerning the future course of business, e.g. depreciation, provisions, accruals, etc. To be true annual income itself has a conjectural nature (Zappa, 1937). 27. For instance Ardemani, in his theoretical proposal, explicitly refers to the US entity theory, as if he shared such an approach. However, his accounting system proposal is centred on value added, which is not totally coherent with the entity view in any of its different streams which rather ends up with a figure of income as profit (Paton, Li, Anthony etc.; see also our numerical example in Appendix A, and the differences between Exhibit 15.2 and Exhibit 15.4). Curiously enough, a similar criticism about internal consistency in entity/ proprietary positions has already been pointed out in the US debate (e.g. Husband (1954) vs Suojanen (1954), as discussed in Footnote 21). 28. See for instance Baxter: “The shareholders’ viewpoint i.e. the proprietary theory seems the more human and democratic. My own inclination is to say that it should win” (Baxter, 1984, p. 27). See also, for an historical example, the aforementioned UK value added event in the 70s as reconstructed by Burchell et al. (1985). 29. “The evidence suggests that differences between owners’ and managers’ interests—the most familiar but not the only significant conflict of interests among firm constituents to be recognized by accountants—is characteristic of large firms, especially corporations” (Staubus, 1989, p. 22, emphasis added). However, in order to avoid any kind of contextual determinism, one could refer to the prevailing patterns in the two environments, for similar theoretical stances can be found across distinct national environments (for instance, within non-proprietary approaches the entity view in the US context and the MEA as group in control in the Italian one).

REFERENCES Amaduzzi, A. 1947. “Confl itto ed equilibrio di interessi nel bilancio dell’impresa” (Confl ict and equilibrium of interests in company accounts). Rivista Italiana di Ragioneria, pp. 7–9. Anthony, R. N. 1975. Accounting for the cost of interest. Lexington, MA: Lexington Books–D. C. Heath and Co. Anthony, R. N. 1987, January–February. “We Don’t Have the Accounting Concepts We Need.” Harvard Business Review, pp. 75–83. Aoki, M. 1984. The co-operative game theory of the fi rm. Oxford: Clarendon Press. Ardemani, E. 1968, May–June. “L’evoluzione del concetto di impresa e dei sistemi contabili in Italia” (The evolution of fi rm concept and accounting systems in Italy). Rivista dei dottori commercialisti 3: 411–430. Astley, W. G. 1984. “Subjectivity, Sophistry and Symbolism in Management Science.” Journal of Management Studies 21: 259–272. Bartley, J. W., & Davidson, L. F. 1982, Summer. “The Entity Concept and Accounting for Interest Costs.” Accounting and Business Research, pp. 175–187. Baxter, W. 1984. Infl ation accounting. Oxford: Philip Allan. Belkaoui, A. 1985. Accounting theory (2nd ed.). New York: Harcourt Brace Jovanovich.

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Berle, Jr., A. A., & Means, G. C. 1932. The modern corporation and private property. New York: Macmillan. Burchell, S., Clubb, C., & Hopwood, A. G. 1985. “Accounting in Its Social Context: Towards a History of Value Added in the United Kingdom.” Accounting, Organizations and Society 10: 381–413. Canziani, A. 1994. “Gino Zappa (1879–1960): Accounting revolutionary.” In Twentieth-century accounting thinkers, ed. J. R. Edwards. London: Routledge, pp. 142–165. Chatfield, M. 1977. A history of accounting (2nd ed.). New York: Krieger (1st ed., 1974). Chow, Y. C. 1942. “The Doctrine of Proprietorship.” The Accounting Review 17: 157–163. Cipolla, C. M. 1988. Introduzione allo studio della storia economica Introduction to the study of economic history. Bologna: Mulino. Clark, M. W. 1993, September. “Entity Theory, Modern Capital Structure Theory, and the Distinction Between Debt and Equity.” Accounting Horizons 7: 14–31. Coase, R. 1990. “Accounting and the Theory of the Firm.” Journal of Accounting and Economics 12: 3–13. Concepts and Standards Research Study Committee. 1965, April. “The Entity Concept.” The Accounting Review 40: 358–367. Coughlan, J. W. 1965. Guide to contemporary theory of accounts. Englewood Cliffs, NJ: Prentice-Hall. Cronhelm, F. W. 1818. Double entry by single, a new method of book-keeping, applicable to all of business; and exemplifi ed in fi ve sets of books. London: Longman, Hurst, Rees, Orme, and Brown. Cyert, R. M., & March J. G. 1963. A behavioral theory of the fi rm. Englewood Cliffs, NJ: Prentice-Hall. FASB (Financial Accounting Standards Board). 1995, October. Consolidated fi nancial statements: Policy and procedures. Exposure draft E133. Ferrero, G. 1968. Istituzioni di economia d’azienda (Foundamentals of Economia Aziendale). Milan: Giuff rè. Galassi, G. 1984. “Accounting in Italy: Past, present and future.” In European contributions to accounting research, ed. A. G. Hopwood & H. Schreuder. Amsterdam: VU Uitgeverij/Free University Press. Giannessi, E. 1969. “Considerazioni critiche intorno concetto di azienda” (Some critical considerations on the concept of azienda). In Scritti in onore di Giordano Dell’Amore. Saggi di discipline aziendali e sociali (Writings in honor of Giordano Dell’Amore. Essays on business and social disciplines) (Vol. I), ed. VV.AA. Milan: Giuff rè, pp. 461–588. Gilman, S. 1939. Accounting concepts of profit. New York: Ronald Press. Gynther, R. S. 1967, April. “Accounting Concepts and Behavioral Hypotheses.” The Accounting Review 42: 274–290. Hatfield, H. R. 1909. Modern accounting. New York: D. Appleton & Co. Hendriksen, E. S. 1982. Accounting theory (4th ed.). Homewood, IL: Irwin (1st ed., 1965). Hicks, J. 1979. “The concept of business income.” In Classics and moderns, ed. VV.AA. Oxford: Basil Blackwell. Hopwood, A. G. 1987. “The Archaeology of Accounting Systems.” Accounting, Organizations and Society 12: 207–234. Hopwood, A. G. 1992, May. “Accounting Calculation and the Shifting Sphere of the Economic.” The European Accounting Review 1: 125–143. Hopwood, A. G., & Schreuder, H. (Eds.). 1984. European contributions to accounting research. Amsterdam: VU Uitgeverij/Free University Press.

420 Stefano Zambon and Luca Zan Husband, G. R. 1954, October. “The Entity Concept in Accounting.” The Accounting Review 29: 552–563. Kester, R. B. 1917–1918. Accounting theory and practice (2 vols.). New York: Ronald Press. Klamer, A., & McCloskey, D. 1992, May. “Accounting as the Master Metaphor of Economics.” The European Accounting Review 1: 145–160. Langlois, R. N. (Ed.). 1986. Economics as a process. Cambridge: Cambridge University Press. Lee, T . A. 1980, Spring. “The Accounting Entity Concept, Accounting Standards, and Inflation Accounting.” Accounting and Business Research, pp. 176–186. Li, D. H. 1960a, April. “The Nature of Corporate Residual Equity Under the Entity Concept.” The Accounting Review 35: 258–263. Li, D. H. 1960b, October. “The Nature and Treatment of Dividends Under the Entity Concept.” The Accounting Review 35: 674–679. Li, D. H. 1964, October. “The Objectives of the Corporation Under the Entity Concept.” The Accounting Review 39: 946–950. Littleton, A. C. 1966. Accounting evolution to 1900. New York: American Institute Publishing Co. Loasby, B. J. 1976. Choice, complexity and ignorance. Cambridge: Cambridge University Press. Lorig, A. N. 1964, July. “Some Basic Concepts of Accounting and Their Implications.” The Accounting Review 39: 563–573. Lukka, K. 1990. “Ontology and Accounting: The Concept of Profit.” Critical Perspectives on Accounting 1: 239–261. Marshall, A. 1936. Principles of economics. London: Macmillan. Masini, C. 1964. La struttura dell’impresa (The fi rm structure). Milan: Giuff rè. Masini, C. 1970. Lavoro e risparmio (Labour and saving). Turin: Utet. Merino, B. 1993. “An Analysis of Development of Accounting Knowledge: A Pragmatic Approach.” Accounting, Organizations and Society 18: 163–185. Meyer, P. E. 1973, December. “The Accounting Entity.” Abacus 9 : 116–126. Morin, E. 1977. La methode. I. La nature de la nature. Paris: Editions du Seuil. Pantaleoni, M. 1925. « Esame critico dei principi teorici della cooperazione” (A critical of the theoretical principles of co-operation). In Erotemi di economia (Principles of economics), ed. M. Pantaleoni. Bari: Laterza. Paton, W. A. 1922. Accounting theory. New York: Ronald Press. Peasnell, K. V. 1995. “Analytical Properties of Earned Economic Income.” The British Accounting Review 27: 5–33. Samuelson, P. A. 1957, December. “Wages and Interest: A Modern Dissection of Marxian Economic Models.” American Economic Review 47: 884–912. Sprague, Ch. E. 1907. The philosophy of accounts. New York: Author. Sprouse, R. T. 1957, July. “The Significance of the Concept of the Corporation in Accounting Analyses.” The Accounting Review 32: 369–378. Staubus, G. J. 1952, January. “Payments for the Use of Capital and the Matching Process.” The Accounting Review 27: 104–113. Staubus, G. J. 1959, January. “The Residual Equity Point of View in Accounting.” The Accounting Review 34: 3–13. Staubus, G. J. 1989, December. “The development of accounting in fi rms.” Paper presented at the EIASM Workshop on Accounting in its Organisational and Social Contexts, Brussels. Stewart, J. P. 1989, September. “The Significance of an ‘Orientation Postulate.’” Abacus 25: 97–115. Suojanen, W. W. 1954, July. “Accounting Theory and the Large Corporation.” The Accounting Review 29: 391–398.

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16 Accounting and Business Economics Traditions in Italy Enrico Viganó

INTRODUCTION Accounting has many diverse forms today, but these can trace their origins to a common historical basis: bookkeeping, and in particular the method of double-entry. This method has justly been called “the Italian method” as it emerged in Italy, was first promulgated in printed form by an Italian, Luca Pacioli, and spread through Europe as a result of Italian influence (Besta 1922; Littleton 1933; Melis 1950). However, despite this common foundation, accounting has developed in various countries along different paths, appealing to quite diverse theoretical approaches. Lack of awareness of the theories underpinning accounting in specific countries leads to a failure to communicate and makes it difficult to identify a common context for the whole discipline of accounting. This is quite likely due to several factors such as the relationship between law and economy and, not least, the average small-scale dimension of the European firm with its typical one-family ownership. Although international scholars are conscious of the contribution of Italy to the early development of accounting practice, there is less appreciation and awareness nowadays of the distinctive position of theory in Italian accounting thought. In Italy, accounting is framed in a wider discipline: Economia Aziendale (Viganò 1997). Although this framing has parallels in countries such as Germany, with its betriebswirtschaftslehre (Busse von Colbe 1996), the bond between accounting and Economia Aziendale is not well understood outside Italy. This is so despite recent expositions and discussions of the relationship in the English language (e.g., Galassi 1984; Canziani 1994; Zan 1994; Zambon 1995; Bergamin Barbato et al. 1996). Problems begin with the translation of the expression Economia Aziendale. It can be translated in several ways, but the more common English expressions are “business economics” and “business administration.” The latter is certainly unsuitable as “administration” is an early, rough term for “management” and seems to relate to a firm’s non-production operations. The former gives a better idea as the term “economics” is used, referring to the discipline that characterizes scientific research about the enterprise, but it is partial as it may be understood to refer only to for-profit units and thus not to consider non-business and not-for-profit organizations as well as governmental.

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At the core of the translation problem lies the word azienda. In Italian, it is clear that this word is a general term for both profit-oriented and notfor-profit units (impresa being used to signify purely profit-oriented enterprises). In English, a multiplicity of terms may be used: Some carry with them implications of profit-oriented entities (firm, business), others relate to legal aspects (company, corporation), while closer translations are less familiar (undertaking, establishment, concern, or even organization). This difficulty in translation implies that the concept of azienda, as an economic reality, as a system of parts and persons, operations and functions, is not widespread in Anglo-American literature. None of the suggested translations refers to a living organism (Vicari 1991), to a real entity, to its economic substratum that represents its content and life essence. In Italy, every handbook on accounting, management, or business finance begins with a wide definition of the concept and nature of the azienda (e.g., Amaduzzi 1993; Amodeo 1995). Although some Italian scholars writing in English (e.g., Galassi 1984) use the translation “concern economics” (meaning little to an Anglo-Saxon), it may emphasize the distinctive nature of the concept to leave the term Economia Aziendale untranslated. So what is Economia Aziendale? It simply means the investigation of the azienda carried out from an economic (in its widest sense) point of view. And azienda is investigated from the inside, unlike microeconomics, which looks also at the impresa, but from the point of view of the market (i.e., from the outside). It implies that all fields of study about the azienda, such as accounting, management, organization, marketing, finance, and so on, are strictly interconnected and should not (as they now tend to do worldwide) create closed crafts. They are considered simply as specializations within an autonomous science. The development of this broad philosophy is associated most strongly with one renowned (in Italy) scholar of accounting (ragioneria), Gino Zappa. The next section of the chapter briefly provides some discussion of the main claims of Economia Aziendale. The third section considers some of the difficulties that have arisen in applying the Economia Aziendale idea, which may have developed to such a degree as to justify the description “crisis” being applied to the current position of the theory. The section following briefly discusses some important connections between accounting thought and practice in Italy, and the chatpter concludes with suggestions for greater international awareness of specific national developments in accounting thought.

THE ECONOMIA AZIENDALE CONCEPT: ORIGINS AND CORE IDEAS

Formative Influences It would not be appropriate to repeat in detail historical material contained in extant writings such as those of Melis (1950) or Zan (1994) rather to skip forward to the twentieth century.

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In Italy, two theorists stand out: Fabio Besta and Gino Zappa. The central work of Besta (1922) was derived from lectures given originally at the Venice Higher School of Commerce in the 1880s and reflects to some extent an opposition to the then contemporary “juristic” approach. Besta’s emphasis was on the control of the entity’s wealth, seen as consisting of positive elements (assets) and negative elements (liabilities). Within this “patrimonial” or proprietorial approach, events represent changes in net worth: The sum of individual changes in assets and liabilities over a certain period gives the measure of income. The balance sheet is the main account of the fi nancial statement. The profit and loss account is a mere addition. In his scientific study of accounting, Besta stressed the concept of the azienda, and he was the fi rst scholar to place accounting within an economic framework. Accounting becomes the science of economic control, at the theoretical level aiming to develop the “rules of economic control” of all types of entity as a systematic set of general principles, fi rmly founded on empirical research carried out with a logical-experimental methodology (Galassi 1984: 166). Zappa studied under Besta in Venice in the early years of the twentieth century and eventually succeeded him. His fi rst important work, Tendenze nuove negli studi di ragioneria, was published in 1927 and presented the new concept of Economia Aziendale as a distinct approach. It is important to remember that Economia Aziendale is thus the creation of accounting scholars rather than the scientific study of accounting merely emerging from an already autonomous discipline of Economia Aziendale. In addition to the biographical discussion of Zappa already cited (Canziani 1994), readers are referred to discussions of his work in AIDEA (1980), Canziani (1987), and Took (1993). But the Italian literature on that author is huge. What follows represents a synopsis of the main aspects of Economia Aziendale as treated originally by Zappa and much along the same lines as Schmalenbach’s betriebswirtschaftslehre. This autonomous field of study, bringing together the “economic” perspective and the concept of the azienda, is devoted to investigating each and every aspect of the azienda—business or non-business, profit or not-for-profit, large or small, industrial or fi nancial, one-man or collectively owned—where all events with an economic impact are strictly coordinated.

The Elements of Economia Aziendale The most significant features of Economia Aziendale can be described as follows: (a) The concept of azienda identifies an economic entity that exists as a practical reality rather than an abstraction. The azienda is not a mass of independent and detached components; rather, it is a natural entity (albeit deriving from human creation). Economic events

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occurring within this real entity exist, interact, and become significant as they are linked to one another in a unitary and co-ordinated whole, addressed toward a predetermined aim or aims. (b) It represents a fully autonomous and independent discipline, even in its relationships with adjacent disciplines, such as law, economics, and mathematics. Moreover, it is a pragmatic science. (c) Notwithstanding its fundamental unity, it acknowledges distinct segments (or sections) with a significant partial autonomy of their own, such as ragioneria (accounting), gestione (operations), and organiz1 zazione (organization). (d) In accounting, Zappa, reacting against the previous theoretical trends centered on net worth, brought it round (perhaps in a less deductive and connected way with regard to Economia Aziendale) to an income-based accounting. These features will be discussed further in the following sections.

The Concept of Azienda In its economic aspect, the azienda is unitary (Bertini 1990). The azienda is not identified with its owners, its equity holders or capital suppliers, its managers, its personnel, its assets, or its operations: It represents an autonomous, real, and living organism that consists of all these elements. The concept of azienda is expressed as a system. It is not a mass of things and people; rather, all these elements represent a whole, a system where parts and functions interact with one another. It is a co-ordinated whole. Without co-ordination (which has both temporal and spatial dimensions), the azienda does not exist anymore. This coordination can experience stronger or weaker periods, but it is present over time, even indefi nitely, since the potential life of the azienda has no limits. As far as the economic aspect is involved, the aim of the azienda is to achieve an effective and well-balanced capacity to last over time. This feature is common to all kinds of azienda, in every economic context, and thus is a general concept. The fundamental object of study is therefore the azienda from an economic point of view.

The Autonomy of Economia Aziendale The birth of Economia Aziendale represents the emergence of an autonomous science, with a specific content and method of investigation (De Dominicis 1980; Amaduzzi and Paolone 1995; Cavalieri 1985; Viganò 1994). It deals with all the events and functions occurring in the azienda, and their effects on the environment, to the extent that they exhibit an economic perspective. Economic studies of the azienda present the great advantage of having a widely interdisciplinary content. Nevertheless, over the years—and still far

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too often—interdisciplinarity has been mistaken for a blend among other disciplines at many levels: An indistinct, magmatic field is created, which only seems to be culturally rich. In practice, multidisciplinarity turns out to be mere confusion. Boundaries need to be defi ned and protected. To fi x the boundaries of Economia Aziendale does not mean to place it in a rigid and closed position; rather, after identifying its nature, it consciously prepares the discipline to receive necessary contributions from other sciences. Taking for granted its autonomy, Economia Aziendale filters interdisciplinary contributions to permit a more effective and dynamic investigation, from an economic perspective, of the azienda conceived as a coordinated system with aims of its own. And yet, with various patterns over time, the links between Economia Aziendale and other disciplines still undergo alternate intensities and, occasionally, fall into confused common fields where Economia Aziendale seems to lose its identity. It might be useful to consider three significant examples of this phenomenon. The independence of Economia Aziendale from law has to be emphasized, as confusion between these disciplines represents the subtlest danger from the point of view of its practical consequences. This is so even if confusion is more likely in countries with Romano-Germanic positive legal systems, which therefore tend to be highly legalistic. Italy above all exemplifies this. Such a separation is difficult: In some countries, like France, accounting and economic studies began in law faculties and may still be linked to them (in the United Kingdom deriving from economic departments); in others, the presence of jurists is significant; while many historical matrices of accounting and bookkeeping are legal in basis. Interactions with law often confuse substance with form, where the form represents the appearance with which the concern presents itself to the environment: for example, the “company,” the “corporation,” or the “limited liability entity.” The economic substance is the azienda in itself. When the azienda interacts with its environment, it must take on a suitable dress (its legal form) in order to regulate relationships among different stakeholders. Because of this, a certain interdisciplinarity between law and Economia Aziendale is extremely important. However, these two disciplines, while sharing a common field, are autonomous and distinct, and they have to be considered accordingly. Otherwise, law encroaches on Economia Aziendale’s territory, which in turn leads to a distortion of economic rules. The regulation of published fi nancial statements in continental European countries represents a significant example, which will be considered further below. The relationship with mathematics is less invasive. Some people even believe that accounting in particular is derived originally from mathematics (Pacioli was himself fundamentally a mathematician). It is clear, however, that the reasoning behind Economia Aziendale is quite different from that of mathematics. Sometimes the events of an azienda cannot be expressed in mere quantitative terms and are not measurable at all. And even when they are, the logic of mathematics is not easily applied to the ever-changing

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phenomena and states of the azienda. Mathematics is a mechanistic way of reasoning, as it often considers a fi nite number of variables with a stable relationship between them. Economia Aziendale, on the contrary, sometimes needs a sort of intellectual inventiveness, in its well-established general frame of reference, because there are no automatic relationships among its parts, nor are all parts previously known. Mathematics is simply a tool—sometimes an important one, mainly to illustrate applications—to aid cognition, capable of providing information that (together with other cognitive tools) has to be brought to an economic synthesis. A new trend of study has recently arisen of a formal nature in the sense that it applies sophisticated mathematical models and tools to accounting (the information economic perspective of accounting). It has been greeted enthusiastically by some younger scholars but with distrust by older academics also because of its esoteric approach. On a cultural level—rather than a practical one—the most dangerous relationship is with (political or general) economics. The existence of Economia Aziendale challenges the solemn and charming myth of economics as a unitary science. Economia Aziendale differs from general economics in content, purpose, method, and attitude. Only its underlying economic nature is the same. The premises of general economics are abstract and simplified, while the basic reasoning model of Economia Aziendale is fundamentally pragmatist, more complex, and diversified. Hence, the method of investigation of general economics is mainly deductive (and thus mathematics is more relevant and obtains well-deserved success now perhaps on the wane), while an inductive approach can be more easily applied to Economia Aziendale. The subject of general economics is the study of aggregations of individuals down to the whole collectivity, and not of the azienda as a single unit. The aim of scientific investigation in general economics is the analysis of uniform behavior in a perfect environment conceived as the economic universe, while Economia Aziendale regards each unit (general economics does not even defi ne the azienda) as a going concern looking toward individual equilibrium and efficiency. While some accept these remarks specifically with reference to macroeconomics, they hesitate to apply them to the relationships between Economia Aziendale and microeconomics. However, micro tends to analyze the azienda from the market, while Economia Aziendale views it from the azienda itself. It is true that many complex modern phenomena, even in macroeconomics, require, more than ever before, the answers given by analyzing the azienda. General economics now tends to be more pragmatic, going beyond neoclassical theories, studying the entrepreneur’s behavior as a single subject. Conversely, Economia Aziendale is now more devoted to studying the external environment. This again means stating the existence of a common area (now enlarging) between general economics and Economia Aziendale, which enhances their (never denied) interdisciplinarity, but does not suggest unification into a single science. Economia Aziendale is

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not merely a version of applied economics, since it has a corpus of general theoretical principles that differ from those of pure economics, to which applied economics may be compared. The study of income distribution in a given community is an example of applied economics, as are the trends over time of consumption and its distribution among several kinds of need in a given country. These topics are remote from the object of study of Economia Aziendale: the azienda.

The Segments of Economia Aziendale Originally, Economia Aziendale was thought to be made up of three parts covering three organic segments or sections of the azienda. This approach must be taken with care, given that the azienda is regarded as an autonomous and unitary “system.” However, providing this fundamental principle is always kept in mind, the azienda can be examined in terms of co-ordinated “subsystems,” and the traditional segments of Economia Aziendale are (Zappa’s version): organizzazione, ragioneria, and gestione. It must be said immediately that gestione presents two aspects. The first is a “subjective” one, which refers to the activity and decisions of the azienda staff, mostly at a high level. The perspective is one of the decision makers, that is, of managers. An exact translation of gestione in this sense would be “management.” The second is an “objective” aspect, which refers to events materially occurring within the concern. This deals with facts: that is, what really occurs daily in the concern. It examines the dynamics of real trends: that is, of processes and combinations of processes. An English equivalent could be “operations.” This latter aspect is the only one dealt with in detail by the early Italian doctrine of Economia Aziendale (Onida 1965). The reason for this seems to be related to the average size and the typical proprietary structure of the azienda in Italy. In English-speaking countries, the archetypal concern is medium or large, with widespread shareholding (often as a public company). The fundamental problem relates to the choice of manager and the assessment of how he or she has behaved and acted within the “company.” This implies a discipline of “management” as a basic function of the concern. On the Continent, however, the concern is typically medium or small in size, often being a sole or one-family proprietorship. Cases of widespread shareholding are few, and capital markets and stock exchanges are rare and poorly functioning. The owner is the only possible manager, self-elected, selfimposed, self-approved, and practically irremovable. The problem of selection and evaluation of his activity simply does not arise. The problem of “subjective” gestione or “management” does not play a significant role that goes some way to explaining why it has not been treated very much (especially in Zappa’s day). The azienda is examined in terms of its real activity as a co-ordinated set of operations, not from the perspective of its owner or manager. This affects accounting, because the nature of the

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azienda implies that accounting and operations are unitary. Accounting for control will be different in the typical Italian azienda as originally theorized from its form in the large Anglo-American fi rm. It is the deep change now being experienced in the model of European enterprise and its widespread internationalization, which make both the subjective and the objective investigation of gestione a necessary—because complementary—requirement even in its accounting involvement.

Income-Oriented Accounting Accounting is an organic part of Economia Aziendale; indeed, as already noted, the latter discipline largely grew out of accounting. The central notion is that the azienda is unitary. This implies that income produced in the azienda is unitary, in both time and space. Events occurring in the azienda give rise to and measure (in terms of their original monetary aspect) changes, both negative and positive, as elements of the periodic and discrete formation of income. Because events are inseparable over the entire life of the azienda, income is derived from a global combination, with costs and revenues conceived as a whole and referred to the azienda as a whole. For practicality only, the unitary feature is sacrificed along the temporal dimension, but not for periods of less than one year, and thus never for partial or interim results. There are no single or specific costs to be compared to single or specific revenues; rather the total mass of costs is compared to the total mass of revenues. A single cost does not produce a single revenue (thus, there is no recognizable “matching” concept), but it contributes without distinction to produce all the revenues; a single revenue does not derive from a single cost, but from the contribution of all the costs. The only acceptable form of profit and loss account is the “T-format,” simply listing costs on one side and revenues on the other with no attempt to associate specific costs with specific revenues. The concern is a dynamic entity, so costs and revenues really exist as elements of the income itself. A concern exists over time; over time only income exists. Net worth (in Italian, capitale netto contabile) is thus a derived concept, static and artificial far removed from the dynamic nature of the azienda. Except for monetary items, net worth is seen as consisting of deferred costs and revenues rather than assets and liabilities. The balance sheet is thus derived from the profit and loss account. This interpretation produces a specific recording method (“income sys2 tem”). Within this system (Zappa 1950): (a) Partial results, divisional areas, profit centers, and interim or segmental reports are not accepted (as they deny the unitary nature of the azienda). (b) Income derives from external events only: Internal events are meaningless for recording, and hence cost accounting is of little importance.

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(c) Process costing control is rejected because it leads to unreliable figures (it assumes that costs can be meaningfully allocated). (d) Financial statements are centered on the profit and loss account (dynamic account), while the balance sheet appears as a derived account (static account): What exists is income, with net worth measured in relation to the calculated income. (e) The capital value of the azienda is simply the present value of the average future income. Assets do not have an independent unique value, but their worth depends on their contribution to income production. (f) The uniqueness of the azienda (no two aziende are alike) does not allow for uniform accounting and standardized fi nancial statements. The income-oriented approach may be distinguished from the “patrimonial” approach identified with Besta (1922). The former approach is synthetic, adopting a systems view: The azienda is considered as a whole, so, for example, every item of net worth has given up its individuality and value to the whole on which it depends. Only income exists; capital is a derived concept and has a dependent value. In contrast, the patrimonial approach is analytical, adopting an atomistic view: The azienda is a simple sum of several components, so, for example, every item of net worth is like an independent atom, with individuality and a single value. Only capital is important; income is the accounting measurement of the change in capital over time. The “income-oriented” trend had an immediate and widespread success 3 in Italy. Up until a few years ago, it was the most common accounting interpretation—if not the only one in theory. Its theoretical frame reflects the concept of unity and autonomy of the azienda. It’s worth stressing that according to Italian doctrine, income-based accounting and Economia Aziendale are frequently thrown together simply because they were the two main contributions made by Zappa. Now, the income system has been swept away by accounting principles and is no longer applied in practice. Accounting principles are based on the atomistic view of assets and operations and, as such, are closer to Besta’s patrimonial system. For instance, they give rise to an income statement in report form that is totally against Zappa’s theories. But Economia Aziendale is something different that could still have maintained its validity in a general sense.

THE EVOLUTION AND CRISIS OF ECONOMIA AZIENDALE THEORY

Emphasis on Accounting Economia Aziendale in Italy has had a heterogeneous development. Many scholars of ragioneria (accounting) thought that their field was simply enlarged, almost considering Economia Aziendale as equivalent to ragioneria.

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In contrast, scholars of the azienda not specifically engaged in accounting research often adhered to Economia Aziendale only at a formal level. With regard to accounting, studies have followed an evolving pathway, the main features of which are: (a) reluctance to admit that accounting is only a specialized field within Economia Aziendale and should in any case not have the leading role; (b) strong abstraction within some trends of research, with the frequent encroachment of adjacent disciplines (also non-economic) whose requirements are far from practical; (c) the self-proclaimed assertion of the supremacy of Italian accounting (ragioneria) studies, with a refusal to consider any research (and their practical influences) carried out in other countries. The success of Economia Aziendale may be explained by reference to several factors: the authority of ragioneria scholars; the attraction of an autonomous science studying the azienda as a unitary economic reality; and the deductive rationality of many theoretical assumptions, enriched with the framework of a new income-oriented bookkeeping system. Perhaps enthusiasm for the new way of thinking became excessive, stimulating many to extend the concept of accounting to become a synonym of Economia Aziendale. The original scientific message was misunderstood: Rather than a recognition of accounting as an organic part of a larger discipline, there was the incorrect conviction that such a new school enlarged the content of accounting. Thus, various scholars, including some outstanding ones, have turned their attention to different fields of research, beyond the specific and original one, sometimes with a strong degree of abstraction (Zeff 1993). In the absence of clearly stated theoretical aims, ragioneria scholars, in the name of Economia Aziendale, have been moving away from their original research field and neglecting empirical problems. But Economia Aziendale was born to deal with a “real” phenomenon: It should therefore have strong practical features underpinning its theoretical and methodological requirements. Old traditions, new developments in content, bright ideas, the results of some valuable research, and general enthusiasm led Italian accounting scholarship to consider itself the best. It is, indeed, only a self-proclaimed supremacy, sometimes with a sort of cultural arrogance. Except possibly in the 1920s and 1930s, when there was some awareness of parallel developments in German accounting scholarship, foreign studies have often been totally ignored. When they have been considered, particularly for American studies, the tendency is to be critical from a preconceived position. It is not understood that foreign accounting studies are merely different from the Italian ones, whose originators should have understood, perhaps with a little more modesty, the reasons for foreign lines and trends.

432 Enrico Viganó Until a few years ago, there was no formal exchange between Italian and American accounting studies. They simply ignored one another and developed toward paths different to such an extent as to seem two separate worlds. An American reading an Italian text on ragioneria would fi nd little 4 to understand, considering it abstract and of little use. An Italian reading an American text on accounting would consider it fragmented, too pragmatic, and lacking theoretical references.

A Unitary Discipline? Given the claims that Economia Aziendale brings together all research and teaching of economic disciplines related to the azienda, one might expect scholars to form a unitary and, for the most part, interchangeable group perfectly co-ordinated in offering their research and pedagogic contributions to the whole discipline. In practice, things have been quite different. From the 1920s to the 1960s, non-accounting studies of the azienda (management, marketing, business fi nance) kept to themselves, almost exclusively involved with the description of operations (gestione). Subsequently, scholars, perhaps less carried away by the enthusiasm of Economia Aziendale, and in the wake of significant foreign (particularly American) developments, have discovered that the azienda can be studied not only in terms of the traditional segments (ragioneria, gestione, and organizzazione) but in terms of functions (finance, production, marketing, management, etc.) as well. The influence of foreign studies has become enormous; for teaching purposes, many universities have adopted Italian editions of well-known foreign textbooks, which would be almost unthinkable in accounting. Those scholars have moved away from accounting, strongly criticizing the repetition of never changing concepts and excessive abstractions. At best, they assume an indifferent attitude toward accounting, of which they claim ignorance. The American influence is so strong that no attempt is made to translate it in terms of the specific Italian and European experience (i.e., the typical continental fi rm small and family owned). The functions of American management studies, and the emphasis on business (especially manufacturing), are what exist, leaving aside the different cultural, structural, and environmental realities of the Italian concern. The outcome of this is that Italian accounting is only domestic; Italian studies of management, marketing, and finance are mainly foreign-influenced. Studies are no longer devoted to the azienda in its economic content, but to discrete functions, particularly those performed by management. The conviction is that this point of view is not merely partial, but represents a valuable perspective of investigation that involves the whole reality of the “business enterprise.” The azienda is equated with management. The deep changes in progress (such as internationalization, technological development, the rise of intangibles, and relations between labor and capital) led to the creation of a theory of business strategy that now seems to play a

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more significant role, and to be located at a higher level, than the functions themselves, paying particular attention to the relationship between enterprise and environment. The azienda no longer “really” exists, rather management (or, as is now the fashion, strategy) does. Moreover, a new independent science seems to arise: a “managerial economics” completely detached from the old, immobile Economia Aziendale. The very concept of Economia Aziendale is being rejected or is under discussion because: (a) it is perceived as belonging too much to accounting scholars, (b) it does not consider functions as objects of study, and (c) it is not well known abroad and in particular in North America. However, this does not leave a vacuum: The field is filled by new and interesting research perspectives on the azienda that are neglected by a ragioneria still confined in its own traditional modes of reasoning. Italian non-accounting scholars are promoting an extraordinary development of research into business enterprise, though still often ignoring the need for adaptation to the different local and continental European environment. In any case, this work is far removed from traditional approaches to ragioneria.

Crisis and the Way Ahead Despite the considerable progress of Economia Aziendale in Italy over the last seventy years, its present state is characterized by a widespread crisis as to scientific content and didactic co-ordination. The premise of a unitary stream of economic research into the azienda seems to vanish. One sometimes has the impression of facing a mere jumble of studies. Scholars of different branches of Economia Aziendale do not communicate with each other, and they do not seem to understand each other nor even consider themselves as belonging to the same general discipline. The only question seems to be whether Economia Aziendale should be entirely rebuilt at once or reconstructed step by step (SIEI 1994; Sicca 1992). Because accounting in Italy is generally conceived within a frame provided by Economia Aziendale, the latter’s crisis is also a crisis for accounting. Yet there are always opportunities in a crisis, if it leads to an evolutionary renewal. From this point of view, some light can be seen. Accounting studies seem to have rejected cultural isolation in favor of accepting foreign contributions. Moreover, by realizing that the azienda must be examined not only in terms of organic segments but also in terms of functions that together grasp the whole economic reality of the azienda, accounting researchers admit the need to go beyond the idea of the azienda as a closed system. By investigating the accounting consequences of the relationship between azienda and environment, they can investigate more effectively the importance of the fi nancial statements as a tool of communication.

434 Enrico Viganó An important feature of Economia Aziendale is that it does not discriminate between different types of azienda, and this allows accounting scholars to address the issues of non-business and not-for-profit units as effectively as the more dominant business and profit-oriented entities. In non-accounting studies, the problems of non-business units are often totally neglected, as scholars believe that only the business (or more narrowly still the industrial) enterprise exists as an autonomous field of study. Non-accounting scholars are playing down the difficult relationship with accounting, even if not necessarily in the name of a general discipline of Economia Aziendale. After early enthusiasm, they are critically observing American studies, adjusting the application of their functional analysis to make it more appropriate for the European (and in particular Italian) reality. And what about the near future? It’s difficult to go back: In Italy, accounting and Economia Aziendale are synonymous by now. All other research on the azienda gives rise to separate disciplines. It must be admitted that, theoretically and practically speaking, even Italian accounting cannot ignore the influence of accounting principles at some distance from Zappa’s thinking. The income system practically unknown outside Italy cannot survive the internationalization of accounting. In Italy, accounting doctrine has begun to consider, though not necessarily accept, some modern international tendencies such as the 5 agency theory or the deterministic ideas deriving from information perspective accounting. But the fi nal remark (see below) is that Economia Aziendale is moving increasingly toward becoming a super-discipline, empty. It is probably necessary to go back to the idea that every discipline to do with the azienda must be considered independent, albeit with a wide interdisciplinary field.

IMPLICATIONS OF ECONOMIA AZIENDALE ON CURRENT ITALIAN THOUGHT AND PRACTICE

Financial Statements To realize how in Italy the fi nancial statement is shaped, two preliminary notes are necessary. The fi rst is that the Italian environment is strongly characterized by legal ties and the fi nancial market is poor as far as quantity and quality are concerned. The only subject in the fi nancial market is the bank (the commercial type). The second is that the typical Italian fi rm is small and one family owned (also second or third generation). In both theory and practice, the fi nancial statement has mainly been considered the internal fi nancial statement for internal use. Due to Zappa

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doctrines, the fi nancial statement is in any case a tool with a great degree of uncertainty. In practice, the financial statement is included in a multiyear period (perhaps as long as a full operating cycle of the azienda) and tends to present a typical measure of income, determined at an accounting level by futureoriented accounting policies (effectively, income smoothing). A measure of “consumable” average income (without impairing future earning power) is cautiously sought, rather than income produced in the single financial year. Clearly, this theoretical assumption cannot be applied when the fi nancial statement is a medium of external information. In Italy there is no longstanding culture of published fi nancial statements. Hence, the information content, comparability, neutrality, and reliability of the public fi nancial statement are not important. The statement is a formal, merely legal, document affected by changeable, subtle, and often contradictory interpretations of civil and fiscal laws, and its economic content is poor, still shaped as a means for accountability. The fi nancial statement is seen as a formal ritual and is prepared only as a defense from the Italian tax office, whose regulations change more than once a year. It is a slalom, from one year to another, among law, jurists, jurisprudence, and tax rules: The latter often wins and so destroys whatever economically significant information contained in even a purely legal fi nancial statement. In its academic and professional aspects, accounting, rather than trying to improve such an unsatisfactory practice, left the field, defeated at the beginning. As noticed, accounting doctrine devoted itself almost exclusively to the internal fi nancial statement as a medium of knowledge on the economic evolution of the concern and its status intended only for the proprietorship (Viganò 1972), taking for granted the fact that the financial statement is a legal matter. During the last few years, sweeping changes have been experienced. Italian accounting is now devoting much energy to the public fi nancial statement. It is a considerable effort, because it means giving up many hitherto sacrosanct theoretical principles, such as the unitary and non-atomistic view of the azienda, the supremacy of income rather than the informative balance between income and capital, and the average multiyear—and not strictly yearly or even interim—perspective for income reporting. Concepts of standardization and harmonization were not accepted within Italian accounting until a few years ago. Thanks to the EU directives, at last being implemented in Italy, the scene is changing dramatically (Zambon and Saccon 1993). The new law closely approaches an international comparability (e.g, the report format for the profit and loss account instead of the T format, the only one possible according to Italian theories). It tries to reduce fiscal pollution. It has a certain technical more than legal origin. It increases the sensibility of enterprises to information. It has introduced the fundamental principle of prevalence of substance over form (as an example consider leasing: Viganò 1974). It takes a defi nite position toward many EU options. It introduces the consolidated statement never

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known before (again due to the small dimension of the fi rm). It generates a specialist and an independent development of the economic profession and excites great interest in accounting scholars. In this regard, the IAS now adopted in EU countries have and will play a significant role in making the fi nancial statement a tool for economic information and not a mere legal ritual. This is true for many continental countries in Europe. 7

AUDITING

The public fi nancial statement should be reliable when it is really required by external users. Reliability means attestation by an independent expert. The multiyear perspective of the Italian financial statement makes auditing difficult, because accounting rules may change from one enterprise to another or even from one year to another for the same enterprise. Auditing has not developed fully in Italy, and it has not attracted the economic attention of the environment. As the Italian public fi nancial statement is not widely required, few care about its reliability. In many Italian universities, auditing is today still not a subject of teaching; in others, it is optional. The practice of auditing in Italy has rapidly been colonized by the Big (now) Four. At present, the outcome is quite disappointing, wavering between the fallacious conviction that an audited fi nancial statement is “true” and the transposition of American-style accounting principles and auditing standards on the part of auditing fi rms. The latter, maneuvring successfully among many civil and fiscal rules, have ended up auditing each and every fi nancial statement. In Italy, there is always a legal rule or an interpretation from the civil or fiscal code that excuses whatever accounting behavior is desired, and auditors have tended to appeal to such rules. It might have been better if the Big Four had sought a financial statement more significant from an economic point of view, if necessary through the total rejection of audits, so as to create a proper sensibility at all levels. There is still time: On the wave of the worldwide crisis of auditing, a determined effort should be made in order to improve its quality in economic rather than merely legal terms. Auditing, an important part of accounting, should receive greater attention in Italian research and education. The EU has made important steps to encourage the profound reform needed in Italian accounting education and practice introducing IAS principles: a radical revolution (also for auditing) compared with theoretically framework designed by accounting doctrine. This is the only way ahead.

COST ACCOUNTING As already noted, the unitary nature of the azienda means that measurement of internal transactions was considered meaningless, as was

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the attempt to link specifi c costs with specifi c revenues. Moreover, the small size of the typical Italian enterprise reduced the interest in problems related to costing and budgeting. Such theoretical and practical considerations have led Italian accounting theory to disregard almost completely cost accounting and its evolution. 8 At most, Italian accounting hesitantly presents concepts derived from the American literature. In practice and teaching, when not ignored altogether, cost accounting has been presented merely as a set of techniques that may be occasionally useful if applied cautiously. This situation still affects Italian accounting today. However, there is a defi nite trend toward reconsidering the importance of cost (and management) accounting, presented now as a necessary compromise between practical requirements and theoretical assumptions. However, the demand of the enterprise is pressing above all from manufacturing ones. This means that Italian accounting scholarship should perform thorough studies on the problem of cost and management accounting. Cost accounting should fi nd a place of its own in the wider craft of management accounting, with a strategic perspective, with medium-to-long-term alternatives, which also consider the influence of the environment. The lasting and substantive contribution of Italian accounting within Economia Aziendale could be the theoretical assumption that the “fi nancial” accounting system must be separated from the “cost” accounting system, which is not even present in the American literature and practice. For management and strategic accounting, it is absolutely necessary to have two separate accounting systems to avoid confusion of such different records in terms of their aims and the values they use.

CONCLUSION: WIDESPREAD DISSATISFACTION WITH THE PRESENT STATUS OF BUSINESS ECONOMICS AND ACCOUNTING IN ITALY. COMPARISON AND DIFFERENT PATHS

A Brief Synopsis The contradiction at the heart of the relationship of accounting and Economia Aziendale, as shown in this chapter, is that the theoretical corpus of Economia Aziendale sprang from accounting. More recently, other disciplines addressing the azienda have appeared to achieve greater scientific progress, so much so that the incorrect identification of Economia Aziendale with accounting has inhibited the scientific co-ordination sought by the pioneers of the discipline. At the same time, the distinctive nature of Economia Aziendale distracted Italian accounting scholars from an awareness of the international developments in accounting research and practice. Economia Aziendale has on occasion been interpreted dogmatically as implying that certain problems of international significance are non-issues,

438 Enrico Viganó thus leaving many Italian scholars ill equipped to participate on an international level. Economia Aziendale was a great idea. Nowadays it has lost its content. If Italian accounting is to fi nd its place in the international arena, this must be accepted. In Italy, the financial statement, a central feature of accounting particularly in terms of international comparison, is still linked to the basic convention of historical cost. It is in most cases more legally and fiscally oriented than economically based. Its primary function is one of stewardship rather than being a tool of economic knowledge of the concern for management and external users. The consolidated statement is partial and not homogenous; it is directed only to parent-company shareholders; it is not the expression of the economic conditions of the entire group as a unitary concern. Cost accounting, and even management accounting, does not completely consider the still evolving modern needs of the concern and is mainly limited to shortperiod process costing. Auditing is only external and tends to become even more legal and formal, lessening its economic content and function regarding the provision of fair and reliable accounting data. Accounting is in a deep crisis, not only in Italy. As far as financial reporting is concerned, the tension between a formal, legal approach as opposed to an economic one is widespread. The current body of accounting principles must go beyond the different solutions offered by American GAAP and IAS, precisely in the direction they have already undertaken. It must be placed within a framework that is really respected and applied. It must improve on many accounting solutions: the “Fair Value” option, introduced amid much criticism and then abruptly stopped, is a case in point. Recent large-scale fraud and bankruptcy cannot be entirely debited to accountants, but perhaps a greater effort should have been made toward ethical and other normative aspects. No applied science can be restricted to mere formalization and statistical testing (Mattessich 2008).

FINAL REMARKS If this were a stage play, it would revolve around four leading characters: a) accounting b) other disciplines related to the fi rm (management, operations, organization, marketing, production, etc.) c) business economics d) general economics (micro in particular) In various countries and at various times, the four have played their parts, influencing each other in various ways, taking on different forms and different relationships.

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In the Anglo-American sphere, “business economics” has come close to microeconomics, practically pushing accounting off stage. The expression itself has little in the way of a precise meaning, nor is it easy to place within a defi nite field of study. The various disciplines related to the firm are independent though often strictly bound to economics (e.g., fi nance). In Italy, the Zappa school had a huge impact, taking the concept of business economics to the extreme theorization of a single science, which, independent from general economics, comprises all disciplines related to the fi rm—in other words, all possible economic observations of the events that regard the fi rm. Strangely enough, at the same time, this also occurred in Germany (and in the Netherlands, Finland, and to a certain extent Sweden) with astonishingly similar features. However, it was German business economics that was widely known throughout Europe and perhaps a little in the United States as well (see Paton and Littleton 1940). Even in countries where business economics developed, Italian business economics was studied hardly at all, and outstanding scholars (like Zappa and Onida) were practically unknown, probably due to the language. German influence, in contrast, was significant. More recently, driven by a sort of Americanization, business economics in Germany and the Netherlands has lost its all-comprehensive character with regard to each and every aspect of the firm, divesting itself of part of its content. In Italy, too, the Zappa school no longer holds the massive sway it had until the late 1980s over the academic world and has lost all its influence over practice. One of the main reasons, perhaps, is the shift toward pragmatic accounting as opposed to scientific accounting, especially due to widespread standardization and harmonization of the financial statement, both in direct contrast to the ideology of Zappa according to which each fi rm or concern is unique and cannot possibly be standardized or harmonized. And what about other disciplines of the fi rm? Though economic globalization, on the one hand, and industrial economics as a branch of microstudying entrepreneurial behavior, on the other, have drawn those disciplines closer, in the “old world” of Europe, they are still at some distance from economics, including micro. They have never really accepted accounting’s leading role in business economics and have practically broken off to create a series of independent disciplines. Following an early phase of strong U.S. influence, in other countries, those disciplines have embarked on a progressive course of knowledge-gathering to adapt to the local characteristics of the fi rm and the environment, both different from the U.S. picture. The most significant conclusion to be drawn, in short, is that in the “old world” of Europe too, it is probably time to retrace their steps and consider each single approach to the fi rm as an independent discipline within a huge interdisciplinary field, though coming short of a super umbrella as Economia Aziendale was becoming.

440

Enrico Viganó

Due to its large and lengthy theoretical experience, Italian doctrine could—in the international arena—contribute to designing a general definition of the azienda, which would also include governmental and nonprofit organizations. No doubt, the United States has dominated the accounting scene worldwide from the second half of the twentieth century. It is wise to accept but with co-operation, just as the EU push to adopt IAS principles should not be contrasted. The way of accounting principles—technically set—is the one to pursue at the moment. The idea is right, but the current body of principles (GAAP and IAS) must be improved, above all by framing it within a general theory. Italian doctrine can contribute to this task. NOTES 1. All these translations must be offered with some caution. In particular, gestione, which is often translated as “management,” may be misunderstood if the latter term is used uncritically. See below. 2. A basic idea of the Italian school of accounting is to create a logical relationship between the bookkeeping method (double-entry) and the income system, within the knowledge of co-ordinated events occurring in the azienda. The method is not external to the system, but represents a basic requirement, as an applicative tool of the necessary double observation of operations. Duality is necessary to double-entry, not to get an arithmetical balance and thus control, but rather because it results from the need to observe economic events from two points of view, for example, capital and income. Nevertheless, while this link is mostly applied to the “income-oriented” system, it is not restricted to that system (Peragallo 1971). 3. See, for example, Dezzani (1970), Catturi (1989), Superti Furga (1987), and Mella (1995). Some criticisms, reflecting the tendency to extreme abstraction on the part of supporters of Economia Aziendale, have been expressed by Fanni and Cossar (1994). 4. A good example of this is given by a review of a collection of articles by some of the leading scholars of ragioneria, published in English by the Accademia Nazionale di Ragioneria (the forerunner of AIDEA) in 1974. This was intended to make Italian accounting known better abroad. The book was reviewed in The Accounting Review as late as 1982, the reviewer (Chatfield 1982: 208– 209) claiming that “this book is not a valuable addition to the accounting literature, nor is it of much interest to readers of The Accounting Review. Most of the articles are insufficiently detailed or documented to be valuable as reference works. The range of topics is too broad. The views expressed are mainly familiar ones, and are largely derivative from readily available American, English and German sources.” These remarks, even though they suggest that the reviewer did not identify the theoretical structure of Economia Aziendale, are significant as to the American opinion on Italian accounting. 5. For countries where business economics was mainly known, it may be noted that in Germany the agency theory is now fairly widespread even though it is not considered—as it is in the United States—such a brilliant idea. Conversely, in Italy, it is not studied at all, probably because that theory is not suitable for the typical Italian fi rm.

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6. It’s worth remembering that, up until a few years ago, the Italian fi nancial statement didn’t include the funds flow statement, probably due to the dread—influenced by the income system—of the fi nancial aspect of the fi rm’s activities so important in U.S. practice. Now that the funds flow is about to be adopted also in Italy, it has been unsurprisingly called rendiconto fi nanziario, stressing the aspect of accountability given to the fi nancial statement as a whole. 7. Auditing standards, together with accounting principles, have made a significant contribution toward American accounting dominance. 8. It might be useful to notice that Schmalenbach’s theory considers cost accounting as a valid tool probably because betriebswirtschaftslehre is more practical than Italian Economia Aziendale, which is more abstract (and the average dimension of the German fi rm is larger). On the contrary, Limperg’s bedrijfseconomie, which had a huge impact on the practical behavior of Dutch fi rms, does not mention cost accounting at all.

REFERENCES Accademia Nazionale di Ragioneria. 1974. Papers on business administration. Milan: Giuff rè. AIDEA. 1980. Gino Zappa, founder of concern economics. Papers presented on the hundredth anniversary of his birth. Bologna: Accademia Italiana di Economia Aziendale. Amaduzzi, A. 1993. L’azienda. Turin: Utet. Amaduzzi, A., and Paolone, G. 1995. Le gestioni comuni. Turin: Utet. Amodeo, D. 1995. Ragioneria generale delle imprese. Naples: Giannini. Bergamin Barbato, M., Collini, P., and Quagli, A. 1996. “Management Accounting in Italy: Evolution within Tradition.” In Management Accounting, European Perspectives, a cura di Alnoor Bhimani, Oxford University Press INC., New York. Bertini, U. 1990. Il sistema d’azienda. Turin: Giappichelli. Besta, F. 1922. La ragioneria (2nd ed., enlarged with the help of V. Afieri, C. Ghidiglia, and P. Rigobon). Milan: Vallardi. Busse von Colbe, W. 1996. “Accounting and the Business Economics Tradition in Germany.” European Accounting Review 5(3): 413–434. Canziani, A. 1987.) “Sulle premesse metodologiche della rivoluzione zappiana.” In Saggi di economia aziendale per Lino Azzini. Milan: Giuff rè, pp. 183–248. Canziani, A. 1994. “Gino Zappa (1879–1960): Accounting revolutionary.” In Twentieth-century accounting thinkers, ed. J. R. Edwards. London: Routledge, pp. 142–165. Catturi, G. 1989. Teorie contabili e scenari economico-aziendali. Padua: Cedam. Cavalieri, E. 1985. Ricerche di economia dell’impresa. Padua: Cedam. Chatfield, M. 1982. “Review of Papers on Business Administration.” Accounting Review 57(1): 208–209. De Dominicis, U. 1980. Lezioni di ragioneria. Bologna: Azzoguidi. Dezzani, F. 1970. Contabilità e bilancio. Milan: Giuff rè. Fanni, M., and Cossar, L. 1994. Il metodo contabile. Rome: La Nuova Italia Scientifica. Galassi, G. 1984. “Accounting research in Italy: Past, present and future.” In European contributions to accounting research: The achievements of the last decade, ed. A. G. Hopwood and H. Schreuder. Amsterdam: Free University Press, pp. 163–187.

442 Enrico Viganó Littleton, A. C. 1933. Accounting evolution to 1900. New York: American Institute Publishing Co. Mattessich, R. 2008. Two hundred years of accounting research. New York: Routledge. Melis, F. 1950. Storia della ragioneria. Bologna: Zuffi. Mella, P. 1995. Contabilità e bilancio. Turin: Utet. Onida, P. 1965. Economia d’azienda. Turin: Utet. Paton, W. A., and Littleton, A. C. 1940. An introduction to corporate accounting standards. New York: AAA. Peragallo, E. 1971. “A Commentary on Viganò’s Historical Development of Ledger Balancing Procedures, Adjustments and Financial Statements During the Fifteenth, Sixteenth and Seventeenth Centuries.” Accounting Review 46(3): 529–534. Sicca, L. 1992. “Alcune considerazioni sul metodo per una revisione dei principi dell’economia aziendale.” Finanza produzione e marketing 10(2): 23–34. SIEI. 1994. L’economia d’impresa negli anni ’90. Atti del Primo Convegno Nazionale della Società Italiana per l’Economia di Impresa. Naples: SIEI. Superti Furga, F. 1987. Reddito e capitale nel bilancio di esercizio. Milan: Giuff rè. Took, L. 1993, April 30. “Totemism, nationalism and Gino Zappa—founder of economia aziendale.” Paper presented at the 16th Annual Congress of the European Accounting Association, Turku, Finland. Vicari, S. 1991. L’impresa vivente. Milan: Etas. Viganò, E. 1972. “Information for proprietors and others.” Paper presented at the Tenth International Congress of Accountants, Sydney. Viganò, E. 1974. “The Accounting Problem of Financial Leasing.” Management International Review 14(6): 99–107. Viganò, E. 1994, April 6–8. “Accounting and economia aziendale in an international perspective.” Opening plenary address, 17th Annual Congress of the European Accounting Association, Venice. Viganò, E. 1997. “L’economia aziendale e la ragioneria. Evoluzione–prospettive internazionali.” With a special summary in English: Accounting and Economia Aziendale in an International Perspective. Padua: Cedam. Zambon, S. 1995. “Italy.” In European Accounting Guide (2nd ed.), ed. D. Alexander and S. Archer. San Diego: Harcourt Brace, pp. 379–533. Zambon, S., and Saccon, C. 1993. “Accounting Change in Italy: Fresh Start or Gattopardo’s Revolution?” European Accounting Review 2(2): 245–284. Zan, L. 1994. “Towards a History of Accounting Histories: Perspectives from the Italian Tradition.” European Accounting Review 3(2): 255–307. Zappa, G. 1927. Tendenze nuove negli studi di ragioneria. Milan: Istituto Editoriale Scientifico. Zappa, G. 1950. Il reddito d’impresa. Milan: Giuff rè. Zeff, S. 1993. “The politics of accounting standards.” Lecture at the University of Naples. Reprinted in Economia Aziendale. Milan: Giuff rè.

17 Portuguese and Spanish Languages Traditions Esteban Hernandez Esteve

INTRODUCTION I am afraid that Spain and Portugal have not developed an original accounting thought, but they have rather been tributary of the ideas of other nations: France, Italy, Germany, and the United States, and even that with a notable delay. With regard to Spain, the reason might possibly be found in the fact that up to 1943, accounting, apart from private schools, was only taught in public commerce schools of different levels with a main professional orientation and, hence, with pure pragmatic aims and scarce intellectual aspirations. The law of 1943 created in Madrid the first Faculty of Political and Economic Sciences, in which syllabus accounting was included with two hours a week. However, in fact, accounting was not fully incorporated into the university up to the Decree of 1972 by which the public Commercial Schools of undergraduate level were integrated into the Faculties of Economics as University Schools. In previous joint papers was explained with some detail the evolution of accounting thought in Spain in the first half of the twentieth century with some references to earlier and later researchers.1 Therefore, in the present chapter, I shall only deal, with regard to Spain, with a few authors, who in my opinion have been the ones who have played the main role in the introduction and dispersion in this country of the new conception of accounting emerged in the fi rst decades of the twentieth century. With regard to Portugal, I shall try a similar treatment. With respect to Latin America, I shall only be able to make a few references. As it is known, the new ideas of accounting appeared at the 1920s had three main features: 1. They conceived accounting as forming part of a more extensive discipline that was to be taken into consideration in the accounting studies. 2. They reinforced the role of accounting as a tool of management and control. 3. In this sense they stressed the importance of profits as the more important target of the accounting records. Accounting had to be shaped

444 Esteban Hernandez Esteve to serve this target, which constitutes a dynamic view according to their formulators in contrast to the static conception supposed by the patrimonialistic theories operative up to then. 2 The leading countries in the apparition of the new thoughts were Italy and Germany. In Italy a forerunner of the new ideas was Fabio Besta. His work La Ragioneria (Accounting) (Besta 1891, 1909, 1916) played an important role in the emergence of the new ideas. 3 He proposed the wider science of Economia Aziendale, whose central goals were to study and explain the operations (management), the organization, and the accounting (control) of all kind of Aziende. It is to remark in this context that under Azienda has to be understood all kinds of economic units, that is to say, the economic units of production as well as the ones of consumption (Zappa 1956–1957, 1962). This is a feature of the Italian Economia Aziendale not always corrently understood in other countries. Of course, in practice, the Italian scholars used to refer to enterprises when they speak of aziende, it is true. However, the concept in no way is this. Because of that, we shall let untranslated the original Italian expressions azienda, aziendale, as well as the Spanish ones hacienda, hacendal, with the same meaning. Moreover, Besta, in contrast with the personalistic theories of Cerboni and Rossi, presented a materialistic theory of accounts, where the proprietor of the enterprise was clearly distinguished from the administrator (Mattessich 2008: 25). Apart from it, as Dieter Schneider points out, Besta was one of the fi rst authors to relate accounting to economic theory (Schneider 1981: 397, footnote). In any case, the real formulator of the new ideas in Italy was Gino Zappa, a former student of Besta. In 1926, on occasion of the beginning of the academic year at Ca’ Foscari, the Venice University, he delivered the famous speech “Tendenze Nuove negli studi di Ragioneria” (New tendencies in the study of accounting). It constituted actually the founding manifesto of the Economia Aziendale, that is, the Italian version of the perception of accounting being a part of a unitary whole more extensive (Zappa 1927). On the other side, for Zappa, the most important thing of business accounting was income determination, that is, to fi nd out the results, the profits or losses of the activity of the fi rm during the accounting year (Zappa 1937). As to the German contribution to the new ideas, according to the explanations of the Handwörterbuch der Betriebswirtschaft (Dictionary of business economics), in the fi rst half of the twentieth century emerged three different German theories: the Schmalenbach realistic-empirical approach, Fritz Schmidt and Wilhelm Rieger’s theoretical approach, and Heinrich Nicklisch’s ethical-normative theory (Wöhe 1974: 713ff ). All of them held the conception of accounting as a real tool of management forming part of a more extensive science, the Betriebswirtschaftslehre, that is, Economics of Enterprises or Business Management, which showed

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some similarities with the Italian Economia Aziendale. Eugen Schmalenbach is probably the most important and innovator German contributor to the development of Business Science in all that period (Schweitzer 1992). Schmalenbach based all of his constructions in business economics on the Wirtschaftlichkeitsstreben of enterprises, that is, on their striving after profit. This idea led him to his most known and widespread contribution, that is, the one referred to as the dynamic balance sheet. In this respect, he distinguished between the static balance sheet (i.e., the balance sheet traditionally considered) and the dynamic balance sheet (i.e., the income statement), which in essence is a profit and loss statement adapted to its new function. The fi rst one expresses the patrimonialistic situation of the fi rm. The second one shows the income obtained in the accounting year (Schmalenbach 1926).4 Taking into account that the nuclear objective of the fi rm is to obtain profits, Schmalenbach believed that the most important thing for the companies at the end of the accounting year was the determining of the annual economic results. According to his thinking, less attention should be paid to the amount and structure of the company’s patrimony shown by the static balance sheet and much more attention should be paid to the changes this patrimony has gone through in the year. This was a fully new concept. His method to check the course of the enterprise was comparing the changes undergone in the economic results in successive years and where and how were they produced. For this purpose, he considered three possible change causes: change in the volume of activity and production output, change in the unitary margin of profit, and change in the degree of exploitation of fi xed resources. Schmalenbach’s leading idea of striving after profits acted on the categories that he distinguished as making up the essential magnitudes of the enterprise, namely, income, expenses, performance, output, and input. These concepts are still valid today. However, the enterprise is not only an aggregate of concepts and capital goods. It is also a place where people perform their activity. Failing to recognize it was a lack in Schmalenbach’s approach. To remedy this lack came the ethical-normative theory of Heinrich Niklisch already mentioned above. According to his idea, business economics also has to take into consideration the actuation of the economic units that interact in the same community as the company under study. Perhaps one could consider this community as a “big family” (Nicklisch 1920, 1929–1932). According to the opinion of Mattessich, Nicklisch meant that “businessmen ought to optimize efficiency and performance for the general benefit of society, rather than maximize profit for the primary benefit of individual fi rms or persons” (Mattessich 1992: 939). Another leading idea in the same direction came from Wilhelm Rieger. He stated that business economics was a private discipline, and in this sense he also stressed the importance of profitability (i.e., the striving after profit for the enterprise and its owners). In the framework of this idea, this striving was logically of a private nature (Rieger 1928).

446 Esteban Hernandez Esteve In the words of Richard Mattessich, Fritz Schmidt is one of the great visionaries of accounting who performed a pioneering work on current value (or cost) accounting (Schmidt 1921, 1923). Now six decades after initiating his ideas, they have fi nally found broad acceptance (Mattessich 1984: 490).

SPAIN The intellectual movements in accounting thought exposed on the preceding pages supposed a sort of accounting theoretical revolution that took place in Germany and Italy at the turn of 1920. It coincided approximately—and probably not by chance—with the end of World War I and the beginning of the German hyperinflation and came to shake the placidity in which accounting scholars were sunk resting comfortably for more than one and a half century on the positivistic, personalistic, and contist or cincocontist theories, that is, the five-accounts theory of Degranges, the father of the personification theory of accounts.5 In Spain this placidity lasted for thirty years longer. As indicated at the beginning, accounting was not a subject taught at the University up to the creation of the fi rst Faculty of Political and Economic Sciences in Madrid in 1943. Anyway, the teaching of accounting in this faculty was rather poor as we have seen. Up to then, accounting, apart from at private schools, was only taught at the public commercial schools that conferred at this time three degrees of different levels: Perito Mercantil, which was a sort of commercial high school diploma; Profesor Mercantil, being like a bachelor degree in commerce; and two postgraduate degrees according to the speciality studied: Intendente Mercantil for the commercial-economic speciality, and Actuario de Seguros for the actuarial speciality. For this purpose the commercial schools were classified in three different levels: the secondary or Pericial schools that only conferred the fi rst degree, the professional schools that conferred the fi rst two degrees, and the higher commercial schools that also conferred the two postgraduate alternative degrees according to the chosen speciality. The law of 1953 changed the name of the Faculty of Political and Economic Sciences into Faculty of Political, Economic, and Commercial Sciences, and it created two new faculties in the Universities of Barcelona and Valladolid, locating the latter in Bilbao. The postgraduate studies of the commercial schools, which had no accounting teaching, were moved from them and incorporated to the faculties. The faculty studies comprised fiveyear courses divided in three sections or specialities: general economics, business economics, and business insurance. Accounting theory was taught at the third course of business economics. Two subjects were also taught at the fifth course: corporative and cost accounting, and fi nancial statements analysis and auditing.

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In fact, however, accounting was not fully integrated into the university studies up to the Decree of May 10, 1972, that, fulfilling the General Law of Education of August 4, 1970, abolished the commercial schools incorporating them to the universities as colleges or business schools with the function to teach the studies corresponding to the bachelor degree. The degree name Perito Mercantil and the corresponding instruction were suppressed. Also suppressed was the degree name Profesor Mercantil. As said before, the teaching aim of the commercial schools was to train young people by formal instruction and supervised practice in order to make them able to become low-level administrative clerks in the case of Peritos Mercantiles and mid-level ones in the case of Profesores Mercantiles. One must recognize that the training in accounting was good and sometimes very good, so that the graduates could perform their duties in this sense with great effectiveness. They founded professional associations and little by little, putting pressure, achieved the recognition of the administration, which created some corps especially thought for them in the Civil Service. In 1912, the corps of “Profesores Mercantiles at the service of the Treasury” was established, contributing significantly to the improvement of the technology of the Ministry of Finance’s procedures and gained much prestige to the profession. However, the Schools of Commerce did not aim to provide their pupils with a theoretical formation. On the other side, the teachers were scarcely able to do it. Only one of the authors considered in this chapter, the last one, had a university degree. This was because commercial schools were institutions completely separated from university, and their teachers came from their own graduates. Academicians did not hold much of them, and the teachers of commercial schools did not want to be linked to universities, because there were too many vested interests for doing it. On occasion some commercial school professors proposed to link them in some way with universities, but their proposals had no success. On one occasion this proposal was formally made in a Congress of Profesores Mercantiles, and it received this express answer on the part of one of the participants: “I prefer to be the head of a sardine than the tail of a hake” (Hernández-Esteve 2010: 53). Although a fair amount of accounting books was published in Spain during the second half of the nineteenth and the fi rst half of twentieth century, some of them excellent from the point of view of technical teaching, none of them showed properly theoretical views or an adequate level of academic scholarship. Despite the constant authors’ invocation to theory and science, they were written by the respective teachers as textbooks for their pupils without any intellectual ambition. Each teacher, who felt capable to do it, wrote his own textbook as a way to increase the modest salary received from the School of Commerce. In some cases, they published the books by themselves, because the buyers’ circle was small and captive. All of this can explain the fragmentation of the books readers’ circles and the lack of connection among them.

448 Esteban Hernandez Esteve The book to accomplish fully the adequate scholarship and formal conditions appeared in 1956 and was authored by Emigdio Rodríguez Pita and his son José M. Rodríguez Flórez de Quiñones under the title Ciencia de la Contabilidad: técnica, práctica y organización (Accounting science: Technique, practice and organization). This was followed in 1957 by the book authored by José María Fernández Pirla, fi rst professor of Economía de la Empresa (business economics) at the University of Madrid, titled Un ensayo sobre teoría económica de la contabilidad (An essay on accounting economic theory). This book represents an important step in the history of accounting thought in Spain, because its approach to accounting was a real novelty: It integrated the modern ideas to understand and study the discipline. As a whole, and each one for his part, both authors performed a substantial upgrade of Spanish accounting literature.6 The main features of Rodríguez Pita’s book Ciencia de la Contabilidad were its high degree of formal scholarship and the extraordinary knowledge of national and foreign works that it showed. The main contribution of Fernández Pirla’s work was the integration of the new ideas in its approach and the incorporation of accounting into the business economics studies. In any case, the influence of the two works was very different. When Rodríguez Pita published his book, he was living his last teaching stage at the Commercial School of Barcelona; his book was mainly addressed to his pupils and was published by himself. Both circumstances contributed to the fact that the book had no great diff usion. On the contrary, Fernández Pirla was the fi rst accounting university professor at a Spanish university; the name of his chair was “business economics,” and his book was published by a known fi rm and reached ten editions; it is known in almost all Spanish- and Portuguese-speaking countries. In summary, the main contribution of both Rodríguez Pita and Fernández Pirla was the modernizing of the Spanish accounting thought and its incorporation to the new tendencies. Up to then, the Spanish accounting thought had fed routinely on the classical French school, somewhat enriched by the novelties of Cerboni’s doctrines (Cerboni 1873, 1878, 1886–1894; Rossi 1880, 1882). Anyway, the new Italian and German views had no time to completely displace the former accounting approaches, because the American ideas arrived before they could be accomplished. Be that as it may, both authors will be the main subject of the Spanish section of this chapter. Of course, before these authors, some works prepared and pioneered the leap. The fi rst book to mention in this sense is the one by Francisco Aced y Bartrina (1916), Curso de Contabilidades Oficiales. Estado, Provincia, Municipio (Accounting course for government, province and city). Another one was Luis Ruiz Soler, who in 1917 published the Tratado elemental teórico-práctico de Contabilidad general (Elementary theoretical-practical treatise of general accounting). A third book to mention was the one of Antonio Sacristán y Zavala, Teorías de contabilidad general

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y de administración privada (Theories on general accounting and private administration), published in Madrid in 1918. Luis Ballesteros MarínBaldo published his Tratado completo de contabilidad. Obra escrita para consulta del comercio, de la banca y de la industria (Complete accounting treatise for commerce, banks and industry) in 1924. Lastly, in 1926, Juan Fernández Casas published a small book titled Generalidades y Prolegómenos de Contabilidad Industrial (General comments and introduction to industrial accounting). It seems that most of these authors had some knowledge of Besta’s approach, but none of them assimilated it in their accounting treatment.

Emigdio Rodríguez Pita As already said, Emigdio Rodríguez Pita was the fi rst author of the substantial leap forward in Spanish accounting. Rodríguez Pita had been professor of commercial calculus and accounting at various commercial schools, successively in Tenerife, Oviedo, Santander, and Valladolid, and landed ultimately at the School for Higher Commercial Studies of Barcelona. He was well informed about the accounting theoretical movements happening all over the world. This information helped him to develop a somewhat original thought. He began to expose it in the textbook Curso de contabilidad general (Course in general accounting) published in 1945 in Barcelona. This work summarized his thoughts previously expressed in articles published in journals and encyclopedic works. His book was a concentrated and complex treatise, difficult to read, crowded with defi nitions, classifications, and sub-classifications. Its intent was thorough systematization, written in a sophisticated style and a language of long sentences. Rodríguez Pita’s Curso de contabilidad general was a general accounting textbook. Consequently, it dealt with business accounting as well as public accounting. Predominantly, it was conceptual, though it did contain examples of inventories, balance sheets, journals, and ledgers, as well as the pertinent entries. In any case, the book was not concerned with the teaching of operational routines; these were assumed to be a prerequisite. The author defi ned accounting as “the science that studied the laws of the wealth balance resulting from the management activity” (Rodríguez Pita 1945: 7). The author then continued to discuss the elements of his defi nition that he considered basic: the subject (i.e., the fi rm), the object (i.e., the facts of economic administration), and the goal (centered on the wealth balance, its laws, and the variations in its formation). To these elements he added two more (which he called “means”), which, in his view, were indispensable: the method and the material tools. Thereafter, he published other textbooks, among them the one called Contabilidad y organización de empresas (Accounting and business organization) that appeared in 1947 and represented an extension of the former. The masterpiece that culminated the evolution of his thought and took expressly into

450 Esteban Hernandez Esteve account the new ideas of Zappa, Schmalenbach, and so on, initiating with it a new era in Spanish accounting, one of scientific ambition and achievements, was the book written in collaboration with his son José M. Rodríguez Flórez de Quiñones (who was a lawyer and possessed a bachelor of commerce degree) titled Ciencia de la Contabilidad: técnica, práctica y organización (Accounting science: technique, practice and organization) appeared in 1956. In fact, this book does not present in essence different ideas than that expressed by the author in his previous works: only a greater degree of development and maturity of them, and an exposition much more scholarly quoting the source of his statements. From these facts we can deduce perhaps that the collaboration of his son regarded more the form than the substance. This is perhaps confirmed by the comment that the main author makes at the end of the index: “In the preparation of this work, whose drawing up he has followed step by step, J. Rodríguez Díaz has rendered an effective help.” Be that as it may, the fact is that, in contrast to his previous works, which were simple textbooks without footnotes or erudite critical apparatus, this book accomplished the most demanding requirements of formal academic scholarship. It was richly endowed with a wealth of rigorous and precise bibliographical citations—a hitherto almost unprecedented practice in Spanish accounting literature, as we have already remarked. This fact also contrasted with the works of the precedent colleagues, since Rodríguez Pita’s work showed a wide knowledge of the works, theories, and approaches of the prominent accounting scholars of the world, whose ideas were explained in the text and quoted accurately and in detail in the many footnotes distributed throughout the book. This was probably the fi rst accounting book written in Spain with such a thoroughly scholarly criterion. He was indeed a commendable piece of work. However, despite its unquestionable merits, as with his previous books, apparently it did not make much of an impact. Surely it was due in great part to the reasons already mentioned, but in this case, there was an additional reason: that is, the fierce criticism that he displayed in the book with regard to his national colleagues. In fact, between pages 18 and 36, he exposes a long catalogue of the accounting defi nitions formulated by the main national and foreign accounting scholars together with his opinion about them. That certifies his good knowledge of national and international accounting literature. His judgment on his Spanish colleagues was in general rather caustic and even disqualifying. This can explain in some way the little inclination shown by them to quote his books. In the following, we shall study the ideas of Rodríguez Pita mainly exposed in the book Ciencia de la Contabilidad: técnica, práctica y organización. However, in order to illustrate the evolution of his thought, in some cases, we shall complement our comments with ideas that he expressed in his previous book of 1947. For Rodríguez Pita, accounting kept being the science that studies the laws of the patrimonial balance established by management actions (Rodríguez

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Pita et al. 1956: 36). The active subject of accounting is the hacienda, which he defined in 1947 as “the economic-social entity that acquires, produces and consumes wealth” (Rodríguez Pita 1947,: 10). At this stage of his thought, he joined accounting with administration (i.e., management): “Wherever administration acts, also accounting acts” (Rodríguez Pita 1947,: 10). AndHe stated that, “as a result of this, accounting and administration constitute parallel services with multiple interactions but with a perfect separation of functions: accounting has a passive research and information character whereas administration has an active executive character with full freedom to act. In no moment administration sees restricted its action capacity through accounting. For its part, accounting limits itself to participate in order to know all the administrative actions. Because of that it is spoken of parallelism” (Rodríguez Pita 1947: 11). He means that “this conception is what led Besta to formulate his idea that accounting is the science of administrative control, that is, the science of checking all administrative actions.” And he concludes, “These two parallel sciences accounting and administration found their origin in the need felt by the owner of the hacienda to be duly informed in order to manage his wealth, that is, to get a management of his wealth as perfect as possible” (Rodríguez Pita 1947: 12). However, in the later book, his thought has evolved, and he thinks that, according to the modern ideas, accounting belongs to a joint science composed of three single disciplines (i.e., administration, organization, and accounting). The joint discipline is called Economia Azendale, which according to Zappa “is the science that studies the conditions of existence and life materializations of the azende.” This science is also called Betriebswirtschaftslehre (business economics) by the German authors, who have generally adopted the idea of the three disciplines. Rodríguez Pita regrets that the Germans only include the study of enterprises in the joint discipline. In support of these ideas, Rodriguez Pita quotes the Italians Giannessi, Zappa, Ceccherelli, and Saporano, and the Germans Obst, Schmalenbach, Rost, Schönitz, Nicklisch, Schär, and Werner (Rodríguez Pita et al. 1956: 13). Rodríguez Pita, following the Italian authors, includes the households or consumer economic units in the concept of hacienda. They are the domestic or patrimonial-domestic units, that is, those constituted by the family of a clerk, a professional, or a person with private means (Rodríguez Pita et al. 1956: 45). With regard to the economic units of production, he distinguishes three elements of different levels and functions: the owner, the directorship, and the factors (Rodríguez Pita et al. 1956: 45). He also devotes great attention to the composition and determination of the value of the hacienda’s wealth. He means that this is a complex and difficult question (Rodríguez Pita et al. 1956: 52ff ). The administrative functions and their classification are dealt with by Rodríguez Pita in some detail (Rodríguez Pita et al. 1956: 59–77). On page

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67, he mentions the American classification of functions due to the Management Division of the American Society of Mechanical Engineers, which was formulated in 1921. It distinguished three main functions: (1) organization, (2) forecasting, and (3) management. He also devotes great attention to the accounting’s remit. In this regard, he deals with the relationships of accounting to administration and scientific organization. They are the three disciplines that compose the hacendal trilogy (Rodríguez Pita et al. 1956:78–99). In Rodríguez Pita’s opinion, the services to offer by accounting “consist of providing information about the running of the administration. The information has to be provided in a fast, constant, complete and organized way” (Rodríguez Pita et al. 1956: 107). One of the most interesting parts of the book is the one in which the author deals with the heterogeneous world of elements of which wealth is composed. Influenced by the ideas of his time, Rodríguez Pita introduces the concept of patrimonial balance. He defi nes it by saying that patrimonial balance is “the situation or series of situations that patrimonial elements may present from the perspective of accounting as a consequence of the acting of the administrative functions” (Rodríguez Pita et al. 1956: 111). He thinks that “all the hacendal life is formed by actions on the patrimony; these actions modify it. Because of that, static balance constitutes an anomalous situation; the normal situation is dynamic balance. This way, all balances are characterized by a natural dynamism that is a consequence of actions and functions with transformative effects on the patrimonial masses. Balances are different from one another, but they are subjected to laws; according to them the effects of dynamism tend to produce new stable balances. This stability has to be another characteristic of all balances and with more reason of those static” (Rodríguez Pita et al. 1956: 111). At this point he defi nes the static balance as “the one formed by a position regarding a short time, or rather a moment, indicated in the practice with a date.” In the following chapters, he studies the inventory and the budget. They are for him the greatest exponents of static balance. In the chapter titled “Initiation to Dynamism” the accounting elements are studied (i.e., accounts that involve dynamism in themselves). Rodríguez Pita deals with accounts rendering in the chapter titled “Deductive Functions.” In this context, he returns to the study of the different kinds of equilibrium, and among them one of the main ones, that is, the static balance that he defi nes again “as corresponding to a certain and given moment” and the dynamic balance that refers to a lapse of time in which evolution has developed gradually or even in which it is shown the potentiality or future evolution” (Rodríguez Pita et al. 1956: 401). In his previous work, Rodríguez Pita (1947) also dealt with the static and dynamic balance. He thought that the positions shown by the dynamic balances are more explanatory than the ones shown by the static ones. To

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establish the former, it is necessary to use trial balances, because the total sums of the accounts show in some way the positions that will appear in the future (Rodríguez Pita 1947: 207). On this occasion, he also spoke of the static balance sheet and the dynamic balance sheet; he considered the latter in a completely different sense than the one presented by Eugen Schmalenbach. He certainly knew the ideas of Schmalenbach to this respect, but Rodríguez Pita initiated in his 1947 book an original thought in this matter that does not seem to have developed in his later work, Ciencia de la Contabilidad: técnica, práctica y organización. He agreed with the German author that the static balance sheet, which he defi nes as a sort of snapshot of the situation of the hacienda, does not usually say much about the situation of the enterprise. Moreover, “as it is known, the balance sheet of an account is only one of its elements and not the most important one. The balance sheet being the sum of all account balances is an algebraic addition, and it does not explain the kind and nature of the addends nor the relationships established among them. Because of that, we shall need to study other complementary elements, if we want to obtain a useful knowledge of these elements” (Rodríguez Pita 1947: 208). On the contrary, the dynamic balance sheet is the reflection of the accounts turnover during a certain period (Rodríguez Pita 1947: 214). As illustration, he presents a graphic regarding an account during eight periods showing three curves: absolute turnover, relative turnover, and dynamism. He does not specify the formula to fi nd the figures of dynamism, but he promises to explain it in a future work. However, it seems that he abandoned this idea, because in his Ciencia de la contabilidad, he does not try to quantify the dynamism. It seems clear that Schmalenbach’s ideas awoke his interest in the concept of dynamism. This was shown on page 382 of his 1956 book when he speaks of the balance sheet presentation: He uses the formula “A = P + N + R,” that is, Assets = Liabilities + Net worth + Year’s results. He comments, “The study of the value of year’s results indicates the dynamism of the balance sheet.” At the end of the book, in Chapter 31, titled “Conclusions and Link,” he states explicitly some features of his approach. He means that “a careful consideration of his work will show that accounting studies the patrimony, not as a science exclusively patrimonialistic, but as a science of the hacendal activity. This science is based on three elements: 1. the patrimony; 2. the acts of its administration; and 3. the changes” (Rodríguez Pita 1956: 438). Immediately following, he continues saying that his work is inspired by the scientific theory formulated by Fabio Besta. It was much widespread at that time and incorporated contributions of his disciples Alfiere, De Gobbis, Vianello, and Ceccherelli, among others. Zappa considers Besta as his master, and in his work he accepts that management and organization are parallel fields to accounting. The same do Masi and d’Alvise, and so we fi nd again in the three authors the initial trilogy comprised in Besta’s wide control conception (Rodríguez Pita 1956: 438).

454 Esteban Hernandez Esteve He states again, “All accounting basis on the study of the patrimony, although it is not a pure patrimonialistic exercise. The patrimony is a field where the functions and the balance laws work and make it visible. . . . Accounting study is hence a small field of economy. . . . Today it is called microeconomics” (Rodríguez Pita 1956: 438). In the previous pages, we have commented on the main passages of Rodríguez Pita’s works; they brought a breath of fresh air into the traditional Spanish accounting thought. Indeed Rodríguez Pita incorporated to some extent the Italian ideas into his accounting scheme. On the contrary, he does not seem to have paid much attention to Schmalenbach’s ideas regarding the prevailing importance of income over wealth in the new accounting framework. He was much more interested in the study of patrimonial balances, the basis of his accounting approach despite his efforts to state that he was not a patrimonialist. He includes no proper bibliography at the end of his book, but under this name, he lists some authors quoted in the text. They certainly are not all, but he means that the ones listed are the most important. The list embraces ninety-five authors classified in the following form: thirty-seven Italian, seventeen Anglo-Saxon, fi fteen German, eleven French, seven Latin American, one Portuguese, and seven Spanish. Between the Spanish authors is included José María Fernández Pirla. Moreover, he provides a list of nine accounting works with a bibliography that he recommends in order to widen the information about bibliography. Finally, he supplies a list of the best journals on accounting. The list includes three Italian journals, five American journals, one Canadian, and one Australian.

José María Fernández Pirla As commented earlier, Fernández Pirla’s book Un ensayo sobre teoría económica de la contabilidad (An essay on accounting economic theory), published in 1957, presented a completely new way in Spain to expose and teach accounting. The work’s Table of Contents shows it clearly. The author was completely aware of this fact. It was his purpose. He states it in the Introduction: “Our purpose has not been to write an accounting textbook, but rather to outline a different approach to the study of accounting.” He continues in the next paragraph: “We think—said it in all modesty being this the only comment that we allow us to make on our work—that we have tackled the study of accounting from an angle or point of view that in the Spanish literature on the subject never had been done before” (Fernández Pirla 1957: XII). In this sense, the author devotes a chapter (Chapter 9) to the study of the different conceptions of accounting. In that regard, he thinks that at his time there were two main conceptions, both Italian, because he considers that the Italian school was at that moment the most refi ned and precise from a methodological perspective. The fi rst conception is formulated by

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Fabio Besta, and the second is the one thought out by Gino Zappa. Besta considers that the subject matter of accounting is the patrimony and its structure. On the contrary, Zappa and his disciples think that income constitutes the core of accounting concern. He devotes a section to explain each of the conceptions, basing his study on the books by Ugo Benedetti (1955) and Pietro Onida (1944). As a derivation of Besta’s conception, Fernández Pirla explains the thought of Vincenzo Masi (1954). Masi thinks that the main concern of accounting is the patrimony and divides the study of accounting in three parts: accounting as the science of patrimony, the patrimonial statics, and the patrimonial dynamics (Masi 1954: 95). Finally, as related in some way to the Italian conceptions, he makes reference to the German doctrine. While the Italians arrived at their conclusions from a purely accounting standpoint following a methodological accounting way, the German arrived at theirs starting from microeconomic considerations, that is, from the Betriebswirtschaftslehre (i.e., business economics). In this respect, he quotes the Spanish translation of Erich Schneider’s works, Einführung in die Grundfragen des industriellen Rechnungswesens (Introduction to the fundamental questions of industrial accounting) (1939) and the Italian of Theorie der Produktion (Theory of production) (1934). Fernández Pirla believes that there were also two conceptions of accounting in German thought. For some scholars, the main aim of accounting was the knowledge of the enterprise value. Consequently, the accounting principal problem was the valuation of the elements of the enterprise. On the contrary, for Schmalenbach and those who follow him, the subject matter of accounting is the determination of income. As to the nature of the balance sheet, Fernández Pirla explains its nature on the basis of the explanations of René de Laporte, Jaime Lopes de Amorim, Alberto Ceccherelli, and William Paton. Following Laporte’s definition, he states that the balance sheet is above all the representation of the hacendal patrimony as a whole in a given moment. For this reason, it has a static nature. In this respect, he points out that Lopes Amorim already showed his concern because of this fact and the inadequacy of accounting to provide a balance with more information power. The Portuguese professor attempted to solve this deficiency making a methodological differentiation between static and dynamic balance sheets. The following chapter is devoted to the study of the balance sheet theories. In the author’s opinion, these theories developed in parallel to the evolution of economic thought, which, for its part, has changed according to the conditions of economic life. Because of that, the development of the balance sheet theories has been in some way independent of the evolution of accounting thought. The changeable economic thought has had a decisive influence on all balance sheet questions. The upheavals occurred on the occasion of the monetary crisis of the post-war of 1914–1918 led to a revision and re-elaboration of economic

456 Esteban Hernandez Esteve ideas; that had an immediate effect on the accounting field just through the consideration of the balance sheet. This process was more intensive in Germany, where the monetary crisis was especially hard. Fernández Pirla considers three balance sheet theories, namely: the static theory, the dynamic theory, and the organic or dualistic theory, which he explains in detail. In this explanation, he calls the static theory, alternatively, the classic one. As it is generally known, the business course of the enterprise is shown by the comparison between its situations, that is to say, its balance sheet in two different moments. This comparison was also able to determine the index of efficiency and term solvency. The Italian accounting school has approached this question with great scientific rigor. When Fernández Pirla wrote his book, the assets were no longer valued at the historical cost, but considering other criteria such as the efficiency, flair or functionality of the production combination. However, this was only valid when there was economic stability. In absence of it, the static theory did not present the enterprise value with the necessary accuracy. The serious monetary problems that Eugen Schmalenbach saw in Germany impelled him to revise all of the concepts and accounting techniques under the light of a changeable economic reality with the purpose to ascertain the real income of the enterprise. The result of his thinking process was exposed in the book Dynamische Bilanz (1926). Fernández Pirla stresses the fact that the dynamic balance sheet theory adopts a diametrically opposed view to that supported by the static theory, because it considers that the basic aim of accounting and hence of the balance sheet is the determination of the enterprise activity results. This view opens a new guideline to the doctrine and the technique. In this and the following passages, Fernández Pirla explains in some detail Schmalenbach’s thought as well as the advantages and disadvantages of the dynamic balance sheet theory. The main inconvenience that he sees in this theory is that it cannot avoid the apparition of hidden reserves. The organic or dualist balance sheet theory supported among others by Fritz Schmidt attempts to remedy this deficiency by combining the two purposes of accounting (i.e., the determination of the real results and the fi nding of the authentic situation of the enterprise). The book has no reference list, but throughout the text, there is a convenient number of footnotes showing a suitable critical and erudite apparatus. On page 15, it quotes Rodríguez Pita’s book, Curso de contabilidad general, published in 1945, with regard to the defi nition of accounting. However, it seems that Fernández Pirla did not know the Ciencia de la Contabilidad (Rodríguez Pita et al. 1956), which was published just a year before his own book. As already commented, Fernández Pirla’s book is a commendable piece of work whose main worth is to have integrated into its exposition the new conceptions of accounting pioneered by Schmalenbach in Germany and

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Besta and Zappa in Italy. A collateral and important novelty of the book was the integration of accounting into business economics for the fi rst time in Spain. The great success of the book and its successive editions brought about a rapid and wide spread of the exposed ideas in Spain, Portugal, and, with some delay, also in some Latin America countries. As already said, these ideas scarcely had time to take root in Spain. A few years after their introduction, the utility paradigm of accounting began to take shape. In fact, as Eldon Hendricksen comments, this new orientation had been brewing since the 1930s, that is, the years of the Great Depression. This event entailed the modification of an accounting aim in the sense that the information provided by accounting not only served the management and creditors but also, or even preferably, shareholders and investors (Hendriksen 1970: 67). The notion reached full development in the 1960s. In this development the American Accounting Association played a principal role: In 1966, it defi ned accounting as “the process of identifying, measuring and communicating economic information to permit informed judgements and decisions by users of the information” (American Accounting Association 1966: 1). The stress was now placed on communication, meaning of course communication with the users of information, that is, investors and shareholders. Shortly before this defi nition, Louis Goldberg had stated, “It is scarcely an exaggeration to say that the problem of communication is the axial problem of accounting” (Goldberg 1964: 348). But from communication to constructivism, there is only one step. As Johnson defi ned it, communication is “the process of constructing meaning through the exchange of symbols” (Johnson 1977: 5). But this is a different kettle of fish.

PORTUGAL With regard to the history of accounting in Portugal, several modern works are devoted to it. Among them the most interesting are, in my opinion, the following: “Bosquejo duma sucinta História da Contabilidade em Portugal” (Outline of an accounting history in Portugal), authored by Gonçalves da Silva and published in 1984; “The History of Accounting in Portugal with the Special Reference to The Aula do Comércio”, presented by Leonor Fernandes Ferreira at the EAA Annual Congress 1995, held in Birmingham; “Fases e Períodos da História da Contabilidade em Portugal: uma primeira tentativa de identificação” (Phases and periods of accounting history in Portugal: a fi rst identification attempt) by José Manuel de Matos Carvalho et al., published in 2003; and lastly the recent and excellent paper of Hernâni O. Carqueja, “Apontamento sobre a contabilidade em Portugal entre 1900 e 1950” (Notes on accounting in Portugal) published in De Computis in June 2011.7 All of them consider Lopes Amorim’s book

458 Esteban Hernandez Esteve Lições de Contabilidade Geral (Lessons of General Accounting) published in 1929 the most important accounting book published in the fi rst half of the twentieth century, which caused a quality leap in Portuguese academic texts on accounting. Some of them even think that this book made a cut in the Portuguese accounting evolution. Anyway, only Carqueja’s deals with the introduction of the new Italian and German ideas into Portugal. In this respect, he thinks that the great change, that is, the cut that others see in Lopes Amorim, began in 1949 with Pires de Lima’s reform of the higher education that introduced accounting theory as a discipline. The book Ensaio sobre um Planeamento Contabilístico Racional (Essay of a rational accounting planning) by Cruz Vidal, published in 1956, exemplifies the academic pattern of accounting texts. Be that as it may, as it was also the case in Spain, the formation of the Portuguese accounting thought was closely linked to the evolution of accounting education. In both aspects, one could find some parallelism between the courses of events in the two countries. The oldest precedent of public accounting education in Portugal is the Aula do Comércio de Lisboa (Classroom of Commerce) founded on September 1, 1759, whose lessons conditioned the Portuguese accounting knowledge during a long time up to 1844 (Carqueja 2011: 7). This year it was closed and merged with Instituto Industrial de Lisboa (Industrial Institute of Lisbon) to become Instituto Industrial e Comercial de Lisboa (Industrial and Commercial Institute of Lisbon). In 1912, the Instituto Superior do Comércio de Lisboa (Higher Commercial Institute of Lisbon) was founded by the transformation of the former Instituto Industrial e Comercial de Lisboa. Consequently, the higher commercial education given at it was transferred to the new institution. In 1930, the Instituto was incorporated into the Universidade Técnica de Lisboa (Technical University of Lisbon), taking the name of Instituto Superior de Ciências Económicas e Financeiras (Higher Institute of Economic and Financial Sciences). The other Portuguese nucleus of accounting education was Oporto. In 1803, the Academia Real de Marinha e Comércio da Cidade do Porto (Royal Academy of Navy and Commerce) was opened (Gonçalves et al. 2011). In 1837, it was transformed into the Academia Politécnica do Porto (Oporto Polytechnich Academy). In 1886, the Instituto Industrial e Comercial do Porto (Industrial and Commercial Institute of Oporto) was founded. In 1918, the Instituto Superior de Comércio do Porto (Higher Commerce Institute of Oporto) was established by disintegration of the Instituto Industrial e Comercial do Porto (Industrial and Commercial Institute of Oporto). In both institutions accounting education was given at a higher level. The Instituto Superior de Comércio do Porto ceased its activities in 1933, so that the only university education in commerce and fi nance in Portugal up to 1953 was given at the Higher Institute of Economic and Financial Sciences in Lisbon. In 1953, the Faculty of Economics was created at the University of Oporto.

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Notwithstanding the closing of the Instituto Superior de Comércio do Porto, the fact is that in the fi rst half of the century, Oporto gained particular importance as a dissemination focus of accounting knowledge thanks to the private Escuela Prática Comercial Raul Dória (Practical Commercial School Raul Dória) created in 1902. The school maintained its activities up to 1964. Its influence and recognition were due to the quality of its teachers, the textbooks that it published, and the contents of the accounting journals issued. In a fi rst phase, the school published the journal O Guarda-Livros (The Bookkeeper) and afterward Revista de Contabilidade (Accounting Review). In 1933, the latter was called Revista de Contabilidade e Comércio (Review of Accounting and Commerce). Its last issue, Vol. 60, No. 240, was published in January 2011 after 78 years, in which it was the factor that most contributed to the development of accounting theory and practice in Portugal (Guimarães 2011). Its director and owner was Hernâni O. Carqueja, who explained the reasons for the journal’s extinction in a letter to the readers and authors published as an Editorial of the last issue (2011). These reasons were the changes in the professional classification of a significant part of the subscribers with the consequent mutation of their interests, the change of the authors’ motivations with respect to the publication of their papers strongly oriented toward promotion as accountant executives, the computerization of the printing process, the competition made by the information facilities provided by internet, and so on. Despite the incorporation of accounting teaching into education at the university level in the fi rst quarter of the twentieth century, accounting textbooks and teaching at the new higher level conserved during quite a lot of years the practical professional character that they have had up until then. There also seemed to be little difference between the new textbooks and the texts written for the professional training given at private schools. At the end of the fi rst third of the twentieth century (i.e., 1933), the frontier between technical practical textbooks and works written with some academic ambition can be traced. We must take into account that even Jaime Lopes Amorim and Fernando V. Gonçalves da Silva, two of the most noted accounting academicians of those years, wrote textbooks for both private practical professional schools and university students (Carqueja 2011: 31) During the twentieth century, Portuguese thought continued to be dominated by French ideas. The works of Mathieu De La Porte, Barrême and Degrange, as well as La Comptabilité by Lefèvre (ca. 1883) were well known at the end of the nineteenth century. At the beginning of the twentieth century, Eugène Léautey and Adolphe Guilbault (1889, 1895) were quoted and commented in Portuguese books and journals. In 1914, the work of Dumarchey had begun to be known. Also the works of Blairon and René Delaporte had some influence. At the beginning of the second quarter of the twentieth century, the accounting knowledge in Portugal conserved its pragmatic character and rejected personalistic theories. It was much more inclined toward positivistic

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positions. At this moment, the interest focused on the problems of assets valuation and accounts movement. No wonder, consequently, that when in 1929 Lopes Amorim published his book Lições de Contabilidade Geral (Lessons of general accounting) praising the ideas of Jean B. Dumarchey, they were well received by the accounting circles in Portugal. The absence of an integrating accounting theory was felt. It was possibly considered that Dumarchey’s thought could fulfi ll this void. In this sense, the acceptance and wide-spreading of Lopes Amorim’s book Lições de Contabilidade Geral can be a good indicator. For his part, the Revista de Contabilidade e Comércio was one of the ways of disseminating Dumarchey’s positivism and neocontism. It gave continuity to Lopes Amorim’s acclaim and to Alves de Mattos’s presentation (1916). Some years later, Dumarchey’s works were translated into Portuguese and published, namely, “A Teoria Positiva da Contabilidade” (Positivistic accounting theory) in 1943, Contabilidade Moderna (Modern accounting) in 1949, and “Teoria Científica dos Custos de Produção” (Scientific theory of production costs) in 1954. As already commented, Lopes Amorim’s book Lições de Contabilidade Geral marked a milestone in the Portuguese accounting literature (Carqueja 2011: 36ff ). He moved away from description of techniques and procedures and attempted to formulate a theory. However, he maintained double entry and accounts movement as the core of his explanations. The disposition and treatment of the subjects—history, justification of accounting as a science, subject matter of accounting, explanation of double entry, accounts, balance sheet, and patrimonial balance—together with his steadfast adherence to Dumarchey’s ideas qualifies him as neocontist and positivist and not as a supporter of Masi’s ideas, as often presented. The reading of his Digressão através do vetusto mundo da Contabilidade, published in 1969, will be useful to clarify Lopes Amorim’s thought. One has to take into account that Lopes Amorim could read German, English, French, and Italian. This made it possible for him to read the works that he quoted. Among his references (Lopes Amorim 1929: 509– 511), he includes J. Dumarchey (1914, 1925), L. Gomberg (1908, 1912), V. Masi (1943, 1954), W. Paton (1922), G. Zappa (1927), and F. Schmalenbach (1926). F. Schmidt’s article “Geldentwertung und Bilanz” is expressly quoted (1923: 310). In his exposition, he is critical of the school that he calls “personalist, logismologist or Cerboniana” (1923: 104) and also to the school “controlist, materialist or Bestana” (1923: 310). Lopes Amorim is explicit with regard to his scientific position. He did not accept the ideas of Schmalenbach, Zappa, or Schmidt. In contrast, he gave unconditional support to Dumarchey’s thought. As his book was a basic reference in Portugal during the two subsequent decades, one can understand why the academic circles did not accept those authors’ ideas during the 1940s and 1950s. This lack of acceptance was not a consequence of a lack of dissemination of the new ideas, but rather due to a sense of loyalty to the French traditional thought.

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In 1935, the fi rst doctoral dissertations were presented by Polybio Garcia and Fernando V. Gonçalves da Silva. The latter would become one of the most noted accounting scholars of Portugal, as already explained. Another significant scholar of this decade was Francisco Caetano Dias (1931, 1936). He meant that accounting had to observe the results of the taken economic decisions and follow, step by step, the conduct of the management. The tacit understanding of accounting as an information system let itself to be deduced. At the end of the 1930s, the fi rst books on cost accounting appeared. The books most known on this subject were those of Francisco Caetano Dias (1938) and Eduardo Baptista de Oliveira (1938). In the 1940s, the articles of Dumarchey, in French or translated into Portuguese, were published in the Revista de Contabilidade e Comércio, bearing witness to the continuing influence of his thought. Dumarchey’s ideas fell into a propitious field in Portugal. In 1949, on the occasion of the reform called Pires de Lima, the syllabus of the subjects taught at the Instituto de Ciências Económicas e Financeiras (ISCEF) was greatly changed. As we shall remember, at the time, this Institute was the only university with courses on general accounting. This reform marked a real change in the conception of accounting and its teaching (Carqueja 2011: 41ff ). When the Faculdade de Economia was created in 1952 at the Universidade do Porto, the context of accounting education at the university level had already been completely modified. The teaching way of José António Sarmento from 1955 and of Camilo Cimourdain de Oliveira from 1956 onward was fostered in 1963 through the adoption by the fiscal authorities of an accounting more in concordance with reditualism, that is, the Zappa doctrine, or dynamism, that is, the Schmalenbach balance sheet teaching, than with patrimonialism, with which often the Portuguese accounting knowledge has erroneously been aligned. As said previously, the implications of the appeal to rationality instead of to the description of practices and procedures contained in the designation “Accounting theory” are exemplified in Cruz Vidal’s book, Ensaio sobre o Planeamento Contabilístico Racional (Essay on a rational accounting approach), published in 1956, as well as in Lições de Teoria da Contabilidade (Lessons in accounting theory) by José António Sarmento and edited by duplicator in 1955–1956. Gonçalves da Silva’s book Contabilidade Industrial (Industrial accounting), published in 1955, was also a token of change. The book of Cruz Vidal inaugurated the new academic framework that followed the one begun at the end of the nineteenth century and in which the publication of Amorim’s book Contabilidade Geral in 1929 was the most significant event. The new stage represented not only a step forward in accounting thought but also in the formal aspects of its exposition as the disposition of the books and the care of the bibliographical references. Because of this, the specific identification of the works by Fabio Besta, Leon

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Gomberg, Eugen Schmalenbach, William Andrew Paton, and Gino Zappa has a special meaning. Curiously, no citation is made of Masi, an author whom a significant influence was attributed in Portugal and Brazil. In 1951, Cruz Vidal had already published an article in the Revista de Contabilidade e Comércio titled “A Ciência Económica das Explorações e o Balanço Dinâmico” (The accounting science of researches and the dynamic balance sheet) denoting his knowledge of Schmalenbach’s ideas. It seems that this article was translated into French and published the same year.8 In summary, in the fi rst decades of the twentieth century, the influence of French authors, especially Degrange, Léautey, and Guibault, continued. In 1916, before Lopes Amorim’s book of 1929, Dumarchey and his ideas were already well known. His influence was dominant in the 1930s and 1940s. Dumarchey’s ideas did not entail a significant change in the Portuguese approaches that had a positivistic tendency since the times of the Aula do Comércio. The dissemination and influence of Dumarchey’s thought in Portugal is well documented by the publication of his articles, some of them in French, and of his main works translated into Portuguese. On the basis of the published papers and books during the second quarter of the century, it is not possible to confi rm that Masi’s ideas would have had significant acceptance in Portugal. This is in contrast with the opinion often expressed with regard to patrimonialistic or neopatrimonialistic theories. The texts provide evidence that wealth is treated by Portuguese authors as a matter of accounting information. The subject of accounting is information on the wealth, not the study of wealth by itself. From 1950 onward, the dissemination of the new ideas, mainly by the Revista de Contabilidade e Comércio, is documented. Later, in 1963, these ideas were incorporated into the Código da Contribuição Industrial (Code of Industrial Tax). Up until then, it seems right to consider dominant the French accounting thought and less influential the authors writing in Italian, German, and English.

SOME BRIEF REFERENCES TO LATIN AMERICA In this section of the chapter, I shall only make brief reference to three Latin American countries. I have selected these countries because I consider them paradigmatic: They illustrate the diversity of cases found in the development of accounting thought in Latin America. These three countries are Argentina, Brazil, and México.

Argentina Argentina is one of the leading Latin American nations in number of accounting publications. The article by María Cristina Wirth and Richard Mattessich, “Accounting books of Argentina: Publications, research and

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institutional background,” published in the on-line journal De Computis (June 2006), was written on the basis of a search for accounting books of the twentieth century in 187 Argentine libraries that bore a rich crop of more than 2,100 pieces: 277 belonging to the fi rst half of the century and 1,804 to the second one. This number does not include later editions made by the same publisher. The present section of this chapter is based on the mentioned article. Among the books located, the authors could not fi nd a single book on the history of Argentine accounting literature. This fact led them to think that their article was the fi rst attempt to research the subject (Wirth et al. 2006: 139). Judging by the number of books, during the fi rst half of the century, the influence of Spanish literature stood out, followed by the French and the Italian. From the 277 books located for this period, 19% were Spanish editions, including some translations of French and Italian books, and eight French editions. From Italy there was only one book by Gino Zappa. There were no books registered from Germany, although there was a Spanish translation of Erich Schneider’s work on industrial accounting. The Anglo-Saxon accounting literature was represented by Spanish translations of books by Kester, Gillespie, Finney, Paton, and Holmes, most of them published in Mexico. The greatest part of the editions kept in the Argentine libraries, the 74%, was formed by Latin American editions, namely, 171 Argentine editions and twenty-two Mexican editions. The remaining thirteen books were composed of editions from other Latin American countries. In the second half of the twentieth century, the geographic provenance of the publications changed drastically. The foreign editions rose in total to 54%, coming especially from the United States (17%), Spain (14%), and Mexico (11%). The influence of the Anglophone accounting textbooks were, however, more important than what these figures suggest: “One reason is that the Mexican editions are mostly translations from the English language” (Wirth et al. 2006: 148). The most significant Argentine author of the fi rst half of the twentieth century was probably Alberto Arévalo. Although he had begun to publish in 1917 and wrote a book dealing with Cerboni and his logismographic method in 1918, his really important publication appeared in 1946 under the title Elementos de contabilidad general (Elements of general accounting). This work shows a great influence from Italian authors and above all from Fabio Besta, whose terminology he adopted. So, he uses the term hacienda and its operative actions. He distinguishes between the functions of administration and accounting. While the fi rst one consists of action, the second one focuses on information to the administration. Thanks to this information, the administration is able to take its decisions. Arévalo also quotes Gino Zappa and his ideas on the hacienda and accounting as forming part of a wider science, the Economia Aziendale, that is, business economics, with three different disciplines. At any rate

464 Esteban Hernandez Esteve it seems that the author does not incorporate the doctrine of reditualism in his accounting approach. He quotes a single German author in his book, namely, Heinz Ludwig and his book Budgetkontrolle in industriellen Unternehmungen (Budget control in industrial enterprises) (1930) in the French translation. He does not quote at all Eugen Schmalenbach or any of the German authors associated with the new ideas of the Betriebswirtschaftslehre (i.e., the German business economics doctrine). He seems not to know the movements around the dynamic balance sheet. In this sense, it is worthwhile to remark that Wirth and Mattessich in their article make no mention of Fernández Pirla’s book. This apparent lack of knowledge of the dynamic balance sheet and of the reditualism ideas, which represent the main accounting idea emerged in the framework of the European accounting thought in the fi rst half of the twentieth century, contrasts with the good knowledge of the trends of North American accounting thought. It also contrast with the neopatrimonialist ideas held and propagated by Brazilian literature, in particular António Lopes de Sá, well known through his original works and above all through the Argentine translation into Spanish of his books. As we can see, on the one hand, under the influence of Spanish accounting thought and due to the delay with which Spain knew and accepted them, the Argentine accounting scholars did not know the new German and Italian ideas at the right time. On the other hand, Argentina knew early the North American ideas conceiving accounting fundamentally as a tool of information to shareholders and investors, which caused the emergence of the consequent utility paradigm. One would say that the combination of both facts resulted in a direct leap of Argentine accounting thought from French to North American ideas without stopping on the intermediate step.

Brazil As to the evolution of accounting doctrines in general, several works in Brazil dealt with this subject. The most significant ones are by Antônio Lopes de Sá (1960–1961, 1997) as well as the one by Paulo Schmidt (2000). There is even a recent book published by Antônio Lopes de Sá in 2008 that deals specifically with the accounting history in Brazil. A booklet by Marina Célia Requejo de Sá (2005) titled Apostila de Teoria da Contabilidade para o Centro Universitário Monte Serrat (Notes on Accounting Theory for the University Centre Monte Serrat) contains among others some interesting observations on the evolution of accounting thought in Brazil. All of these works and some others in specific points have served as guidance for the following comments. The most remarkable fact in accounting thought in Brazil during the fi rst half of the twentieth century is the presence of a strong influence from Italian thought. This influence was strongly enhanced by the introduction

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of the patrimonialistic ideas in the 1930s. These ideas have survived up to the present thanks to the neopatrimonialism developed by Antônio Lopes de Sá. However, in the 1960s, a strengthening of the Anglo-Saxon influence took place, which had begun some years before. In 1964, José Fernando da Costa Boucinhas adopted for the fi rst time in Brazil the North American educational methods in his chair of general accounting at the University of São Paolo. The fi rst Brazilian institution specialized in accounting teaching was probably the Escola de Comércio Álvares Penteado, created in 1902. Excellent teachers such as Francisco D’Auria, Frederico Herrmann, Jr., and Coroliano Martins, among others, taught there. In 1946 the Faculty of Economics and Management was founded at the University of São Paolo. The chairs of accounting and actuarial disciplines of the new faculty were occupied in part by the teachers from the Álvares Penteado school. They formed the initial nucleus of the professorship of these subjects (Requejo de Sà 2005: 4). Francisco D’Auria, whom Lopes de Sá called “one of the most famous intellectuals of our discipline” (2003), presented his doctoral dissertation titled Tendencies Positives em Contabilidade (Accounting positive trends) in 1929. He was a disciple of Carlos de Carvalho, who for his part was the most distinguished follower of Cerboni and his personalistic theories in Brazil. Carvalho’s four-volume book, Estudos de Contabilidade (Studies on accounting), which saw its second edition in 1915, reached its twentyseventh edition one in 1973. However, D’Auria drifted away from the ideas of his master and already in his dissertation enunciated his patrimonialistic ideas based on Fabio Besta’s thought. From then onward, his studies showed his orientation in this sense. His works Primeiros Princípios de Contabilidade Pura (First notions of pure accounting), published in 1949, and Cinqüenta Anos de Contabilidade (Fifty years of accounting), a sort of autobiography, appeared in 1954, confi rmed this orientation, not exempt however from some criticism, since he censured the aspects that seemed to him particularist of Masi’s approach. According to Antonio Reske Filho and Carlos Antonio De Rocchi, this book shows that D’Auria was possessed by a constant eagerness to be always up to date (2010). Maybe, but in 1932, he met Gino Zappa in Venice and praised Italian accounting thought. Surprisingly enough, he obtained the following answer: “Yes, but today we have much to learn from the American and Germans’ capacity of analysis” (D’Auria 1954: 161). Despite this comment of the master, there is no sign that he made any effort to obtain information about the movements taking place in German and American accounting. And much less that he would have the intention to incorporate Zappa reditualistic approach into his own ideas (Filho et al. 2010). Francisco D’Auria is considered in Brazil a forerunner of the scientific study of accounting and had a great influence on the accounting thought of his country, marking a milestone in the evolution of accounting ideas. He

466 Esteban Hernandez Esteve published different books, but the most significant of them was the already mentioned Primeiros Princípios de Contabilidade Pura. In this book, he presented an attempt to universalize accounting by understanding it as a systematizing process, and “if it has to systematize a patrimony, which is a system, it is applicable to every system of the universe” (D’Auria 1949: 9). That is to say, D’Auria thought that double-entry accounting, being a system, could be applied in all the systems, taking into account that in every system there are a cause and an effect, that is, debit and credit. In the opinion of Filho and De Rocchi, who expressly studied the question, what Francisco D’Auria pretended was to record the whole universe by double-entry. He discerned the creation of a universal accounting theory. After the publication of the book, he lived nine more years. However, he did not come back to this idea nor found followers disposed to go deeper into the universal accounting theory. This way, after having attempted to record the whole universe by double-entry accounting, he returned to occupy himself with the azendale microcosmos (Filho et al. 2010). Frederico Herrmann, Jr., succeeded D’Auria in leading accounting studies in Brazil. He also professed patrimonialistic ideas, but like his master, he had some reservations about them, as his words reveal: “In principle, we do not doubt Masi’s definition. The object of accounting is the patrimony and its management. We accept it in principle, but we consider that it is necessary to expand the defi nition” (Requejo de Sá 2005: 26). In fact, Herrmann’s own defi nition of accounting reads: “Accounting as autonomous science has as object the study of the azendal patrimony from the static and dynamic point of view. It uses the records as a tool to demonstrate the patrimonial changes. Accounting, organization and management are not a single discipline” (Herrmann 1958: 10). One sees in his defi nition the influence of Gino Zappa, and, in fact, he attempted in some way to combine the reditualism of Zappa with Masi’s patrimonialism. He wrote many books, the main one being Contabilidade Superior. Teoria Económica da Contabilidade (Higher accounting. Economic theory of accounting), whose fi rst edition was published in 1936. In 1996, its eleventh edition appeared. Another important author in the same line of thought is Hilario Franco, whom Antônio Lopes de Sá included among the great masters of accounting in the Portuguese language areas: “It was in this (patrimonialism) that great masters in Portuguese language as Francisco D’Auria, Frederico Herrmann Júnior, Hilário Franco, Jaime Lopes Amorim, mainly, introduced advances” (Lopes de Sá n.d.). Previously, he had already said in this regard, “In the world of the Portuguese language, Jaime Lopes Amorim (in Portugal), Francisco D’Auria, Frederico Herrmann Júnior, Hilário Franco (the latter three in Brazil) and Martim Noel Monteiro (also in Portugal), have proved themselves to be talented patrimonialists” (Lopes de Sá 2001). Just in this article, Lopes de Sá indicates that he presented for the fi rst time his neopatrimonialism in 1987 in a speech given at the University of Sevilla in Spain.

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Hilario Franco wrote several books beginning with his doctoral dissertation, Fundamento Científico da Contabilidade (Scientific foundation of accounting), which had a rather major impact on the Brazilian accounting circles and was published in 1950. Another book by him, Contabilidade Geral (General accounting), also had great success; in 1996, it reached its twenty-third edition. Another line of accounting thought that is now becoming dominant in Brazil as in other parts of the world is the North American one, well known for its pragmatism and the avoidance of sophisticated theories. It stresses the importance of information in accounting, and in this sense it has given rise to the paradigm of utility and the Generally Accepted Accounting Principles, all of this a consequence of the Great Depression. The influence of this line of thought was increased in 1964 due to the introduction of North American educational methods by José Fernando da Costa Boucinhas at the University of São Paulo, as said earlier. Boucinhas was Master of Business Administration from the New York University and Doctor of Business Administration from the University of São Paulo, where he presented in 1959 a dissertation titled Planejamento da contabilidade industrial (Planning an industrial accounting). When he began to teach accounting at São Paulo, he adopted the book by H. A. Finney and Herbert E. Miller, Principles of accounting, introductory (1963). This book was properly an enlargement of the original by H. A. Finney, Principles of Accounting, of 1923. The new approach caused a real revolution in accounting perception and teaching, giving rise to the book written by Alkindar de Toledo Ramos, José Fernando da Costa Boucinhas, Armando Catelli, and Sérgio de Iudícibus, edited by the latter and published in 1971 by the Faculty of Economic and Administrative Sciences of São Paulo under the title Contabilidade Introdutória (Introduction to accounting). From this moment, the faculty adopted defi nitively the North American line of thought and abandoned the patrimonialistic ideas. Another reason for the change was undoubtedly the arrival of North American auditing fi rms that accompanied the multinational companies coming to Brazil. The Law of Joint-Stock-Companies of December 15, 1976, came to reinforce this line of thinking, since it was inspired by the North American doctrine. As we have seen, nowadays both lines of thought exist side by side in Brazil, the neopatrimonialistic movement that was founded by Antônio Lopes de Sá in the late 1980s and shows an important level of acceptance, and the North American doctrines, which does not seem to lose ground, on the contrary. In this regard, it is worthwhile to observe that in Brazil emerged two original doctrines: the neopatrimonialistic and the attempt to universalize accounting made by D’Auria but abandoned few years later. As a concluding remark, I want to say that it may seem strange, taking into account its cultural links with Portugal, that Brazil was not subjected to the influence of French accounting thought. It seems that at the end of

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the nineteenth century, this thought was present, and the turning point was marked by the coming of the Polish engineer Estanislau Kruszynski in 1884 to the city of São Carlos. Kruszynski was a great expert on accounting and gave classes there on farming and commercial and industrial accounting from the perspective of the personalistic theory professed by Giuseppe Cerboni. In 1892, he was entrusted to design and implement a system of public accounting for the city council. He did it, and Carlos de Carvalho was appointed to keep the accounts. At fi rst, Carvalho was adherent to the contist theory (Peleias and Bacci 2004: 43). However, influenced surely by Kruszynski’s teaching and the practice of Cerboni’s system, he became a follower of logismography. As we have seen before, Carvalho did not achieve that his disciple Francisco D’Auria accepted his ideas, and, in contrast to his teacher, he became a patrimonialist.

México As can be seen in the extensive bibliography contained in the book Pochteca (Rodríguez Álvarez et al. 1992: 349–355), some Mexican works deal with accounting history. Some of them deal with accounting questions of the Treasury in the colonial period, as do the excellent works of Alberto Donoso Anes,9 which are not included in the mentioned bibliography. Others concern themselves with the study of the introduction of double-entry in México. At last, others are interested in the development of the teaching of accounting and the formation of the accounting profession. Some of the latter are certainly worthy and interesting, as is the book Pochteca or the one edited by Millan Torres in 2000, but they do not contribute much to the evolution of accounting thought. The most classic work in this sense is the one by Federico Gertz Manero titled Origen y evolución de la contabilidad: ensayo histórico (Origin and evolution of accounting: A historical essay), which has become a referent in Latin American countries. The fi rst edition appeared in 1964 and the sixth, and last one up until now, in 2006. This well-informed work studies the evolution of techniques and practices as well as the undergone by ideas. However, it focuses more on the development of the subject in Europe than in México and Latin America. In any case, the most important work on Mexican accounting history is, in my opinion, the book authored by Joaquín A. Moreno Fernández and published in 2005 under the title Historia técnica de la contabilidad y la información financiera en México (Technical history of accounting and fi nancial information in México). It is also the most useful for our purpose, although it focuses indeed, according to its title, on the study of the evolution of accounting techniques in each one of the three stages that the author distinguishes. However, it lists and describes the main books that were to be found in Mexico at the time studied, most of them forming part of his private library. Through these books, one can deduce which ideas prevailed in Mexico at the period we are studying.

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Joaquín A. Moreno is a well-known and distinguished Mexican accounting scholar. In 1961, he became a professor at the Escuela Superior de Contabilidad y Administración (ESCA) (Higher School of Accounting and Management). He occupied important posts in the academic circles and in the Public Administration of México. In 2003, he was elected Member of Honour by the Academia Mexicana de Ciencias Administrativas y Sociales (Mexican Academy of Administrative and Social Sciences). The Escuela Superior de Contabilidad y Administración, known normally by its acronym ESCA, was founded in 1845 with the name of Instituto Comercial (Institute of Commerce) (Rodríguez Álvarez et al: 1995). In 1891, when it received its present name, it already had more than 1,000 students. In 1936, it was incorporated to the Instituto Politécnico Nacional (National Technical Institute), one of the two most prestigious Mexican Universities, together with the Universidad Nacional Autónoma de México (National Autonomous University of México). The school and in general the Instituto Politécnico National have done important publishing work of accounting books. For the period that we take into consideration, that is, from 1900 to 1960, Joaquín A. Moreno Fernández presents and studies seventy-five books among the 132 that he has found amid those published in those years. In his view, which naturally is more inclined to the evolution of the accounting techniques than to that of accounting thought, these books are the ones that have exerted the most influence on Mexican accounting in the period considered. They will serve us as a basis for our comments. For the fi rst decade of the twentieth century, Moreno Fernández considers only five books, three of which were published in Spain, one in México by a Spanish author and publisher, and one in México by a Mexican author. The books published in Spain are well known in this country. They are La Teneduria de libros al alcance de todos (Bookkeeping made understandable for all) by Juan Oliva Bridgman (n.d.); Tratado de contabilidad general ó teneduria de libros (Treatise on general accounting or bookkeeping) by José Rogina (1902), which reached six editions (in Moreno Fernández’s book is listed José Rogi, surely due to a transcription error); and Contabilidad comercial (Commercial accounting) by José Prats y Aymerich (1903–1910), which reached seven editions. The last two were accounting professors who followed the French contist school, and the fi rst one was a Catalan poet, whose poems were illustrated by Pablo Picasso in his youth before going to Paris. With regard to the fourth author, it was G. M. Bruño, a well-known author in Spain and owner of a publishing enterprise specializing in publishing textbooks for private schools, books practical but without any intellectual ambition. It seems that Bruño’s book mentioned by Moreno Fernández was published in México. None of the indicated books seemed to have contributed much to Mexican accounting techniques or ideas. In this period, the four books by Spanish authors represented 80% of the total, while the Mexican one only 20%.

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In the second decade, 1911 to 1920, only four books are quoted, three by Mexican authors and one by the Spanish G. M. Bruño, but also published in México. This small number can be explained by the fact that in this period the revolutionary movements known as the Decena Trágica, the Tragic Decade, took place. It seems that the only book that added anything new to Mexican accounting in this period was the one by G. M. Bruño. The percentage of books by Spanish authors dropped drastically to 25%. It would never recover the figures of the fi rst period. On the contrary, Spanish authors disappear completely—with one exception—in the last two decades of the period. During the third decade from 1921 to 1930, ten books are quoted, four of them American, two English, two French, and two Mexican. One of the French books was authored by Léon Batardon, an author well known in Spain. The book was published in Barcelona, and it might have represented the beginning of French influence in Mexican accounting thought, but it did not prosper. Among the American works stands out W. B. Lawrence’s book, Cost accounting, published in English in one single volume in 1925. It was translated into Spanish and published in México in two volumes in 1943. Among other technical notions, it introduced in México the alternative ways of FIFO and LIFO to evaluate the stocks. However, it is not the fi rst American book present in México. In reality, the work that initiated the Anglo-Saxon influence in Mexican accounting was the book by Roy B. Kester, Accounting theory and practice, published in 1921. Copies of this edition are kept at the library of the Economics Faculty of the Universidad Nacional Autónoma de México, at the library of the Instituto Politécnico de México, and at the library of the Instituto Tecnológico Autónomo de México (Autonomous Technological Institute of Mexico). It was translated into Spanish in 1939–1940, and because of that, Moreno Fernández quoted not the original version in English, but the Spanish translation, including it in the fourth decade. The percentages of the quoted books by nationalities in this decade are the following: American books 40%, English books 20%, French ones 20%, and Mexican works 20%. For the fourth decade, 1931–1940, Moreno Fernández quotes sixteen books. From them nine are American, five Mexican, one Cuban, and one Spanish. As in the previous case, these figures can be somewhat deceptive, because four of the American books are different volumes of the same work, namely, the already mentioned work by Roy B. Kester, Contabilidad: teoría y práctica, published in Barcelona, in 1939–1940. The original work in English was a joint book, by S. Bernard Koopman and Roy B. Kester, titled Fundamentals of accounting; principles and practice of bookkeeping, published in 1921. The second edition also published in 1921 already received the defi nitive name, Accounting theory and practice, and was authored by Roy B. Kester. This edition is the one present in the libraries indicated above. In contrast, there are quoted five American books that belong to a work edited by David Himmelblau (1932–1940a), composed of

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seven volumes authored by diverse authors and titled Complete accounting course. Among them are the five books quoted by Moreno Fernández, that is to say, the ones by David Himmelblau (two volumes, 1932–1940b, 1940c), Harry Altschuler, John Victor Tinen, and Cecil Gillespie. The seven volumes of the original work in English were published in 1932–1940 and are kept in the library of the Accounting and Management Faculty of the Universidad Autónoma Nacional de México. The whole collection began to be translated into Spanish and published in 1953 under the title Curso completo de contabilidad por David Himmelblau con la colaboración del cuerpo docente de contabilidad de la Northwestern University (Complete accounting course by David Himmelblau with the collaboration of the teaching staff of the Northwestern University). It is composed of eleven volumes. The second edition published in 1965 is kept complete at the library of the Instituto Politécnico de México. Kester’s books and the collection edited by David Himmelblau consecrated the North American influence in México. The books composing the work edited by Himmelblau having undergone the effects of the Great Depression focused their interest on problems of assets evaluation as well as on the information to provide to shareholders, investors, and so on. Steps in this direction were the introduction of the perpetual inventory as well as the consolidated accounts or recommendation of undistributed profits. So were also some accounting norms that became the Generally Accepted Accounting Principles in the future. The percentage of American works quoted, taking separately the four volumes of Kester’s work, reach the figure of 56%, the Mexican 31%, and the Spanish and Cuban 6.5% each. The number of books quoted by Moreno Fernández as significant in these four decades had undergone a notable increase: five in the fi rst decade, four in the Tragic Decade, ten in the third decade, and sixteen in the fourth decade. In the last two decades, the number of quoted books kept more or less steady, taking into account that the volumes of some American works were counted as single pieces. This way, in the fi fth decade, 1941 to 1950, twenty-three books were quoted, and in the last decade considered, 1951 to 1960, seventeen books were quoted. From the twenty-three books of the fi fth decade, seventeen were American, four Mexican, and two Argentine. In the last decade, 1950 to 1960, seventeen books were quoted. From them six were American and eleven were Mexican. Since the fi rst appearance of North American books in the quotations by Moreno Fernández, this was the fi rst decade in which Mexican books exceeded the number of the American ones. In the last two decades, twenty-three out of the forthy quoted were American, against fifteen Mexican and two Argentine. Most of the American books were important works that logically fostered the influence of the North American thought in México and enriched the Mexican accounting world. Among these works was the noted Accountants’ handbook by W. A.

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Paton, which was translated into Spanish and published in México in 1943. We find also the not less noted accounting courses in three levels by H. A. Finney, which were translated and published in Mexico in 1943–1944, making up a total of nine volumes (Finney 1923, 1943a, 1943b, 1944). Among the remaining American books, there was one by George May, who was senior partner of PriceWaterhouse in the United States from 1911 to 1940. The book was published originally in English in 1943 with the title Financial accounting: A distillation of experience, and in 1965 it was translated and published in México. In his book, the author regrets the absence of public institutions entrusted with the control of accounting activities and claims with singular insistence on the need to establish accounting general principles. Another interesting book was the Basic business finance by Pearson Hunt et al., which was translated and published in Mexico in 1953. There was offered the first flow of funds statement known in México. Side by side with the books by American scholars were the books of some distinguished Mexican accounting scholars who indeed had some original and interesting ideas, but that in the main part followed the wake of American thought. Among these distinguished scholars of the period coming into question, that is, 1900 to 1960, can be included, although not exclusively, Fernando Díez Barroso (1926), Roberto Casas Alatriste (1932), Arnold Harmony (1932), Alejandro Prieto (1937), Sealtiel Alatriste Jr. (1944), Roberto Macías Pineda (1956), and Rómulo González Irigoyen (1958). Summing up, as already commented, with regard to the sixty years considered in this exposition, Joaquín A. Moreno Fernández quoted the seventy-five books that he contemplated as the most relevant among the 125 pieces that he had traced. From these seventy-five books, thirty-six were American, that is, 48%, in contrast with the twenty-six Mexican books, making up 35%. If we only consider the figures from 1921 to 1930, which was the decade with the fi rst American book quoted, the American weight increases with thirty-six books among sixty-four. This gives 56%, against that 31% of Mexican books. These percentages show the great influence gained by the American thought in México in only thirty-nine years. The weight of the remaining books was not significant. We had already mentioned the importance of the American accounting literature in México when we considered the Argentine case. The influence of American accounting thought in México provoked logically that Anglo-Saxon pragmatism was dominant among Mexican scholars during the second quarter of the twentieth century. This happened at the same time that accounting scholars of the leading countries in continental Europe were occupied analyzing the new ideas, emanated principally from Eugen Schmalenbach in Germany and Fabio Besta and Gino Zappa in Italy. These ideas revolved around the nature and defi nition of accounting as the science of azendale economics. And thereby the accounting focus was displaced from wealth and accounts as elements expressing it—questions that from the beginning had been the core of accounting concern—to income.

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Scholars were involved in formulating theories about this change of the accounting focus. Of course, they also established technical procedures to put in practice the new ideas. However, the greatest effort was devoted to the formulation of a corpus doctrinalis to support the procedures. Be that as it may, the main subjects of Mexican accounting discussion were not so much theoretical questions regarding the epistemology of accounting. The major part of the intellectual efforts was dedicated to pragmatic matters, which, following the American concern, were related in some way to the Great Depression experiences. Hence, the main subjects treated by Mexican accounting scholars in that time were the establishment of general accounting principles, cost accounting problems, inventory and assets valuation criteria, consolidation of statements, accounting information procedures to fulfi ll the requirements of shareholders and investors, and so on, all of them under the umbrella of the utility paradigm. According to Joaquín A. Moreno’s book and his selection of significant books in the period under study, it seems that just at the beginning of the second quarter of the twentieth century, the Mexican accounting world had completely broken contact with the Old World and embraced integrally the American accounting school. The fact that Moreno’s book does not include the names of Fabio Besta, Eugen Schmalenbach, or Gino Zappa seems to confirm this view. This view is also supported by the circumstance that in the Biblioteca Nacional de México (National Library of México) some books of only one of the three authors, Gino Zappa, appear. In this library, there are four books by him, among them the one in which he exposes his theory of income as the most important magnitude in the enterprise accounting (Zappa 1937). However, neither the library of the Universidad Nacional Autónoma de México (National Autonomous University of México) nor the one of the Instituto Politécnico Nacional (National Technical Institute) have books by these authors. And none of the three libraries has José María Fernández Pirla’s book, Un ensayo sobre teoría económica de la contabilidad (An essay on accounting economic theory), published in 1957, by which the theories of Schmalenbach and Zappa were introduced in Spain.

CONCLUSION Summing up, in the previous pages, we have seen that the development of accounting thought in Spain and Portugal during the fi rst half of the twentieth century showed some similarities. It was dominated by the French schools of thought, with little differences of orientation. In Spain the contist and personalistic orientations were predominant, while Portugal was more inclined toward the positivistic ones. The fi rst Spanish author who attempted to integrate the ideas of Besta and Zappa into his thought was Emigdio Rodríguez Pita, who in 1956 published a book, in which he showed a wide knowledge of the main foreign

474 Esteban Hernandez Esteve accounting authors and of the ideas circulating abroad. He also knew the ideas of Eugen Schmalenbach and in some way tried to quantify the dynamism in a specific chart, but he did not develop the idea. At the same time, his book was the fi rst accounting work in Spain fulfi lling all criteria of formal scholarship. However, his book did not reach much audience. The fi rst Spanish author who succeeded in integrating and explaining the new ideas of Gino Zappa, Eugen Schmalenbach, and their respective groups was José María Fernández Pirla, the fi rst university professor who taught accounting theory at the Spanish university. His book, Un ensayo sobre teoría económica de la contabilidad (An essay on accounting economic theory), published in 1957, inaugurated a new way of approaching and teaching accounting, integrating Spain in doing it, with much delay indeed, in the current movements of continental European accounting thinking of that time. With regard to Portugal, the author who inaugurated the new stage of integration in the current accounting thought movements of the time was Caetano Léglise da Cruz Vidal with his book, Ensaio sobre um Planeamento Contabilístico Racional (Essay on a rational accounting approach), published in Lisboa in 1956. As to the three Latin American countries we have referred to, there were some differences among them with regard to the development of their accounting thought in the fi rst half of the twentieth century. They had, nevertheless, a common feature: the early influence on their thought of North American ideas. During the period under study, 19% of the books present in the Argentine libraries consulted were Spanish and 16% were Mexican editions. From Italy there was one only book by Gino Zappa and none from Germany. The Mexican translations caused an early knowledge of the AngloSaxon literature. This caused a direct leap of Argentine accounting thought from French to American ideas without stopping on the intermediate step represented by the Italian and German ideas. The most important work of the period studied was probably Alberto Arévalo’s book, Elementos de contabilidad general (Elements of general accounting) (1946). Accounting thought in Brazil in the fi rst half of the twentieth century presents two main features: an almost non-existent influence of Portuguese ideas and the presence of two different schools of thought: the neopatrimonialism, founded by Antônio Lopes de Sá as a derivation of the Italian patrimonialism, and the American pragmatism. Out of the three Latin American countries considered, México was the fi rst to join the American accounting thought. México has performed an important translation activity from English books into Spanish, which it has published and distributed all over Latin America. Under the influence of American accounting thought, it seems that Mexico had completely broken with the Old World to embrace integrally the American way of accounting thinking at the beginning of the second quarter of the twentieth century.

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NOTES 1. See my joint articles (Carrasco et al. 2004, 2009). 2. It will be not necessary to remind that the expression “patrimony” and its derivatives in the sense considered here refer to “wealth” in general and not only to the original Latin sense of something derived from one’s father or ancestors: heritage. 3. The origin of La Ragioneria was the handwritten and lithographed handout that Besta distributed among his students from 1881 under the title Corso di ragioneria professato alla classe di magistero nella R. Scuola superiore di Commercio in Venezia, parte I, Ragioneria Generale. A second edition of his handout appeared in 1885, published also in Venice by Tipografia Visentini. A third one, under the title Corso di ragioneria professato alla classe di magistero nella R. Scuola superiore di Commercio in Venezia, Parte 1, vol. 1, Ragioneria generale was published by the same publisher in 1891, containing 511 pages. It seems that this third edition of the Corso is what is considered to be the fi rst edition of La Ragioneria (see the catalog of Ca’ Foscari’s Library). The second edition of this volume under its defi nitive title La Ragioneria was edited with the collaboration of Besta’s disciples Vittorio Alfieri, Carlo Ghidiglia, and Pietro Rigobon. It was published this same year (1891) in Milan by Dottor Francesco Vallardi, containing 476 pages. This volume was completed with two others also belonging to the fi rst part; the fi rst one was published in 1909 and the last one in 1916, always with the same collaborators and by the same publisher. This second edition was reprinted in 1920. Other versions of the handout were published under the title Computisteria mercantile (1884, 1887, 1889–1890). 4. The fi rst edition of this work appeared in 1919 under the title “Grundlagen dynamischer Bilanzlehre” (Fundamentals of dynamic balance sheet) as an article published in the Zeitschrift für Handelswissenschaftliche Forschung (Journal for Research in Commercial Science), year 13th, and had only 96 pages. The second edition was published in the same journal in 1920 with 92 pages. The third edition was considerably increased, already constituting a volume of 288 pages; it was published under the same title in 1925 in Leipzig by G. A. Gloeckner. The fourth edition already received the defi nitive name, Dynamische Bilanz, and it was increased again, reaching 376 pages. It was published in 1926, also in Leipzig by G. A. Gloeckner. 5. For a general view of the formation of accounting thought in Spain, it will be useful to consult the excellent work by Vicente Montesinos Julve (1978: 81, 135, 171, 219, 253, 285, 351, 373). Also excellent but dealing with the subject from a more specific perspective is the work by Jorge Tua Pereda (1988). 6. The importance of both authors, Emigdio Rodríguez Pita and José María Fernández Pirla, in the development of Spanish accounting thought and scholarship is also stressed by Belén Fernández-Feijóo Souto and Richard Mattessich (2006). Since the last and main work of Rodríguez Pita was published in 1956, they do not explain much about his contribution. On the contrary, as his academic career began with his book of 1957, much attention is given to the ideas of José María Fernández Pirla. Their comment on the evolution of Fernández Pirla’s thought from the Italian and French authors toward the English and American one is accurate and well aimed (Fernández-Feijóo et al. 2006: 8). This evolution is a general trend in the Spanish accounting thought in the second half of the twentieth century.

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7. Hernâni O. Carqueja is one of the most noted Portuguese accounting historians. At my request, he was so kind to write this essay in order that it might serve as a basis for this chapter. 8. Curiously, I have traced in the catalog of the important private accounting library of Ernest Stevelinck, which was acquired by the University of Nantes and now is custodied at its library, an entry that reads as follows: “Leglise da Cruz Vidal C., La science économique d’exploitation et le bilan dynamique, Paris, 1951, trad. du portugais de l’étude publiée dans la Revista de comptabilidade e comercio (Porto), no. 74, juin 1951.” At the end there is an abbreviation TAP that Stevelinck used meaning off print. 9. See Alberto Donoso Anes (1784). The book is introduced by a study that explains all research carried out by the author on this matter.

REFERENCES Aced y Bartrina, Francisco. 1916. Curso de Contabilidades Oficiales. Estado, Provincia, Municipio (Accounting course for government, province and city). Madrid: Hermanos Reus. Alatriste, Sealtiel. Jr. 1944. Técnica de los costos (Cost accounting technique). México: Porrúa. Altschuler, Harry. 1932–1940. “Intermediate accounting” (4th vol.). In Complete accounting course (7 vols.), ed. D. Himmelblau. New York: The Ronald Press Company. American Accounting Association. 1966. A statement of basic accounting, Evanston, IL: Author. Amorim, Jaime Lopes de. 1929. Lições de Contabilidade Geral (Lessons of General Accounting) (Vol. I). Porto: Ed. Empresa Industrial Gráfica do Porto, Lda. Amorim, Jaime Lopes de. 1969. Digressão através do vetusto mundo da Contabilidade (Digression through the old world of accounting). Porto: Livraria Avis. Arévalo, A. 1946. Elementos de contabilidad general (Elements of general accounting). Buenos Aires: Selección Contable S.A. Ballesteros Marín-Baldo, Luis. 1924. Tratado completo de contabilidad. Obra escrita para consulta del comercio, de la banca y de la industria (Complete accounting treatise for commerce, banks and industry). Barcelona: Librería Bosch. Benedetti, Ugo. 1955. Corso di computisteria e Ragioneria (Lesson on bookkeeping and accounting). Milan: Hoepli. Besta, Fabio. 1881. Corso di ragioneria professato alla classe di magistero nella R. Scuola superiore di Commercio in Venezia, parte I, Ragioneria Generale (Accounting course taught at the Royal Higher School of Commerce of Venice, part I, General Accounting) (handwritten and lithographed handout). Venezia: Litografia Bonmassari; 2nd ed. Venezia: Tipografia Visentini, 1885; 3rd ed. Corso di ragioneria professato alla classe di magistero nella R. Scuola superiore di Commercio in Venezia, Parte 1, vol. 1, Ragioneria generale, IX, 511 pages. Venezia: Tipografia Visentini, 1891. It seems that this third edition of the Corso is what is considered to be the fi rst edition of La Ragioneria. Besta, Fabio. 1884. Computisteria mercantile (Commercial bookkeeping). Venezia: Litografia Bonmassari, 1884; 2nd ed.; Venezia: same printer, 1887; Venezia: same printer, 1889–1890. Besta, Fabio. 1891, 1909, 1916. La Ragioneria. Riveduta ed ampliata col concorso dei professori Vittorio Alfi eri, Carlo Ghidiglia, Pietro Rigobon (Accounting. Revised and expanded by professors . . . ) (2nd ed.), 3 vols.: Volume I.

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Ragioneria Generale (General Accounting), Parte Prima, Libro Primo, Libro Secondo, Milan: Dottor Francesco Vallardi, 1891; Volume II. Ragioneria Generale, Parte Prima, Libri Terzo al Settimo, Milan: Dottor Francesco Vallardi; Volume III. Ragioneria Generale, Parte Prima, Libri Ottavo al Duodecimo, Milan: Dottor Francesco Vallardi, 1916. This second edition was reprinted in 1920 by the same publisher. Recently, in 2007, RIREA has published a facsimile edition of it. Boucinhas, José Fernando da Costa José Fernando da Costa. 1959. Planejamento da contabilidade industrial (Planning an industrial accounting). São Paulo: Faculdade de Ciências Econômicas e Administrativas, Universidade de São Paulo. Carqueja, Hernani O. 2011a, June. “Apontamento sobre a contabilidade em Portugal entre 1900 e 1950” (Notes on accounting in Portugal from 1900 to 1950). De Computis 14. Available at http://www.decomputis.org/. Carqueja, Hernani O. 2011b. “Carta aos Leitores e Autores” (Letter to reader and authors). Revista de Contabilidade e Comércio 60(240). Carrasco Díaz, Daniel, Esteban Hernández-Esteve, and Richard Mattessich. 2004. “Accounting Publications and Research in Spain: First Half of the 20th Century.” Review of Accounting and Finance 3(3): 40–58. Carrasco Díaz, Daniel, Esteban Hernández-Esteve, Maria Jesús Morales Caparrós, and Daniel Sánchez Toledano. 2009. “20th Century Publications on Cost Accounting by Spanish Authors Previous to the Standardization Act (1900– 1978).” Accounting Historians Journal 36(2): 139–179. Carvalho, Carlos de. 1973. Estudos de Contabilidade (Studies on accounting) (4 vols., 27th ed.). São Paulo: Livros Irradiantes. Carvalho, José Manuel de Matos, and Maria de Fátima Travassos Conde. 2003. “Fases e Períodos da História da Contabilidade em Portugal: uma primeira tentativa de identificação” (Phases and periods of accounting history in Portugal: a fi rst identification attempt). Revista de Contabilidade e Comércio 233(LIX): 57–84. Casas Alatriste, Roberto. 1932. Prácticas, organización y contabilidad bancarias (Practices, organization and bank accounting). Mexico: Escuela Bancaria del Banco de México. Cerboni, Giuseppe. 1873. Primi saggi di logismografi a (First essays on logismography). Firenze: Tipografia Militare La Minerva. Cerboni, Giuseppe. 1878. Rudimenti di logismografi a (Rudiments of logismography). Roma: Tipografia Elzeviriana. Cerboni, Giuseppe. 1886–1894. La Ragioneria scientifica e le sue relazioni con le discipline amministrative e sociali (Scientific accounting and its relations with administrative and social disciplines); VoI. I, I prolegomeni (Prolegomenon), Roma: Loescher, 1886; VoI. Il, Il metodo (The method), Roma:Tipografia Nazionale di G. Berter, 1894. D’Auria, Francisco. 1929. Tendencies Positives em Contabilidade (Accounting positive trends). Unpublished doctoral dissertation. D’Auria, Francisco. 1949. Primeiros Princípios de Contabilidad Pura (First notions of pure accounting). São Paulo: Universidade de São Paulo. D’Auria, Francisco. 1954. Cinqüenta Anos de Contabilidade 1950–1953 (Fifty years of accounting). São Paulo: Indústria Gráfica Siqueira, Dias, Francisco Caetano. 1931. Contabilidade Geral (General accounting). Lisboa: Livraria Moraes. 4th edition 1943. Lisboa: Livraria Moraes. Dias, Francisco Caetano. 1936. Técnica da leitura de balanços (How to read balance sheets). Lisboa: C. Oliveira Lda. Dias, Francisco Caetano. 1938. Contabilidade industrial e agricola (Industrial and agricultural accounting): Vol. 1. Organizaçao industrial e custo de produçao (Industrial organizaion and producion cost).

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Díez Barroso, Fernando. 1926. Sistemas modernos de contabilidad (Modern accounting systems) (2nd ed.), amended. México: Sociedad de Edición y Librería Franco-Americana. Donoso Anes, Alberto. (Ed.). 2010. Documentos relativos a la implantación de la contabilidad por partida doble en las Cajas Reales de Indias (1784). Francisco Xavier Machado Fiesco. Edición, notas y estudio crítico por Alberto Donoso Anes (Documents regarding the implementation of double entry accounting in the Royal Treasury Agencies in Indes [1784]. Francisco Xavier Machado Fiesco. Edition, notes amd critical study by Alberto Donoso Anes). Madrid: AECA; Ilustre Colegio Central de Titulados Mercantiles y Empresariales de Madrid; Universidad de Sevilla. Dumarchey, J. 1914. La Théorie Positive de la Compatibilité, suivi d’une étude critique sur l’établissement des bases scientifi ques de la comptabilité (Positive theory of accounting followed by a critical study on the scientific basis of accounting). Lion: Rey. Dumarchey, J. 1925. La comptabilite moderne: Essai de constitution rationnelle d’une discipline comptable du triple point de vue philosophique, scientifi que et technique (Modern accounting. Essay on constructing a rational accounting discipline from the triple point of view: philosophic, scientific and technique). Paris: Gauthier-Villars. Dumarchey, Jean B. 1943. “A Teoria Positiva da Contabilidade” (Positive theory of accounting). Revista de Contabilidade e Comércio, Porto, p. 330. Dumarchey, Jean B. 1949/1950. Contabilidade Moderna (Modern accounting). Braga: Livraria Cruz. Dumarchey, Jean B. 1954. “Teoria Cientifica do Custo de Produção” (Scientific Theory of Production Cost). Revista de Contabilidade e Comércio, Porto. Fernández Casas, Juan. 1926. Generalidades y Prolegómenos de Contabilidad Industrial (General introduction to industrial accounting). Madrid: Imprenta Gráfica Universal. Fernández-Feijóo Souto, Belén, and Richard Mattessich. 2006, December. “Accounting Research in Spain: Second Half of the 20th Century.” De Computis 5. Available at http://www.decomputis.org/. Fernández Pirla, José María. 1957. Un ensayo sobre teoría económica de la contabilidad (An essay on accounting economic theory). Madrid: E.J.E.S. Ferreira, Leonor Fernandes. 1995. “The History of Accounting in Portugal with the Special Reference to The Aula do Comércio.” EAA Annual Congress 1995, Birmingham. Filho, Antonio Reske, and Carlos Antonio De Rocchi. 2010. Sistematologia: a esquecida primeira teoria macro contábil brasileira (Systematology: a forgotten fi rst Brazilian macroaccounting theory). Available at http://www.iapuco.org.ar/ Trabajos_2010_Mercosur/A040.pdf. Finney, Harry Anson. 1923. Principles of accounting (2 vols.). New York: PrenticeHall. Finney, Harry Anson. 1943a. Curso de contabilidad: introducción (Accounting course, introduction) (3 vols.). México: UTEHA. Finney, Harry Anson. 1943b. Curso de contabilidad intermedia (Intermediate accounting course) (3 vols.). México: UTEHA. Finney, Harry Anson. 1944. Curso de contabilidad superior (Higher accounting course) (3 vols.). México: UTEHA. Finney, H. A., and Herbert E. Miller. 1963. Principles of accounting, introductory. Englewood Cliffs, NJ: Prentice-Hall. Franco, Hilario. 1950. Fundamento Científico da Contabilidade (Scientific foundation of accounting). São Paolo: Ed. Revisora Gramatical.

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Franco, Hilario. 1996. Contabilidade Geral (General accounting) (23rd ed.). São Paulo: Editora Atlas. Garcia, Polybio. 1935. A Unificação dos balanços (Unification of balance sheets). Doctoral thesis, Universidade Técnica de Lisboa. Gertz Manero, Federico. 1964. Origen y evolución de la contabilidad: Ensayo histórico (Origin and evolution of accouting: a historical essay). México DF: Editorial Trillas. Gillespie, Cecil M. 1932–1940. Introductory cost accounting (3rd ed.). In Complete accounting course (7 vols.), ed. D. Himmelblau. New York: The Ronald Press Company. Goldberg, L. 1964. An inquiry into the nature of accounting. Sarasota, FL: American Accounting Association. Gomberg, Léon. 1908. Grundlegung der Verrechnungswissenschaft (Foundations of accounting science). Leipzig: Duncker und Humblot. Gomberg, Léon. 1912. L’économologique (science comptable) et son histoire (Accounting science and its history). Genève: Société générale d’impr. Gonçalves, Miguel, and Maria da Conceição da Costa Marques. 2011. “On the Interrelations between Accounting Education and the State: The Teaching of Accounting at the Oporto School of Commerce (1803–1837).” In Before and after Luca Pacioli. Atti II Incontro Internazionale 17/18/19 Giugno 2011, Sansepolcro, Perugia, Firenze, ed. Esteban Hernández-Esteve and Matteo Martelli. Sansepolcro: Centro Studi “Mario Pancrazi.” González Irigoyen, Rómulo. 1958. El costo en artículos de producción conjunta (The cost of goods in a system of joint production). México: Editorial Ediciones Finanzas, Contabilidad y Administración. Grochla, Erwin et al. (Eds.) 1974. Handwörterbuch der Betriebswirtschaft (Dictionary of business economics) (4th ed.). Stuttgart: C.E. Poeschel Verlag. Guimarães, Joaquim Fernando da Cunha. 2011, January. “Nota Informativa” (Information note). INFOCONTAB 81(28). Available at http://www.infocontab.com.pt/. Harmony, Arnold. 1932. Contabilidad Moderna (Modern accounting) (2 vols.). Mexico: Editorial Escuela Central de México. Hendriksen, Eldon S. 1970. Accounting theory. Homewood, IL: R. D. Irwin. Hernandez-Esteve, Esteban. 2010. “Las Enseñanzas Comerciales y los Titulares Mercantiles. Una visión panorámica de los Primeros Años” (The commercial teaching and the graduates in commerce. A panoramic view of the fi rst years). In 125 Aniversario. Ilustre Colegio Oficial de Titulados Mercantiles y Empresariales de Madrid. Madrid: Ilustre Colegio Oficial de Titulados Mercantiles y Empresariales de Madrid. Herrmann, Jr., Frederico. 1958. Contabilidade Superior. Teoria Económica da Contabilidade (Higher Accounting. Economic Theory of Accounting). São Paulo: Ed. Atlas. Himmelblau, David. (Ed.). 1932–1940a. Complete accounting course (7 vols.). New York: The Ronald Press Company. Himmelblau, David. 1932–1940b. Fundamentals of accounting (1st vol.). In Complete accounting course (7 vols.), ed. D. Himmelblau. New York: The Ronald Press Company. Himmelblau, David. 1932–1940c. Principles of accounting (2nd vol.). In Complete accounting course (7 vols.), ed. D. Himmelblau. New York: The Ronald Press Company. Himmelblau, David. (Ed.). 1953. Curso completo de contabilidad por David Himmelblau con la colaboración del cuerpo docente de contabilidad de la Northwestern University (Complete accounting course by David Himmelblau with the

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collaboration of professors of the Northwestern University) (11 vols.). México: UTEHA. Hunt, Pearson, Charles M. Williams, and Gordon Donaldson. 1953. Financiacion basica de los negocios: Texto y casos (Basic business fi nance: text and cases) (2 vols.). México: UTEHA. Hunt, Pearson, Charles M. Williams, and Gordon Donaldson. 1958. Basic business fi nance: text and cases (6th ed.). Homewood, IL: R. D. Irwin. Previous editions were published under the title Case problems in fi nance. Iudícibus, Sérgio de. (Ed.). 1971. Contabilidade Introdutória (Introduction to accounting). São Paulo: Faculdade de Economia e Administração da Universidade de São Paulo. Johnson, B. M. 1977. Communication: The process of organisation. Boston: Allyn and Bacon. Kester, Roy B. 1921. Accounting theory and practice (3 vols., 2nd ed.). New York: The Ronald Press Company. Kester, Roy B. 1939–1940. Contabilidad: teoría y práctica (Accounting theory and practice) (4 vols.). Barcelona: Edit. Labor. Koopman, S. Bernard, and Kester, Roy B. 1921. Fundamentals of accounting; principles and practice of bookkeeping (2 vols.). New York: The Ronald Press Company. Lawrence, W. B. 1925. Cost accounting. New York: Prentice-Hall. Lawrence, W. B. 1943. Contabilidad de costos (Cost accounting) (2 vols.). México: UTEHA. Léautey, Eugéne, and Adolphe Guilbault. 1889. La science des comptes (Accounting science). Paris: Librairie Comptable et Administrative et Guillaumin. Léautey, Eugéne, and Adolphe Guilbault. 1895. Principes généraux de Comptabilité (General accounting principles). Paris: Berger–Levrault. Lefèvre, H. (ca. 1883). La comptabilité. Théorie, pratique et enseignement (Acccounting: Theory, practice and teaching). Paris: A la Librairie Illustrée. Ludwig, Heinz. 1930.: Budgetkontrolle in industriellen Unternehmungen (Budget control in industrial enterprises). Berlin, Leipzig und Wien: Weiss. Macías Pineda, Roberto. 1956. El analisis de los estados fi nancieros y las deficiencias en las empresas (Analysis of fi nancial statements and shortcomings in the enterprise) (3rd ed.). Mexico: Eds. Finanzas, contabilidad y administracion. Masi, Vincenzo. 1943. La Ragioneria como Sciencia del Patrimonio (Accounting as the science of wealth) (2nd ed.). Padova: CEDAM. Masi, Vincenzo. 1954. Ragioneria Generale (General accounting) (4th ed.). Bologna: Cesare Zuffi. Mattessich, Richard. 1984, August 23–27. “Fritz Schmidt (1882–1950) and his pioneering work of Current Value Accounting in Comparison to Edwards and Bell’s Theory.” In Quarto Congresso Internazionale di Storia della Ragioneria. Fourth International Congress of the History of Accountancy. Atti. Congress Proceedings. Pisa: Università degli Studi di Pisa, Facoltà di Economia e Commercio. Mattessich, Richard. 1992. “On the history of Normative Accounting Theory: Paradigm Lost, Paradigm Regained?” In Collected papers of the Sixth World Congress of Accounting Historians (vol. 3), ed. Atsuo Tsuji. Japan: Accounting History Association. Mattessich, Richard. 2008.: Two hundred years of accounting research. An international survey of personalities, ideas and publications. Abindgon; New York: Routledge. Mattos, António Alves de. 1916. “O Valor da Contabilidade” (The value of accounting). Revista da Contabilidade, Escola Prática Comercial Raul Dória, No. 19.

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May, George O. 1943. Financial accounting: A distillation of experience. New York: Macmillan. May, George O. 1965. Contabilidad fi nanciera: un extracto de experiencias (Financial accounting: a distillation of experience). México: Banca y Comercio. Millán Torres, R. (Ed.). 2000. Historia antigua de la teneduría de libros en México basada en libros de texto (Old history of bookkeeping in Mexico based on textbooks). México DF: Instituto Mexicano de Contadores Públicos. Montesinos Julve, Vicente. 1978. “Formación histórica, corrientes doctrinales y programa de investigación de la Contabilidad” (Historical formation, doctrinal trends and research program in accounting). Técnica Contable 30: 81, 135, 171, 219, 253, 285, 351, 373. Moreno Fernández, Joaquín A. 2005. Historia técnica de la contabilidad y la información fi nanciera en México (Technical history of accounting and fi nancial information in México). México: Escuela Superior de Comercio y Administración (Unidad Santo Tomás) Instituto Politécnico Nacional. Nicklisch, Heinrich. 1920. Der Weg aufwärts!: Organisation; Versuch einer Grundlegung (The way upwards!: Organization; Fundamentals). Stuttgart: Poeschel. Nicklisch, Heinrich. 1929–1932. Die Betriebswirtschaft (Business economics) (3 vols.). Stuttgart: Poeschel. 7th edition of Allgemeine kaufmännische Betriebslehre als Privatwirtschaftslehre des Handels und der Industrie (General business economics of commerce and industry). Stuttgart: Poeschel. Oliva Bridgman, Juan. n.d. La Teneduria de libros al alcance de todos (Bookkeeping made understandable for all). Barcelona: Sopena. Oliveira, Eduardo M. Baptista de. 1938. Noçoes de organizaçao industrial (Elements of industrial organization), Lisbon: Imp. Lucas. Onida, Pietro. 1944. Elementi di Ragioneria (Introduction to accounting). Milan: Giuff rè. Paton, William Andrew. 1922. Accounting theory. With special reference to corporate enterprise. New York: The Ronald Press Company. Paton, William Andrew. 1932. Accountants’ handbook (2nd ed.). New York: The Ronald Press Company. Paton, William Andrew. 1943. Manual del contador (Accountants’ handbook). México: Uteha. Peleias, Ivam Ricardo, and João Bacci. 2004, July, August, September. “Pequena cronologia do desenvolvimento contábil no Brasil: Os primeiros pensadores, a padronização contábil e os congressos brasileiros de contabilidade” (Brief chronology of accounting development in Brazil: First thinkers, accounting framework and Brazilian accounting congresses). Revista Administração On Line, FECAP 5(3). Prats y Aymerich, José. 1903–1910. Contabilidad comercial (Commercial accounting). Barcelona: Sucesores de Manuel Soler. Prieto, Alejandro. 1937. Contabilidad superior (Higher accounting). Mexico: Cultura. Rieger, Wilhelm. 1928. Einführung in die Privatwirtschaftslehre (Elements of Business Economics). Nuernberg: Krische. Rodríguez Alvarez, María de los Ángeles, and José de Jesús Vázquez Bonilla (coords.). 1992. Pochteca. Crónica de una Escuela Camino a la Excelencia. ESCA, 145 años de historia (Pochteca. Chronicle of a school in progress towards excellence. ESCA. 145 years history). México: Instituto Politécnico Nacional, Talleres Gráficos de la Dirección de Publicaciones. Rodríguez Álvarez, María de los Ángeles, and María Eugenia Yáñez Morales (coords.). 1995. ESCA pionera en la enseñanza comercial, contable y administrativa en América. 150 años de vida 1845–1995 (ESCA, a pioneer of

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commercial, accounting and management teaching in America. 150 years of life). México: Instituto Politécnico Nacional. Talleres Gráficos de la Dirección de Publicaciones. This book is in fact a 2nd edition of the precedent. Rodríguez Pita, Emigdio. 1945. Curso de contabilidad general (Course in general accounting). Barcelona: Author. Rodríguez Pita, Emigdio. 1947. Contabilidad y organización de empresas (Accounting and business organization). Barcelona: Author. Rodríguez Pita, Emigdio, and José M. Rodríguez Flórez de Quiñones. 1956. Ciencia de la Contabilidad: técnica, práctica y organización (Accounting Science: technique, practice and organization). Barcelona: Authors. Rogina, José. 1902. Tratado de contabilidad general ó teneduria de libros (Treatise on general accounting or bookkeeping). La Coruña: Viuda de Ferrer é hijo. Rossi, Giovanni. 1880. Saggi di critica logismografica (Essays of logismographic critics). Reggio nell’Emilia: Tipo- litografico degli Artigianelli. Rossi, Giovanni. 1882. L’ente economico-amministrativo. Introduzione alla scienza della ragioneria generale (The economic-administrative entity. Introduction to the science of general accounting) (2 vols.). Reggio-Emilia: Stabilimento Tipo-Litografico degli Artigianelli. Ruiz Soler, Luis. 1917. Tratado elemental teórico-práctico de Contabilidad general (Elementary theoretical-practical treatise of general accounting). San Sebastián: Tip. y Lib. de A. Bueno Oliván. Sá, Antônio Lopes de. n.d. “Qualidade em Contabilidade e Neopatrimonialismo” (Quality in accounting and neopatrimonialism). Neo-patrimonialismo. Available at http://www.lopesdesa.com.br/ Sá, Antonio Lopes de. 1960–1961. História da Contabilidade (History of accounting) (3 vols.). Belo Horizonte: Editora Presidente. Sá, Antonio Lopes de. 1997. História Geral e das doutrinas da Contabilidade (Accounting history in general and of its doctrines). São Paulo: Atlas. Sá, Antônio Lopes de. 2001. “Neopatrimonialismo-moderna corrente científica da contabilidade. Bases e história de uma revolução do pensamento contábil contemporâneo” (Neopatrimonialism, modern scientific trend of accounting. History of a revolution of contemporary accounting thought). Neopatrimonialismo. Available at http://www.lopesdesa.com.br/ Sá, Antonio Lopes de. 2003, September. “A moderna ciência da riqueza e o neopatrimonialismo contábil” (The modern science of wealth and the accounting neopatrimonialism). Contabilidad. Available at http://www.gestiopolis.com/ canales/fi nanciera/articulos/64/cienciadariq.htm Sá, Antônio Lopes de. 2008. História Geral da Contabilidade no Brasil (General accounting history in Brazil). Brasília: Conselho Federal de Contabilidade. Sá, Marina Célia Requejo de. 2005.: Apostila de Teoria da Contabilidade para o Centro Universitário Monte Serrat (Notes on accounting theory for the University Centre Monte Serrat). Santos: Unimonte. Sacristán y Zavala, Antonio. 1918.: Teorías de contabilidad general y de administración privada (Theories on general accounting and private administration). Madrid: Hijos de Reus. Sarmento, José António. 1955–1956. Lições de Teoria da Contabilidade (Lessons on accounting theory). Duplicator edition. Schmalenbach, Eugen. 1926. Dynamische Bilanz (Dynamic balance sheet). Leipzig: G. A. Gloeckner. It is the notably enlarged fourth edition of the article “Grundlagen dynamischer Bilanzlehre” (Foundations of dynamic balance sheet) published in the Zeitschrift für handelswissenschaftliche Forschung (Journal for Research in Commercial Science), 1919; it had only 96 pages. The second edition published in 1920 appeared in the same journal as a reprint of the fi rst one. The third edition was already a book, enlarged but not so much as the

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fourth edition, which was the fi rst to be entitled with the defi nitive name. It was published with the same title as the previous ones in 1925 in Leipzig by G. A. Gloeckner. See footnote 1. Schmidt, Fritz. 1921. Die organische Bilanz im Rahmen der Wirtschaft (The organic balance sheet in the framework of economics). Leipzig: G. A. Gloeckner. Schmidt, Fritz. 1923. “Geldentwertung und Bilanz” (Money depreciation and Balance sheet). In Geldentwertung und Unternehmung, 3 Vortr., geh. auf d. 13. Verbandstage d. Verbandes deutscher Bücherrevisoren, eingetragenen Vereins, beeidigter od. behördlich geprüfter kaufm. Sachverständiger am 9. u. 10. Sept. zu Würzburg. Berlin: Industrieverlag Spaeth & Linde. Schmidt, Paulo. 2000. História do Pensamento Contábil (History of accounting thought). Porto Alegre: Bookman. Schneider, Dieter. 1981. Geschichte betriebswirtschaftlicher Theorie. Allgemeine Betriebswirtschaftlichelehre für das Hauptstudium (History of the business economics theory. General business economics as main subject). MünchenWien: R. Oldenbourg Verlag. Schneider, Erich. 1934. Theorie der Produktion (Production theory). Wien: J. Springer. Schneider, Erich. 1939. Einführung in die Grundfragen des industriellen Rechnungswesens (Introduction to the fundamental questions of industrial accounting). Køobenhavn: I kommission hos G. E. C. Gad’s forlag. Schneider, Erich. 1942. Teoria della Produzione. Milano: Casa Editrice Ambrosiana. Schneider, Erich. 1949. Contabilidad industrial. Madrid: Aguilar. Schweitzer, Marcell. 1992. Eugen Schmalenbach as the founder of cost accounting in the German-speaking world. Tübingen: Wirtschaftswissenschaftliches Seminar der Eberhard-Karls-Universität. Silva, Fernando V. Gonçalves da. 1935. A Regulamentação Legal da Escrituração Mercantil (Laws for the regulation of commercial recording). Doctoral dissertation presented at the Universidade Técnica de Lisboa. Silva, Fernando V. Gonçalves da. 1955. Contabilidade Industrial (Industrial accounting). Lisboa: Centro Gráfico de Famalicão de José Casimiro da Silva. Silva, Fernando V. Gonçalves da. 1984. “Bosquejo duma sucinta História da Contabilidade em Portugal” (Outline of a brief accounting history in Portugal). Revista de Contabilidade e Comércio XLVII/XLVIII(187/192). Tinen, J. V. 1932–1940. Advanced accounting (6th vol.). In Complete accounting course (7 vols.), ed. D. Himmelblau. New York: The Ronald Press Company. Tua Pereda, Jorge. 1988. “Evolución del concepto de Contabilidad a través de sus defi niciones” (Evolution of accounting concept seen from its defi nitions). In XXV Años de Contabilidad Universitaria en España, homenaje al Dr. D. Mario Pifarré Riera (25 years of university accounting. Homage to Dr. Mario Pifarré Riera). Madrid: Ministerio de Hacienda, Instituto de Planifi cación Contable. Vidal, Caetano Léglise da Cruz. 1951, June. “A Ciência Económica das Explorações e o Balanço Dinâmico” (The accounting science of researches and the dynamic balance sheet). Revista de contabilidade e comercio (Porto) 74. Vidal, Caetano Léglise da Cruz. 1956. “Ensaio sobre um Planeamento Contabilístico Racional” (Essay on a rational accounting approach). Lisboa: Author. Wirth, María Cristina, and Richard Mattessich. 2006, June. “Accounting books of Argentina: Publications, research and institutional background.” De Computis 4. Available at http://www.decomputis.org. Wöhe, Günter. 1974. Betriebswirtschaftslehre, Entwicklungstendenzen der Gegenwart (Business economics. Evolution trends at present). In Handwörterbuch der Betriebswirtschaft (Dictionary of business economics), ed. E. Grochla et al. Stuttgart: C.E. Poeschel Verlag.

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Zappa, Gino. 1927. Tendenze nuove negli studi di ragioneria (New trends in the study of accounting). Milano: Giuff rè. Zappa, Gino. 1937. Il reddito di impres: scritture doppie, conti e bilanci di aziende commerciali (Entreprise income. Double entry, accounts and balance sheet of commercial fi rms). Milano: Giuff rè. Zappa, Gino. 1956–1957. Le Produzioni nell’Economia delle Imprese (Production in the business economics) (Vols. I, II, and III). Milano: Giuffrè. Zappa, Gino. 1962. L’ Economia delle Aziende di Consumo (Economics of the consumption aziende). Milano: Giuffrè.

18 Accounting and Business Economics Understanding the Past to Face the Present and Prepare the Future Yuri Biondi

INTRODUCTION In recent decades, the accounting world has been shaped by major shifts involving international accounting convergence coupled with fi nancial globalization. This situation has been fostering an ‘accounting revolution’ in fundamental accounting principles (Beaver 1981). Received approaches have been progressively disbanded by a new disciplinary ‘paradigm’ (in Kuhn’s words) based on empirical analysis on accounting reports and their relationship with fi nancial markets. Accordingly, the metrical connection of accounting figures to share market prices has started to dictate the meaning and role of accounting for business and society, while the traditional focus on accountability of the enterprise entity to its stakeholders (including shareholders) was progressively neglected and the public interest displaced. Today, amid ongoing economic and fi nancial crises, accounting model and regulation drawing on this new paradigm are under strict scrutiny. Some cast doubts on its capacity to respond to critical issues underlying the working of accounting systems in economy and fi nance. Time has come to rediscover past traditions of thought to better situate and grasp the current state of accounting affairs, including the empirical accounting revolution. From this perspective, national traditions of thought and past experiences investigated in this volume can provide insightful lessons for better understanding the role of accounting for fi nance, the economy, and society at large. This volume was prepared by a host of leading scholars in accounting and accounting history, while other leading scholars—who do not appear in the Contents—reviewed some chapters on an anonymous basis: Lino Cinquini (Scuola Superiore Sant’Anna, Italy), Jean-Guy Degos (Bordeaux U, France), Giuseppe Galassi (Parma U, Italy), Enrico Gonnella (Pisa U, Italy), Barbara Merino (North Texas U, United States), Yannick Lemarchand (Nantes U, France), Stephanie Moussalli (Rhodes College, United States), and Gary Previts (Case Western Reserve U, United States). It aims to provide a synthetic, comprehensive insight into accounting evolution and thought of the twentieth century throughout

486 Yuri Biondi the world. It adopts a transnational perspective that is useful to better capture the dissemination and mutual influence among accounting ideas, experiences, and standards. The volume is organized in three parts: Part I introduces the volume and contains a general introduction by R. Mattessich. He draws on his longstanding research work in transnational accounting theory and history to offer an overall view and summary of his research on national traditions of thought and their leading scholars, providing a broad framework to situate the national case studies collected in Part II. Part III further comprises complementary contributions that complete and integrate these case studies on national traditions of theory and practice of accounting and business economics. These complementary contributions cover comparative analyses, provide in-depth analyses of main authors and specific issues, and tentatively drive further implications for accounting and business economics today. The whole volume provides inquiries and perspectives on accounting theory and practice in several national traditions of accounting and business economics. In particular, during the fi rst half of the twentieth century, Germany (Busse von Colbe and Fülbier; Hommel and Schmitz) and Italy (Canziani and Viganò) developed leading traditions that have spread and influenced the respective evolution of several European countries such as the Netherlands (Camfferman), Finland (Näsi and Näsi), Sweden (Jönsson), Denmark (Loft, Mouritsen, and Rohde), and Spain (Montesinos). All of these traditions prove then to belong to an emergent scientific paradigm that focuses on understanding and managing business and non-business organizations: Any type of economic entity organized as a permanent institution is subsumed as a socioeconomic object of research and is supposed to generate specific economic processes that accounting systems deal with. In the case of business entities, this process is expected to deliver a specific income that the fi rm is accountable for (Zambon and Zan). Generally speaking, the development of this past accounting paradigm draws on the connection among accounting, economics, and law (Biondi). Its influence goes beyond continental Europe to reach Japan (Kuroda and Okada), the United States (Biondi, Markarian), and Spanish-speaking countries (Esteve) to some extent. Other countries, especially France (Richard) and the United Kingdom (Napier), had nevertheless maintained a somewhat independent path of development. Concerning the United Kingdom, the connection between accounting and business economics did not properly emerge and was tentatively explored only by some applied economists, including a young Ronald Coase (1990) who was writing his later-rediscovered and praised article “The Nature of the Firm” (published in 1937). Concerning France, after path-breaking, influential developments in accounting regulation during the seventeenth century (J. Savary), its tradition appears to follow a somewhat amazing pattern that relates accounting to national accounts and national economic concerns.

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SOME PERSPECTIVES FOR THE FUTURE OF ACCOUNTING It is always difficult and surely too soon to drive clear-cut conclusions and implications from all these historical investigations. Nevertheless, some insights emerge and can be stressed to give a flavor of research achievements by paying attention to the past and invite readers to go throughout and beyond this volume. Historically speaking, several purposes of accounting emerge long before the information provision for fi nancial markets. Generally speaking, there has been the need to track transactions over time, the need to provide evidence and proof in business affairs; the representation of business incomes and capitals to the business fi rm, and their allocation among employees, shareholders and creditors; and taxation. During the nineteenth century, accounting theories had narrowly focused on classifications of single assets, liabilities, and equities. Between the end of the nineteenth century and the beginning of the twentieth century, however, a novel accounting paradigm emerged and spread throughout the world. The defi nition and representation of economic performance and position of business and non-business entities was central to the development of this paradigm. In our opinion, the fi rst insight from this past paradigm is the primary focus of accounting on the enterprise entity (and non-business entity as well, but we focus on the business entity hereafter for the sake of simplicity). The contemporaneous accounting paradigm (labeled as ‘fair value accounting’ hereafter) draws on modern fi nancial economic theory that provides a market basis of accounting, claiming for the centrality of fi nancial markets. On the contrary, the past paradigm was centered on the legal-economic congeries of the business fi rm. To those past scholars, holding shares—acquired for a defi nite consideration or a transacted price—relates to problematic features of a legal and an economic system involving flows and accruals that requires an accounting system—not a market price system—in order to deal with them. Among others, critiques of the past paradigm concern its special view of the business fi rm. That paradigm is based on classic accounting principles of enterprise entity, matching, and accomplishment (or prudence). From the classic perspective, the accounting view deals with the fi rm as an entity and with its events, resources, combinations, and transactions confronted to space, time, ignorance, interaction, and hazard. In particular, the entity generates a specific economic process fraught with asymmetries, complementarities, uncertainties, bounded knowledge, potential and actual mistakes, and misorganization. All together, these features inscribe the fi rm’s business activity into a special process of becoming, and accounting must represent and cope with this entity’s process. One the one hand, the Continental European approach has focused on theoretical underpinnings of accounting and business economics, developing two main families of accounting models: a static accounting model that adopts a stock method of accounting (assets-liabilities approach), and

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a dynamic accounting model that adopts a flow method of accounting (revenues-expenses approach). Behind featuring differences and distinctive views, both approaches have focused on making the enterprise entity accountable and shared some preference for historical cost basis when reliability and prudence are taken into consideration. Both approaches purport then to track financial and economic flows and funds to provide a relevant and reliable representation of the enterprise entity over time. On the other hand, the U.S. approach has paid attention to governance and accountability, inquiring into the relationship between the enterprise entity and its stakeholders (including shareholders). Two main approaches emerged: The proprietary theory identifies a special connection between shareholders and the entity, which bears a special responsibility to deliver residual income to them as rent on their claims on joint proprietorship. In contrast, the entity theory recognizes the separation among management, ownership, and control. In the context of business entities, which bundle together a number of corporations and other legal arrangements, not only ownership and control are separate, but also ownership and management. From this business enterprise perspective, the entity acquires functional autonomy from shareholding and should be accounted for as an entity in itself, for protecting shareholders’ interest as well as the interest of all the other stakeholders and the broader community. During two thirds of the twentieth century, both dynamic and entity approaches dominated accounting theory and regulation. However, the emergence of the new accounting paradigm since the 1960s brings some flavor and reminiscence of static and proprietary approaches. In fact, the new paradigm adopts a distinctive fi nancial market basis of accounting that has been largely disregarded by past accounting scholars and regulators. This latter basis confounds the accounting system with and reduces it to a fi nancial market price system, losing the fundamental connection with the institutional architecture that facilitates both business enterprise control and the working of share exchange over time. Fair value accounting is then expected to adopt a financial logic of investment. Accounting systems are asked to provide estimates of the (potential) profitability of the business fi rm based on discounting the future for ‘time value of money.’ Accountants should act as actuaries. Their calculations are nowadays expected to estimate the spot value of the business as a portfolio of marketable assets and liabilities. This fair value approach loses its historical background in the traditional logic of control on the business enterprise as such. Traditionally, accounting was expected to provide a reliable confi rmation of entity (actual) performance through time, as long as transactions are completed and the potential becomes actual. From this latter perspective, accounting relates to a specific institutional framework and has a distinctive functional role, complementary to market pricing and its value estimation. In particular, accounting ‘information’ complements and does not follow market information (Biondi 2011).

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According to Ijiri (2005), the intricacies of forecasting enter the accounting field in a huge way under fair value accounting, and the accounting system is being required to recognize business profits earlier and earlier. Fair value accounting strives to offer an instantaneous valuation of the business fi rm as a collection of marketable assets and liabilities in line with the valuation offered by the share market. The accounting system is supposed to mimic the price system, even though the ongoing economy of the fi rm performs profits and results only as a whole enterprise entity and through historical time. Fair value accounting appears to be at odds with the traditional accounting principle of the fi rm as an enterprise entity and a going concern, implying (and controlling for) its sustainable continuity over time; a principle that has been universally applied in all countries and jurisdictions (Hoarau 2006). Historically speaking, European and American scholars have co-developed the past accounting paradigm by considering the legal-economic system of the firm as an enterprise entity located in time and space: a unique environment fundamentally different from the market. In particular, contrary to financial logic of investing, accounting keeps the costs stream and the revenues stream distinct in representing the firm, thus avoiding the appeal to prophetical figures of unrealized future benefits and the impact of unreliable discount rates on accounting figures. Accordingly, the traditional accounting logic of control does not try to estimate the spot value of the business (be it market or present value), but focuses on actual streams to provide a reliable and verifiable representation of costs invested and revenues generated over time. Drawing on historical insights and lessons, today fair value is not accounting. Fair value appears to appeal to some features of past static and proprietary accounting approaches, but it replaces their legal-economic perspective with a misplaced faith in efficient and complete fi nancial markets. Actually, fair value has drawn on a connection between accounting and economics, but taking the wrong economics as reference (Shubik 1993 and 2011). And the further connection with regulation and the law was lost in that transformation. The case of intangibles and goodwill are significant of the distinctive perspectives of accounting under examination. Take the example of the fi nancing of core research and development expenditures. According to the fi nancial logic (fair value), these expenditures do not constitute separable assets that are disposable and valuable through their current value. Therefore, the underlying intangible resource is not a business asset, fi nancially speaking. However, traditional accounting logic does dissent. Useful resources, be they fi nancial or productive, may never be disposed without losing all the synergies resulting from their combination and the conditional competitive advantage that fosters business income generation. The underlying intangible resources may be represented as intangible assets by capitalizing and amortizing related expenditures over time (Ijiri 1975).

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The case of goodwill generated through business combinations is also significant. According to the fi nancial logic (fair value), goodwill is generated by the difference between the transfer price and revaluated net assets. In this way, the transfer price is assumed as the best evidence of the value of the acquired business, and goodwill becomes an indefi nitely durable asset, only submitted to impairment tests for depreciation. However, the accounting logic does dissent. Transfer price occurred under peculiar, idiosyncratic conditions that should be checked against accounting evidence. As a matter of history, goodwill was distrusted (Ding, Richard, and Stolowy 2008) and quickly written off (or at least amortized over time), while the pooling method of accounting was allowed to treat all cases where no arm’s length transaction occurred in the business combination. Without paying attention to the legal-economic congeries of the business fi rm and its specific economic environment, fair value bears the huge risk to advertise self-standing declarations of fi nancial value by management, instead of providing trustworthy summaries of fi nancial performance and position generated over time. This does not imply that traditional accounting is irrelevant to analysts and investors. Quite the contrary, drawing on fundamental fi nancial analysis, they may use reliable accounting information to obtain cumulative milestones that enable them to assess enduring business performance over time. This disclosure based on traditional accounting logic of control may help investors recall that they have factually invested in a business fi rm, not only in their own shares. This common and public recall may occur regularly and hopefully before evergreen bankruptcies, scandals, and shortcomings recalled them harshly and too late. From a historically grounded perspective, at least two points are fundamental to reconcile accounting and fi nance: a comprehensive view of accounting as an epistemic, organizational, and institutional device; and the recognition of its special role in the dynamics of share exchange as a common knowledge of reference available for subjective valuations and decision making (Sunder 2002). First of all, the relationship between accounting and the share market should not preclude accounting’s public role as a mode of organizing, regulating, and representing the activities of enterprise entities through time. The accounting system has performed and should go on performing multiple functions in the economy and society: not only the disclosure of accounting information (including for the share market), but also the construction of operational costs and managerial indicators of performance, and the regulation of dividends, business income taxes, fi nancial covenants, prudential ratios, and other institutional matters. Here, accounting is understood as a common language (and knowledge) of business (epistemic role), a managerial instrument (organizational role), and a fundamental mode of governance and regulation (institutional role). All together, these roles of accounting embed the working of accounting systems at the intersection between socioeconomic and fi nancial systems.

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Following this institutional perspective, accounting logic may be expanded according to its own logic. At least three suggestions emerge from the traditional view (Biondi 2011). From the assets side, accounting systems may capitalize invested expenditures on research and development as depreciable assets, according to conventional paths disclosed by or even shared among fi rms (Biondi and Reberioux 2012; Lev and Zarowin 1999). Accounting cannot estimate intangibles’ value (nor can the market), but it can report on actual investments that the management has committed to them. From the liabilities side, accounting systems may recognize the cost of shareholders’ equity (Anthony 1983), as fi nancial economic theory does with the ‘time value of money.’ Shareholders’ equity constitutes a special source of fi nancing for the enterprise entity (Schumpeter 1912, including fi rst English translation of neglected pages in Biondi 2008). It is then a special liability, and its cost is based on the actual provision of funds over time. Concerning business income determination, accounting systems may distinguish unrealized capital gains and losses from operational incomes and incurred costs in order to avoid standardizing ‘Ponzi-schemes’ among different stakeholders over time (Biondi 2012). In conclusion, let us summarize the main argument driven by reading this volume. In our opinion, the enterprise entity view that was co-developed by European and American scholars is still valuable and denotes the pure logic of accounting for business enterprise control, investors’ protection, and social control of business. The enterprise entity is thereby clearly distinct from the net worth of its shareholders and from changes of value on external markets. Accounting works then as a mode of representing, organizing, and regulating the special economic and monetary process of the business fi rm. Supporters of fair value neglect this traditional accounting logic because of their peculiar financial economic perspective based on a misleading focus on financial markets. The financial crisis (together with evergreen scandals and shortcomings) reminds us that the purpose and role of accounting is not only to offer signals for share trading, but also, and above all, to recognize actual streams and obligations of business, through accounting conventions that follow their own logic of control and are capable of disclosing reliable common knowledge on the special economy of the business firm over time.

REFERENCES Anthony, R. N. 1983. Tell It Like It Was: A Conceptual Framework for Financial Accounting. Homewood, IL: Richard D. Irwin Inc. Beaver, William H. 1981. Financial Reporting: An Accounting Revolution. New York: Prentice-Hall. Biondi, Y. 2008. “Schumpeter’s Economic Theory and the Dynamic Accounting View of the Firm: Neglected Pages from the Theory of Economic Development.” Economy and Society 37(4): 525–547.

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Biondi, Y. 2011. “The Pure Logic of Accounting: A Critique of the Fair Value Revolution.” Accounting, Economics, and Law: A Convivium 1 (1). DOI: http:// dx.doi.org/10.2202/2152-2820.1018 Biondi, Y. 2012 “What Do Shareholders Do? Accounting, Ownership and the Theory of the Firm: Implications for Corporate Governance and Reporting.” Accounting, Economics, and Law: A Convivium 2 (2). DOI: http://dx.doi. org/10.1515/2152-2820.1068 Biondi, Y., Canziani, A., and Kirat, T. 2007. The Firm as an Entity: Implications for Economics, Accounting, and Law. New York and London: Routledge. Biondi, Y. and A. Reberioux (2012), “The governance of intangibles: Rethinking fi nancial reporting and the board of directors”, Accounting Forum, available online since 26 April 2012. DOI: http://dx.doi.org/10.1016/j. accfor.2012.03.003 Coase, R. H. 1990. “Accounting and the Theory of the Firm.” In The Firm as an Entity: Implications for Economics, Accounting, and Law, eds. Y. Biondi, A. Canziani, and T. Kirat. New York and London: Routledge, chapter 6: 82–91. Ding, Yuan, Richard, Jacques, and Stolowy, Hervé. 2008. “Towards an Understanding of the Phases of Goodwill Accounting in Four Western Capitalist Countries: From Stakeholder Model to Shareholder Model.” Accounting, Organizations and Society 33(7–8): 718–755. Hoarau, C. 2006. “Convergence IFRS-US Gaap: vers une hybridation des modes de normalisation?” [Accounting convergence between IFRS and US Gaap: towards a hybridation of modes of standardization?]. Revue de Sciences de Gestion 54: 39–51. Ijiri, Y. 1975. Theory of Accounting Measurement: Studies in Accounting Research n°10. Sarasota, FL: American Accounting Association. Ijiri, Y. 2005. “U.S. Accounting Standards and Their Environment: A Dualistic Study of Their 75-Years of Transition.” Journal of Accounting and Public Policy 24(2): 255–279. Lev, B., and Zarowin, P. 1999. “The Boundaries of Financial Reporting and How to Extend Them.” Journal of Accounting Research 37(2): 353–385. Schumpeter, J. A. 1912. Theorie der wirtschaftlichen Entwicklung [The theory of economic development]. Leipzig: Duncker&Humblot. Shubik, M. (2011), “A Note on Accounting and Economic Theory: Past, Present, and Future,” Accounting, Economics and Law: A Convivium, 1 (1), DOI: http://dx.doi.org/10.2202/2152-2820.1012 Shubik, M. 1993, “Accounting and its relationship to general equilibrium theory,” Chapter 5 in Y. Biondi et al. (2007), The Firm as an Entity, quoted: pp. 73-81. Sunder, S. 2002. “Knowing What Others Know: Common Knowledge, Accounting, and Capital Markets.” Accounting Horizons 16(4): 305–318.

Contributors

Yuri Biondi is tenured research fellow of the CNRS, appointed to the ESCP Europe in Paris. Graduate of the Bocconi University of Milan, of the University of Lyon, of the University of Brescia and of the University of Paris Sorbonne, he is editor in chief of the Journal “Accounting, Economics and Law—A Convivium”, editor in chief of the collective work “The Firm as an Entity: Implications for Economics, Accounting and Law” (Routledge, 2007), co-editor of “The Socio-Economics of Accounting” (Socio-Economic Review, special issue, October 2007); he is the convener of the SASE research network devoted to “Accounting Economics and Law” and chairman of the Financial Accounting Standards Committee (FASC) of the American Accounting Association (AAA). His research interests include economic theory, accounting and fi nancial regulation, as well as the relations between economy, accounting, and finance in business and non-business entities. (http://yuri.biondi.free.fr) Walther Busse von Colbe is accounting professor emeritus at the Ruhr-University Bochum where he has worked since the 1960s. His research covers essential parts of fi nancial accounting and business economic theory, especially aspects of fi nance and fi rm valuation, consolidated fi nancial statements and international accounting. He is author of a huge variety of books, book chapters and articles in national and international journals—many of them well-known and widespread in academia and accounting practice. Kees Camfferman is professor of financial accounting at VU University (Vrije Universiteit), Amsterdam, the Netherlands. His research interests include the history of fi nancial reporting, accounting standard setting, and the accountancy profession. Arnaldo Canziani, Professor of Economia Aziendale at the Faculty of Law, Brescia University (Italy). Laurea Degree in Economia Aziendale, Bocconi University of Milan (1973), Assistant Professor (1973-1977) and Lecturer (1977-90), the same. Lecturer (1978-1980), Associate Professor

494 Contributors (1980-1987), University of Venice. Promoted full professor by national selection (1986). Professor at the University of Brescia, 1987-, where he teaches Economia aziendale at the Faculty of Law. Visiting Professor, 1st China-UE MBA Program (Beijing, Fall 1986); Catholic University of the Sacred Heart (Milan, 1994-95; Brescia, 2001-2004). Visiting Lecturer at some twenty Italian Universities 1986-2010 as well as some ten foreign ones, from Hitotsubashi U. (Tokio, 1990) to Tatischev U. (Togliatty, 2012). He is author of some 170 publications in the fields of the history of economic thought, economics including economia aziendale, accounting, among them i) The Emerging of the Economics of Firms in continental Europe during the 20’s: Economia Aziendale and Betriebswirtschaftslehre as methodological Revolutions, in S. TODD LOWRY (Ed.), Perspectives in the History of Economic Thought, vol. VII, London, Elgar for the History of Economics Society, 1992, pp. 168-191 (with P. RONDO BROVETTO); ii) Gino Zappa, in J.R. EDWARDS (Ed.), Twentieth Century Accounting Thinkers, Andover, Routledge, 1994, cap. VIII, pp. 142165; Y.BIONDI, A. CANZIANI, T. KYRAT (Eds.), The firm as an entity and its economy, London, Routledge, 2007.” Esteban Hernández-Esteve was born in Barcelona (Spain) in 1931. Master of Science in Commerce, Escuela Superior de Altos Estudios Mercantiles of Barcelona, 1954. Doctor of Science in Economics, University of Cologne (Germany) in the speciality of Economic History, 1964. He made a professional career as Economist at the Research Department of the Bank of Spain, being promoted to Deputy Director General of the Bank in 1984. He retired in 2001. Collaterally he performed research activities on fi nancial and accounting history. In this respect, The Academy of Accounting Historians awarded him the Hourglass Award in 1984 and 1995. In 2009 MUFAD, the Turkish Association of Accounting and Finance Academicians granted him one of the Lifetime Achievement Honor awarded this year for the fi rst time. He was elected Economist of the Year in 1994 by the Central Spanish Institute of Business Postgraduates. In 2002 the Accounting, Business and Financial History published a special issue as a Festschrift devoted to him. He is life member of the Academy of Accounting Historians and of the Società Italiana di Storia della Ragioneria. He is elected member of the Spanish Royal Academy of Economic and Financial Sciences and of the Royal Academy of Spanish Doctors. In 2002 the Autonomous University of Madrid designated him Honorary Professor. He has written eleven books and more than 120 doctrinal papers on economic items, most of them on fi nancial and accounting history. Rolf U. Fülbier is full professor of international accounting at the University of Bayreuth. His fields of research range from application-oriented accounting problems to methodological and historical perspectives on

Contributors

495

accounting and accounting research. Rolf Uwe Fülbier is editorial board member of the EAA publication outlet “Accounting in Europe” and author of a variety of books, book sections and articles in national and international research and transfer journals. Michael Hommel, born in 1960, was educated in Rotenburg/Fulda and Frankfurt am Main, Germany, where he studied Public Finance and Business Administration (1979–1987). Michael Hommel became a research assistant and later on an assistant professor for the Chair of trust relationships at the Goethe University Frankfurt, Germany. He received a PhD in 1991 and completed his habilitation thesis in 1996. Michael Hommel held the Chair of Accounting and Auditing at the Otto-vonGuericke University Magdeburg, Germany, from 1997 to 2002. Since 2002 he holds the Chair of Auditing and Accounting at the Goethe University Frankfurt. Michael Hommel is author of many well renowned textbooks and articles. Sten Jönsson is professor emeritus in business administration, (esp. Scandinavian Management), at the School of Business, Economics and Law at Gothenburg University. His research has covered topics like organizational crises, municipal budgets, local operational management, regulation of good practices in accounting, integration of acquisitions across borders, and product development. He is currently leading a project on bank management in Sweden. Masatoshi Kuroda was born in 1936 in Osaka, Japan. Studies of Accounting at the School of Business Administration, Kobe University/Japan. Professor for International Accounting at the (Graduate) School of Business Administration, Kobe University for the period of 1981—2000. Writer of the chapter: “Japan, Group Accounts” in: Transnational Accounting, edited by Ordelheide, Dieter & KPMG“ Vol. 2, 2001, Palgrave, pp. 1807—1907. Anne Loft is professor of accounting at Lund University, Sweden. Her PhD, from the London Business School, dealt with the history of cost accounting in the UK; for this work she received the Academy of Accounting Historians 1990 Hourglass Award. Currently she is involved in researching the history of the International Federation of Accountants, 1977–2010. Her other activities have included being a founder editor of the European Accounting Review (1992–2000), and she is currently one of the editors of the International Journal of Auditing, and vice-president (Education) of the International Association for Accounting, Education and Research. Garen Markarian is an international scholar specializing in Corporate Finance and Governance. He is currently based in IE Business School,

496

Contributors

Madrid, and has also taught at HEC (Paris), Bocconi, (Milan), University of Padova (Padova), Concordia (Montreal), Case Western Reserve (Cleveland), and Rice (Houston). Professor Markarian has written extensively on governance mechanisms, executive compensation, the banking crisis, and fi nancial statements and valuation. His numerous publications have received awards both from the American Finance Association and the American Accounting Association, and mentioned in the Financial Times and CFO magazine. As of January 2008, Dr. Markarian is a consultant for Standard & Poor’s “Society of Industry Leaders,” and previously held the position of fi rst economic officer for western Asia at the United Nations. Richard Mattessich was born in 1922 in Trieste and grew up in Vienna, graduating with a Dr.rer.pol. in 1945. Academic positions: fellow of the Austrian Institute of Economic Research (1945–47); lecturer at the Rosenberg College (St. Gallen, 1947–52); Department Head of Commerce at Mt. Allison University (Sackville, NB. 1953–59); Associate Professor, University of California, Berkeley (1959–67); Professor of the Ruhr University, Bochum (Germany, 1966–67); Professor, University of British Columbia (Vancouver, 1967–87; since 1987 Prof. emeritus); Professor, Technische Universität. Vienna (1976–78—simultaneous with his position at UBC); also various visiting professorships in Austria, Germany, Italy, Japan, New Zealand, Spain and Switzerland. Apart from numerous papers, some 28 books bear his name (as author, co-author, editor, and co-editor). He received four honorary doctoral degrees and numerous other honors (including memberships in two national academies, and research awards from Canadian and American accounting associations). Mattessich has been profi led in such works as: Twentieth Century Accounting Thinkers (ed. by J.R. Edwards, 1994), A History of Accounting—An International Encyclopedia (ed. by M. Chatfield and R. Vangermeersch, 1996), Les Grands Auteurs de la Comptabilité (ed. by B. Colasse, 2005). Mattessich’s major books are: Accounting and analytical methods (1964, 1970, and translations in German, Japanese, and Spanish), Simulation of the firm through a budget computer program (1964, xxx), Instrumental reasoning and systems methodology (1978, 1980), Critique of accounting (1995), Foundation research in accounting: professional memoirs and beyond (1995), The beginnings of accounting (2000), Two hundred years of accounting research (2008, 2011) and in preparation: Reality in accounting, economics and other social sciences. Vicente Montesinos is a Professor of Accounting and Finance at the University of Valencia (Spain) and a Registered Chartered Accountant. He has been Dean of the Faculty of Economics of his University and President of the Regional Audit Institution. From 2000 to 2004 he became President

Contributors

497

of the Spanish Academic Accounting Association. He has developed a regular activity as a consultant and is actively involved in international projects, especially connected with modernization of public administration and governmental accounting reforms. In 1999–2000 he headed the group of experts that presented the study designing the basic guidelines for the reform of the budgetary and accounting system of the European Commission, now implemented. At present he is a member of the Accounting Standards Committee of the European Commission. He has published articles and books in the fields of Accounting History and Methodology, Financial and Governmental Accounting. Jan Mouritsen is professor of Management Control at Copenhagen Business School. His interests concern the roles of calculation in organizations and society. His research includes intellectual capital, strategic performance measurement systems, information technology and accounting, inter-organisational accounting and accounting and production. He is currently on 22 academic boards in areas of accounting, operations management, IT and knowledge management, and management. Christopher Napier is Professor of Accounting at Royal Holloway, University of London. After qualifying as a chartered accountant, he taught at the London School of Economics and the University of Southampton (from where he received his Ph.D.) before taking up his present position. He served as a member of the Council of the Institute of Chartered Accountants in England and Wales from 1997 to 2000. Juha Näsi (1949—2008) got his PhD degree from the University of Tampere in 1979. He served the Finnish higher education as Lecturer, Associate Professor and Professor in Management and Strategy from 1971 to 2008. He had tenure professorships at the University of Tampere, University of Jyväskylä and Tampere University of Technology. His last position was at the University of Tampere where he worked as Professor of Management and Head of the Business School in 2006–2008. Juha Näsi was very productive in research and doctoral education and active in creating international research networks and collaborations both at personal and institutional levels. Salme Näsi got her PhD degree from the University of Tampere in 1990. Since 1974 she has worked in various teacher’s and researcher’s positions in accounting at the University of Tampere, University of Oulu, University of Jyväskylä and University of Tampere again from 2002. Today she is Professor of Accounting and the Vice Dean of the School of Management at the University of Tampere. She is a member of several academic, scientific and professional organizations. She chaired the EAA2009 congress in Tampere, Finland.

498 Contributors Ellie Okada, Ph.D. in Business Administration (Kobe University), is an innovative social scientist whose interest is in researching strategic management and planning (management of economic discipline), science based intellectual property, and policy framework and outcomes. Currently based in Boston, Massachusetts, Okada serves as President and Chief Executive Officer at Boston Cancer Policy Institute, Inc, a research institution she founded to conduct policy research related to cancer. Prior to the career, Okada served as a Professor for strategic management of innovation competencies (with tenure), Associate Professor for international accounting (with tenure), at Yokohama National University’s School of Social Sciences, Japan, for twenty two years. Her recent positions include serving as a Visiting Scholar at Columbia Business School and an Academic Associate at the Weatherhead Center for International Affairs at Harvard University, where she researched mechanism on how pharmaceutical multinationals transform their capabilities focusing on intellectual property. After a longtime residence in Tokyo, Japan, Ellie Okada is now permanently living in Massachusetts. Jacques Richard is professor at the University of Paris Dauphine, specialist of international accounting and environmental accounting. He has published more than hundred articles in American, English, French, German, Japanese and Russian journals, notably AOS,EAR,CPA, European Accounting; He is author or co-author of more than thirty books. Carsten Rohde is professor of Management Accounting at Copenhagen Business School. His interest concerns both conventional as well as strategic cost and management accounting concepts. His research includes accounting information systems, budgeting and beyond, cost accounting, management control systems, profitability measurement and transfer pricing. He is member of European Accounting Associations board as well as editorial boards of international conferences and journals. He works closely with companies in practice, organizing seminars and collaborating on research projects. Stefanie Schmitz, born in 1981, was educated in Frankfurt am Main, Germany, where she studied Business Administration (2001–2006). Afterwards, Stefanie Schmitz became a PhD student and research assistant at the Chair of Auditing and Accounting, Goethe University Frankfurt. In 2011, she held a temporary lectureship at the Hochschule Harz, University of Applied Science, Germany, and received her PhD. Since 2012 she works for the Court of Auditors of the State of Hessen. Enrico Viganó was born in Naples in 1941 where he now lives and works. After obtaining a fi rst class honours degree in economics in 1964 he went on to become a full professor of Accounting at the University of Naples

Contributors

499

in 1975. At present within the Department of Economia Aziendale of the University of Naples he is full professor of Economia Aziendale, editor of a series of books on accounting and business economics, responsible for the International Accounting Section and co-ordinator of a master’s degree in European Accounting together with several European universities. He has written various essays and works on accounting and business economics also in English. He has spoken at many national and international conferences. Stefano Zambon is Chair of Accounting and Business Economics at the University of Ferrara, Italy, and Director of the “CFO Master Programme” at the University of Ferrara. Visiting scholar at London Business School; ESCP, HEC, and CNAM in Paris; the Universities of Reading, Melbourne, Boston, Metz, Canterbury (NZ), Waseda (Tokyo), Bolzano/ Bozen, and the Stern School of Business (NYU). He is a vice-president (conferences) of the International Association for Accounting Education and Research (IAAER). Member of the editorial boards of various international scientific journals, he has published extensively in the areas of management and reporting of intangibles, international fi nancial reporting, and accounting history. He has been an invited key-note speaker at OECD, United Nations, European Parliament, European Commission, and French, Chinese and Japanese Governments’ events on intangibles. Founding member of the global network “World Intellectual Capital Initiative” (WICI) as well as of the network “WICI Europe” of which he is also Chairman. Luca Zan is Professor of Management and President of CIOCA (Graduate degree in Innovation and Organization of Culture and the Arts), University of Bologna. He also teaches “International Arts Management and Cultural Heritage” within the Master of Arts Management Program, Carnegie Mellon University, and at CAFA, Beijing. Research interests deal with two main areas: (i) Management and accounting history, both in terms of theories, and practices (especially in pre-industrial settings, such the Venice Arsenal 16th century); more recently, this interest is applied within the debate about the East/West divergence. (ii) Management of heritage and arts organizations, with a focus on field work, the evolution of public sector entities, and international comparison; a particular attention has been devoted to transformation processes taking place in China and Turkey.

Index

Note: Page numbers ending in “f” refer to figures. Page numbers ending in “t” refer to tables.

A Accountant, The, 274, 287, 289 Accountants’ handbook, 469–470 Accounting, 104 accounting: academics of, 1–3; branches of, 68; British accounting, 15–21, 271–303; Danish accounting, 201–223; English-language accounting, 15–21, 304–326; Finnish accounting, 152–183; French accounting, 247–270; future of, 483–490; German accounting, 3–10, 20–21, 37–66, 329–360; German-American connection, 361–384; Italian accounting, 10–15, 20–21, 67–99, 420–440; Japanese accounting, 100–128; Netherlands accounting, 129–151; Portuguese accounting, 441–482; Spanish accounting, 224–246, 441–482; Swedish accounting, 184–200; understanding past of, 483–490; United Kingdom accounting, 271–303; United States accounting, 304–326 Accounting, Organizations and Society, 295 Accounting and Business Research, 17 Accounting Principles Board (APB), 309 accounting relativism, 385, 387–388, 402–405 Accounting Research, 17, 290, 292 Accounting Review, The, 316, 317, 362, 363, 364

Accounting theory and practice, 468 Accounting Theory: With Special Reference to the Corporate Enterprise, 17 accounts, chart of, 3–7, 21, 208 Accounts, Their Construction and Interpretation, 17 accounts, theory of, 4–5, 11, 15, 21, 442–444 Aced y Bartrina, Francisco, 446 Activity Budgeting, 214 activity-based costing, 50, 172, 196 actual costs variance, 20 Advanced Accounting, 278 Alatriste, Roberto Casas, 470 Alatriste, Sealtiel, Jr., 470 Alfieri, Vittorio, 81 allocation account, 263 Altschuler, Harry, 469 Alvarez, Lizcano, 233 Amaduzzi, Aldo, 85–86, 88, 90 American Accounting Association (AAA), 306, 310–311, 321 American Association of Public Accountants (AAPA), 305 American Association of University Instructors in Accounting (AAUIA), 306 American Economic Association, 363 American Economic Review, 378 American Institute of Accountants (AICPA), 16, 305–312, 315, 317, 321 American Society of Certified Public Accountants (ASCPA), 306 Amodeo, Domenico, 14, 86, 88

502 Index Andersen, Arthur, 309 Antoni, T., 89 Apostila de Teoria da Contabilidade para o Centro Universitário Monte Serrat, 462 Ardemani, E., 79, 89, 390–394, 399, 405, 408–409 Arévalo, Alberto, 461, 472 Argentine accounting, 460–462 Argenziano, R., 89 Artto, E., 169, 172 Ashley, W. J., 118, 277–280, 284–285 Auditing, 278 auditing profession, 7, 43, 186–189, 203, 434 Auditing Standards, 108 authoritative principles, 347–349

B Bacon, Frances, 73 balance sheet theories: dynamic balance sheet theories, 21, 141, 253–254, 443, 451–454, 460–462; organic balance sheet theories, 119; static balance sheet theories, 254, 443, 451 Ballesteros Marín- Baldo, Luis, 447 banking field, 82–84 banking reform, 82 Barroso, Fernando Díez, 470 Basic business fi nance, 470 Baumol, W. J., 90 Baxter, William, 17, 289, 291, 293 Bedrijfseconomie, 3, 129 Behavioral Theory of the Firm, 192 Beisse, Heinrich, 49 Bell, P. W., 2, 4, 6, 8–9, 232 Benedetti, Ugo, 453 Bergamin, M., 89 Berle, A. A., Jr., 363, 368–369, 378–379 Besta, Fabio, 10, 12, 20, 67–70, 73, 81, 225, 231, 422, 428, 442, 447, 453, 455, 459, 461, 463, 471–472 Bestände Bilanz, 10 Betriebswirtschaftslehre, 1, 3, 7, 10, 13, 40, 70–73, 100, 121–122, 462 Bewegungs bilanz, 10 Bianchi, T., 89 Bilanztheorie, 6–10, 20–21, 119, 330 Biondi, Yuri, 177, 361, 483, 491 Blough, Carmen, 18, 307

Bogart, Ernest, 362 Bonaparte, Napoleon, 67, 250 Boucinhas, José Fernando da Costa, 465 Boutan, Jean, 261–263 Bray, F. Sewell, 17, 290–291 Brazilian accounting, 462–466 break-even chart, 20–21 “Brentano’s principle,” 391 Bridgman, Juan Oliva, 467 British accounting: accountancy and, 281–284, 289–296; commerce and, 273–281; cost accounting, 15–20; development of, 273– 274; economics and, 271–273, 285–287; education and, 281–285; fi nancial accounting, 15–19; income accounting, 289– 291; LSE and, 278, 283–293; methods of, 15–21; post-World War II, 291–296; pre-World War II, 281–291; research in, 15–19; traditions in, 271–303 British business economics: commerce and, 273–281; post-World War II, 291–296; pre-World War II, 281–291; professionalization of, 274–277; traditions in, 271–303 Broglia, G., 84 Brommels, Hilmer, 159 Bruni, G., 89 Bruño, G. M., 467–468 Bryant and Stratton’s Common School, 102–103 Budgeting from a Leader’s Perspective, 214 Budgetkontrolle in industriellen Unternehmungen, 462 business administration, science of, 68 business economics: academics of, 1–3; beginnings of, 3; branches of, 3; British economics, 271–303; Danish economics, 201–223; English-language economics, 304–326; Finnish economics, 152–183; future of, 483–490; German economics, 37–66; German-American connection, 361–384; Italian economics, 420–440; Japanese economics, 100–128; Netherlands economics, 129–151; Portuguese economics, 441–482; Spanish economics, 224–246, 441–482;

Index Swedish economics, 184–200; understanding past of, 483– 490; United Kingdom economics, 271–303; United States economics, 304–326 Business Statistics and Financial Statements, 284 Byrne, Gilbert, 308

C Caetano Dias, Francisco, 459 calculus accounting, 68, 447 Calvo, Cañibano, 231, 233 Camfferman, Kees, 129, 491 Camodeca, R., 88 Campos, Bueno, 231, 233 Cannan, Edwin, 278 Canziani, Arnaldo, 67, 491 Capaldo, P., 88, 89 capital account, 5, 274 capital budgeting, 38, 49–50, 174, 295 capital circulation model, 165–167, 166f, 176 capital gains and losses, 9, 12–13, 489 capital maintenance: forms of, 8, 342–344; nominal capital maintenance, 43, 342, 343; physical capital maintenance, 8–10, 16, 42–43, 346; real-fi nancial capital maintenance, 8; rules of, 44 capital preservation, 5 capitalism, phases of, 247–249 Caprara, G., 89 Caramiello, C., 88, 89 Carqueja, Hernâni O., 455 Carter, Roger, 279 Carvalho, Carlos de, 463, 465 Cassandro, P. E., 86 Catelli, Armando, 465 Catturi, G., 88 Cavalieri, E., 89, 90 Ceccherelli, Alberto, 83, 453 Cerboni, Giuseppe, 10, 12, 21, 67–69, 74, 442, 461, 463, 465 Certified Public Accountant (CPA), 305–306 Chambers, Ray, 316 Chapman, Sydney, 279 chart of accounts, 3–7, 21, 208 Chartered Accountant (CA), 305 Choai No Ho, 102 Church, Alexander, 15 Ciencia de la Contabilidad: técnica, práctica y organización, 446, 448

503

Cinqüenta Anos de Contabilidade, 463 Cinquini, Lino, 483 Ciompa, P., 3, 5–6 Clark, J. B., 70, 370, 373 Clark, J. M., 20, 140 clean surplus theory, 16, 342 “closed universalistic system,” 9–10 Coase, Ronald, 17, 91, 285–289, 386, 484 Coenenberg, Adolf G., 47 Colbert, Jean-Baptiste, 250–251 Cole, William, 16, 17, 19 commerce, science of, 272–281 Commercial Code, 103–108, 114–116, 250, 255, 330–334, 341–343, 347–351 Commercial Knowledge Journal, 205, 206 commercial law, 37–39, 46–48, 250–256, 339, 347–349 Committee on Accounting Procedure (CAP), 308–309 Common Sense of Political Economy, The, 286 Commons, J. R., 362, 363, 365–366, 378 Company Law, 109, 114, 116, 290, 293 “concept of the fi rm,” 165, 176, 289, 390, 396 consolidated fi nancial statements, 37, 47–48, 51–55, 109, 114–115, 347 Consorti, A., 88 Contabilidad comercial, 467 Contabilidad: teoría y práctica, 468 Contabilidad y organización de empresas, 447 Contabilidade Geral, 459, 465 Contabilidade Industrial, 459 Contabilidade Superior. Teoria Económica da Contabilidade, 464 control, logic of, 486–489 Control Orientated Accounting in the Melting Pot, The, 213, 214 “controlling,” concept of, 51, 69 “controlling,” rise of, 49, 51, 57 co-operative societies, 398–402, 406, 410–412 corporate fi nance, 169, 307 corporation law, 43–44, 47, 378 Corporation Tax Law, 108, 348

504 Index Corsani, Gaetano, 83 cost accounting: in British accounting, 15–20; in English-language accounting, 15–20; in French accounting, 257–259; in German accounting, 3–6, 11; in Italian accounting, 14–15, 434–438; in Spanish accounting, 231, 235 Cost Accounting, 144, 468 Cost Accounting for Industry, 208 Cost Accounting Standards, 109, 119 cost allocation, 14, 20, 144, 160, 207, 213 cost theory, 40, 45, 49–50, 164, 176 Costs and Pricing Policy, 207 Costs and Their Treatment in BookKeeping and Costing in Commercial and Industrial Companies, 205 Cousins, Donald, 280, 291 Cultural Significance of Accounts, 19 Curso completo de contabilidad por David Himmelblau con la colaboración del cuerpo docente de contabilidad de la Northwestern University, 469 Curso de contabilidad general, 447, 454 Curso de contabilidades oficiales, 446

D da Silva, Gonçalves, 455, 457, 459 D’Alessio, L., 88 D’Amico, L., 88 D’Angelo, P., 84 Danish accounting: 1914–1940, 203–207; 1940–1950, 207–208, 214–216; 1950–1970, 209–214, 216–219; in Aarhus, 214–219; in Copenhagen, 207–214; development of, 201–202; education and, 203–204; explanation of, 201–203; influences on, 204–207; management accounting, 201, 207–208; methods of, 201–223 Danish business economics: 1914– 1940, 203–207; 1940–1950, 207–208, 214–216; 1950–1970, 209–214, 216–219; in Aarhus, 203–204, 214–219; in Copenhagen, 203–204; description of, 201–203; education and,

203–204; influences on, 204– 207; overview of, 201–223 D’Auria, Francisco, 463, 464, 465 De Computis, 455, 461 De’ Dominicis, Ubaldo, 81 De Gaulle, President, 250–251 de Iudícibus, Sérgio, 465 de la Porte, J. B., 255 de la Porte, Mathieu, 457 de Mattos, Alves, 458 de Minico, Lorenzo, 14, 82 de Paula, Frederic, 15, 16, 285 de Rocchi, Carlos Antonio, 463, 464 de Toledo Ramos, Alkindar, 465 de Torres, Manuel, 228 Degos, Jean-Guy, 483 Delaporte, René, 453, 457 Delsol, Jean, 261–263 Depreciation of Factories, The, 277 Descartes, René, 73 Di Meo, W., 90 Dickinson, Arthur, 15 Dicksee, Laurence, 15, 16, 17, 278, 280–281, 285 Die Bilanzen der Aktiengesellschaften, 204 D’Ippolito, Teodor, 11, 14, 86 Disclosure Law, 47–48 distribution account, 262–263 Distribution of Wealth, 373 Döllerer, Georg, 49 Donoso Anes, Alberto, 466 D’Oriano, L., 90 double-entry system, 67–68, 79–80, 104 dualistic accounting theory, 9, 141, 261, 362, 454 Dumarchey, Jean B., 458, 459, 460 Dusemund, F. J., 364 dynamic accounting theory, 6–10, 39–41, 338–346 dynamic balance sheet theories, 21, 141, 253–254, 443, 451–454, 460–462 Dynamische Bilanz, 7, 111–112, 454 dynamism, 450–451, 459, 472

E Economia Aziendale: accounting and, 67, 70–78; autonomy of, 423–426; concept of, 423; core ideas of, 421–422; crisis of, 428–432; disciplines in, 461; elements of, 422–423; evolution

Index of, 428–432; explanation of, 421–422; future of, 431–432; implications of, 432–434; problems with, 420–421; science of, 442; segments of, 426–427; studies of, 3, 13–14; tradition of, 388–394 Economia d’ azienda, 79 Economía de la Empresa, 228–230, 233, 235–236, 239 economic control, 12, 422 Economic Journal, 281 economic process model, 165–167, 166f economic system structure, 71–72, 72f Economic Thought and Its Institutional Background, 378 Economist, The, 290 “economy of the fi rm,” 77–78, 164, 487 Edey, Harold, 17, 289, 291, 293 Edwards, E. O., 2, 4, 6, 8–9, 232, 257 Edwards, J. Richard, 2 Edwards, R. S., 17, 257, 285–289, 292 Einführung in die Grundfragen des industriellen Rechnungswesens, 215, 453 Elementos de contabilidad general, 461, 472 Elements of Economics of Industry, 277 Engels, W., 7, 8 English-language accounting: AAA role in, 310–311; AICPA role in, 310–311; corporate standards for, 319–322; cost accounting, 15–20; developments in, 304–326; fi nancial accounting, 15–19; influences in, 304–319; methods of, 15–21; milestones in, 304–306; regulatory influences in, 306–310; research in, 15–19 English-language business economics, 304, 320 Ensaio sobre o Planeamento Contabilístico Racional, 456, 459, 472 Ensayo sobre teoría económica de la contabilidad, 452–455, 471 Enterprise and the Productive Process, 370 enterprise entity law, 361–384 entity theory, 4–5, 12, 16, 19, 112, 361–362, 366–370, 378, 394–410, 486

505

Entity Theory of Consolidated Statements, The, 19 Esquerré, P. J., 19 Estudos de Contabilidade, 463 European approach, 485–488 European Economic Community (EEC), 229 European Free Trade Association (EFTA), 229 Ewert, Ralf, 45

F Fabio Besta, 89 Fabrizi, Carlo, 83 Factory Accounts, 277 fair value accounting, 262–264, 320, 341, 485–488 fair value measurement, 55–56, 112, 115, 332 Fama, E. F., 91 Fazzi, Roberto, 83, 89 Federal Reserve, 305 Federal Trade Commission (FTC), 305, 306 Fells, J. M., 15, 17, 277 Fernandes Ferreira, Leonor, 455 Fernández Casas, Juan, 447 Fernández Pirla, José María, 227–228, 446, 452–455, 462, 471–472 Fernando da Costa Boucinhas, José, 463 Ferrara, R., 89 Ferrero, Giovanni, 80–81, 88 Filho, Antonio Reske, 463, 464 Financial Accounting: A Distillation of Experience, 19, 470 fi nancial accounting regulation, 47, 108–109, 195 Financial Accounting Standards for Business Enterprises, 108, 111 Financial Accounting Standards for Consolidated Financial Statements, 109, 114 Financial Company Management, 210 Financial Instruments and Exchange Law (FIEL), 109 fi nancial statements, 9, 19, 37–43, 47–55 fi nanzwirtschaftliche Bilanztheorie, 7 Finney, H. A., 461, 465, 470 Finnish accounting: 1911–1940s, 155–159, 175; 1940s, 159–164; 1950s, 159–164, 175–176; 1960s, 164–170, 173, 175–176;

506 Index 1970s, 164–170, 175–177; 1980s, 168, 169, 172, 174, 176–177; 1990s, 167, 169, 172, 174–177; curricula for, 155– 156; development of, 152–183; education and, 153–155, 173–175; evolution of, 159; explanation of, 152–153; foundations of, 152–153; legendary academics in, 160–161; methods of, 169–173, 171f; pioneers in, 155, 164; postwar changes in, 159–160; research in, 158–159, 164, 169–173, 171f; revolution in, 161–163; scope of, 168–169; textbooks for, 155–156 Finnish business economics: 1911– 1940s, 155–159, 175; 1940s, 159–164; 1950s, 159–164, 175–176; 1960s, 164–170, 173, 175–176; 1970s, 164–170, 175–177; 1980s, 172, 174, 176–177; 1990s, 167, 169, 172, 174–177; branches of, 167–168; capital circulation model, 165, 166f; concepts of, 163–167; curricula for, 157–158; description of, 152–153; development of, 152–183; economic process model, 165; education and, 153–155, 173–175; evolution of, 159; foundations of, 152–153; input-output process, 165, 166f; legendary academics in, 160–161; monetary process of, 165, 166f; nature of, 163–164; postwar changes in, 159–160; research in, 158–159; restructuring, 164–165; stakeholder model, 165, 166f; textbooks for, 157–158 Finnish Journal of Business Economics, 173 fi rm, concept of, 165, 176, 289, 390, 396 fi rm, economy of, 77–78, 164, 487 fi rm, theories of, 385–394 Fisher, Irving, 17, 73 Fixed and Variable Costs in the Economics of a Company, 215 Florence, Philip Sargant, 285 Fog, Bjarke, 209 Folsom, E. G., 103–104 Fondamenti di ragioneria teoretica, 89

Fowler, Ronald, 285–286 Franceschi, R., 88, 89, 90 Franco, Hilario, 464–465 French accounting: capitalism and, 247–249; current situation of, 264; history of, 247–250; industrial phase, 248; merchant phase, 247–248; Napoleonic lawyers and, 254–258; revolution in, 258–264; schools of, 247–264, 265t; shareholder phase, 248–249; state intervention in, 249–251, 252t French capitalism: fi nancialization of, 249, 252t; industrial phase of, 248, 252t; merchant phase of, 247–248, 252t; shareholder phase of, 248–249, 252t; types of, 247–249, 252t Fukuzawa, Yukichi, 102 Fülbier, Rolf Uwe, 37, 492 Fundamentals of accounting; principles and practice of bookkeeping, 468 Fundamento Científico da Contabilidade, 465 Furga, Superti, 81

G Gabrielsson, Assar, 186–187 Galassi, Giuseppe, 88, 89, 483 García, Cea, 233 Garcke, Emile, 277, 282 Garrani, G., 84 Garrone, N., 82, 83 Geldmacher, Erwin, 7, 43, 205 General Business Economics, 205–206 General Theory, 79 Generalidades y Prolegómenos de Contabilidad Industrial, 447 German accounting: American connection and, 361–384; annual accounts theory, 347–353; business enterprise analysis and, 366–378; business schools and, 38–40; current situation of, 55–56; dynamic accounting and, 6–10, 338–346; explanation of, 37–38; fi nancial accounting, 37; GoB and, 333, 349–352; history of, 353; insights on, 329–360; institutional analysis, 366–378; institutional economics, 362–366; internationalization

Index of, 51–53, 55–56; legal background of, 47–48; liquidation view of, 330–332; management accounting, 49–50; methods of, 3–10, 20–21; organic accounting theory, 345–346; principles of, 347–353; research on, 46–49, 53–54, 56; ROHG and, 330–335; static accounting theory, 6–10, 330–338; theories of, 40–42, 48–49, 329–360; traditions in, 37–66 German business economics: birth of, 38–40; description of, 37–38; economic crisis of 1930s, 43–44; microeconomic influence of, 44–46; traditions in, 37–66 Gertz Manero, Federico, 466 Giannessi, Egidio, 87, 88, 90 Gillespie, Cecil, 461, 469 Gilman, Stephen, 15–16 Ginko Boki Seiho, 103 Goetz, B. E., 218 Goldberg, Louis, 455 Gomberg, Léon, 3, 5, 39, 458–460 Gonnella, Enrico, 483 goodwill, 115, 195, 310, 487–488 Gordon, Cosmo, 287 Goudriaan, J., 142, 144 government accounting, 14–15, 69 Grandell, Axel, 161 Grenzplankostenrechnung, 50 Grundsätze ordnungsmäßiger Buchführung (GoB), 333, 349–352 Guatri, L., 89 Guilbault, Adolphe, 457 Gutenberg, Erich, 37, 44–45, 49–50, 143

H Haller, Axel, 52 Handelsbedrijfsleer, 132 Handelsgesetzbuch (HGB), 37, 47–55, 333, 347–350. See also German accounting Handelshochschulen, 38–40 Hansen, Palle, 6, 79, 202–203, 207–212, 214–218 Harmony, Arnold, 470 Harrison, Charter, 144 Harvard Business Review, 378 Hatfield, Henry Rand, 2, 15–16, 104, 362–363, 367

507

Hawley, Frederick B., 370, 373 Hayek, Friedrich von, 286 Healy, Robert E., 368 Hegel, G. W. F., 71–72 Heina, F., 6 Hellauer, Joseph, 39 Hendricksen, Eldon, 455 Henzel, F., 364 Hernández-Esteve, Esteban, 441, 492 Herrmann, Frederico, Jr., 463, 464 Hewetson Nelson, Charles, 281–282, 284 Heymans, Gerard, 135 Hicks, John, 79, 286–290 Higashi, Sekigoro, 104, 106 Hilaire, Jean, 250 Himmelblau, David, 468–469 Hirai, Yasutaro, 105, 119 Hirsch, Julius, 206, 207, 208 Historia técnica de la contabilidad y la información fi nanciera en México, 466 historical cost model, 16 Holzer, H. P., 4 Hommel, Michael, 329, 492 Honko, Jaakko, 164–165, 172, 175 Hopwood, Anthony, 172, 193, 271, 295, 386 Horn, H., 364 Horngren, Charles, 144 Horváth, Péter, 51 hour rates, 20 Hügli, Friedrich, 4–5 Hülsmann, J. H. H., 131 Hunt, Pearson, 470

I income calculation, 388–394, 403t, 406–408, 407t income determination, 12–13, 74–77 income measurement: accounting theories and, 74, 385–388, 395, 404–411; differences in, 394–395, 404–405; variety of, 402–404 income statements: balance sheet and, 7–9, 16, 20; comprehensive income statement, 16; flow of funds statement, 16; importance of, 77; operational income statement, 16 income stream, 12–13, 76, 82, 143 Income Tax Law, 347–348 income valuation, 16

508

Index

Industrial Accounting: An Introduction to the Basic Problems, 215 Industrial Chart of Accounts, The, 208 Industry and Trade, 283 Industry Standards: A Basic Description, 206 inflation accounting, 3, 6, 11, 20, 42–43, 141–143, 294–295, 345 input-output process, 165, 166f, 375 Institute for Public Accountants (IPA), 305–306 Institutional Economics, 363, 365– 366, 378 intangibles, 257, 260, 264, 346, 430, 487–488 International Accounting Standards (IAS), 52–54 International Financial Reporting Standards (IFRS), 42, 52–53, 352–354 International Monetary Fund (IMF), 229 Interstate Commerce Commission (ICC), 305 Introduction to Corporate Accounting Standards, 18, 319–322 investment, logic of, 486 investment planning, 50 Irigoyen, Rómulo González, 470 Italian accounting: auditing, 434; cooperative societies, 398–406, 410–412; cost accounting, 14–15, 434–438; current practice of, 87–90, 432–434; dissatisfaction with, 435–438; dominance in, 10–14; economics, self-contained, 77–78; emphasis on, 428–430; entity debate, 394–398, 400–401, 409–410; evolution of, 67–70; explanation of, 420–421; fi nancial statements, 432–434; future of, 431–432; government accounting, 14–15; income calculation in, 403t, 406–412; income revolution and, 70–77; income-oriented accounting, 427–428; influences on, 90–92, 421–422; methods of, 10–15, 20–21, 67–99; proprietary debate, 394–398, 400–401, 409–410; traditions in, 420–440; United States and, 385–419

Italian business economics: description of, 420–421; dissatisfaction with, 435–438; traditions in, 420–440 Italian business research, 67–70

J Jääskeläinen, V., 169 Jaeger, Ernst, 362 Japanese accounting: accounting principles studies, 113–114; contract theories, 116–117; current situation of, 121–122; development of, 101–121; explanation of, 100–101; fi nancial statements, 114–116; income calculation in, 111–113; international accounting, 114–116; management accounting, 117–118; methods of, 100–128; post-World War II, 107–121, 110t; pre-World War II, 101–107, 103t, 105t; research on, 110–111, 116–117; target cost management, 117–118; traditions in, 118–121 Japanese business economics: current situation of, 121–122; description of, 100–101; education and, 107–108; overview of, 100–128; traditions in, 118–121 Järvinen, Kyösti, 155–156, 158, 161, 163–164 Jensen, M. C., 91, 116 job costing system, 20, 215–216 Jönsson, Sten, 184, 492–493 Journal of Accountancy, 19, 305 Julve, Montesinos, 231 Juran, J. M., 210

K Käfer, Karl, 5, 52, 261 Kaikei, 105 Kaitila, Esa, 161 Kaitila, I. V., 155–157, 159, 161 Kant, Immanuel, 72–73 Kaskimies, Mika, 167 Kempin, W., 6 Kennedy, John F., 306 Kennedy, Joseph, Sr., 306 Kester, Roy, 17, 461, 468, 469 Kettunen, Pertti, 169 Keynes, Maynard, 1, 79, 90, 289 Kilger, Wolfgang, 45, 50 Kjær-Hansen, Max, 205–206

Index Knight, Frank, 286, 371–373 Kohler, Eric, 18, 311 Koopman, S. Bernard, 468 Kosiol, Erich, 4, 7–8, 48, 112, 330, 341, 344–345 Kovero, Ilmari, 3, 6, 155–156, 159 Kreuger, Ivar, 321 Kreukniet, Wouter, 132 Kristensen, Thorkil, 214–216 Kruszynski, Estanislau, 465 Kuhn, T. S., 85 Küpper, Hans-Ulrich, 51, 329 Kuroda, Masatoshi, 100, 493 Kurosawa, Kiyoshi, 119

L La Comptabilité, 457 Laskentatoimi johdon apuna, 162–163 Latin American accounting, 460–472 Lavoro e risparmio, 79 Lawrence, W. B., 468 L’azienda industriale, 84 Le Coutre, Walter, 8, 39, 41 Léautey, Eugène, 457 Lee v. Neuchatel Asphalte Company, 274 Leffson, Ulrich, 49 Legal Foundations of Capitalism, The, 363 Lehtovuori, J., 168–169, 172, 176 Leitner, Friedrich, 39, 41 Lemarchand, Yannick, 483 Lições de Contabilidade Geral, 456, 458 Lições de Teoria da Contabilidade, 459 Limperg, Theodore, 129, 133–145 L’impresa, 79 Lindley, Lord Justice, 274 Lipari, C., 89 Littleton, Ananias Charles, 17–18, 21, 40, 110–113, 293, 304, 308, 314–317, 319–322, 361–384 Loft, Anne, 201, 493 Logismografi a, 67–68 London School of Economics and Political Science (LSE), 278, 283–293 Lopes de Amorim, Jaime, 453, 455–460 Lopes de Sá, António, 462–465, 472 Louis XIV, King, 250 Ludwig, Heinz, 462

509

M machine-hour rates, 20 Machlup, F., 78, 90 Madsen, Vagn, 196, 202, 216, 216–219 Mahlberg, Walter, 7, 43, 185 Main Economic Actor (MEA), 390–394, 399–400, 402–403, 405, 407–412 “mainstream” research, 53–54, 57 management accounting, 38, 49–51, 69, 117–118 Management Accounting: A Conceptual Approach, 292 management control, 11, 38, 144, 192 Management Review, The, 210 Mann, Sir John, 20 Manual for Profit Planning, 211 Manuel de Matos Carvalho, José, 455 March, James, 193 Marchini, Isa, 89 Markarian, Garen, 304, 493 market value approach, 7–8, 16, 18, 320 market values, 43, 107, 195, 251, 253, 256–259, 332–333, 410–411 Marris, Robin, 292 Marshall, Alfred, 276–277, 280, 283, 288 Marshall, George, 209 Martins, Coroliano, 463 Marx, Karl, 117–118 Masi, Vincenzo, 20, 81, 225, 231, 453, 458, 460, 463, 464 Masini, C., 79–81, 89, 392–394, 399, 405, 408, 412 master charts of accounts, 3–4, 7, 11, 14 Masuchi, Yojiro, 119 Matheson, Ewing, 277 Matschke, Manfred J., 49 Mattessich, Richard, 1, 329, 444, 460, 462, 484, 493–494 May, George Oliver, 19, 304, 308–309, 311–314, 321, 469–470 Mazza, G., 87, 88 Mazzantini, M., 84 Mead, J. E., 17 Meade, James, 289–290 Means, G. C., 363, 368–369, 378–379 Meckling, W. H., 91, 116 Melis, Federigo, 11 Mellerowicz, Konrad, 45 Merino, Barbara, 483

510 Index Merli, Anselmi, 88 Mexican accounting, 466–472 Meyer, Jean, 261 microeconomic theories, 44–46, 227, 425, 437, 452 Middleditch, Livingston, 17 Mill, John Stuart, 68, 73–74, 275–276 Miller, Herbert E., 465 Mintzberg, Henry, 193 Mitterand, President, 251 Modern Business Problems, 206 Modern Corporation and Private Property, The, 363 Montesinos, Vicente, 224, 494 Moonitz, M., 15, 19 Moreno Fernández, Joaquín A., 466–471 Mouritsen, Jan, 201, 494 Moussalli, Stephanie, 483 Moxter, Adolf, 42, 49, 256–257, 330, 333, 335, 347–351 Mulazzani, M., 88 Multi-Bilanztheorie, 9–10

N Napier, Christopher, 271, 494–495 Napoleonic lawyers and, 254–258 Näsi, Juha, 152, 170, 495 Näsi, Salme, 152, 495 Nature and Significance of Economic Science, 286 Nature of the Firm, The, 91, 288 Nederlandsch Instituut van Accountants (NIvA), 130–134 Neilimo, Kari, 170 neopatrimonialismo, 463–464, 472 Netherlands accounting: in 1920s, 134–142; in 1930s, 134–142; education and, 130–134; explanation of, 129–130; methods of, 129–151; origins of, 130–134; theories of, 137–142 Netherlands business economics: in 1920s, 134–142; in 1930s, 134– 142; description of, 129–130; fading away of, 142–145; limitations of, 142–146; nature of, 134–137; overview of, 129–151; successes of, 142–145; theories of, 137–142 New York Stock Exchange (NYSE), 52–53, 189, 306, 308 Nicklisch, Heinrich, 4–6, 9–10, 39, 41–42, 71–72, 75, 111, 119,

136, 335–337, 364–365, 378, 442–443 Nuovi studi di Ragioneria e battaglie critiche, 11 Nurmilahti, Paavo, 159

O Okada, Ellie, 100, 495 Onida, Pietro, 11, 79, 89, 453 Ordelheide, Dieter, 47, 53 organic accounting theory, 8, 42, 75, 304, 330, 345–346, 454 organic balance sheet theories, 21, 119, 454 organic fi nancial statements, 346 organische Bilanztheorie, 9 Origen y evolución de la contabilidad: ensayo histórico, 466 Osbahr, W., 136 Ota, Tetsuzo, 105, 106, 119 overhead costs, 1, 14, 20, 86, 140

P Pacces, Ferrer, 84 Pacioli, Luca, 67, 119 pagatorisch, 8 Paolone, G., 88 Paton, William Andrew, 2, 17, 18, 110–113, 304, 308, 310, 316–322, 361, 367–368, 376, 453, 458, 460–461, 469–470 patrimonialismo, 231, 239, 459, 463–464, 472 patrimonialistic theories, 442–443, 451–452, 460–465 Peck, H. W., 378 Pedersen, H. Winding, 207, 208 Pellens, Bernhard, 53 Penna, Della, 81 Philosophy of Accounts, The, 15, 17 physical capital maintenance, 8–10, 16, 42–43, 346 Picasso, Pablo, 467 Pihlanto, Pekka, 172 Pineda, Roberto Macías, 470 Pini, M., 88 Pita, Emigdio Rodríguez, 447–452 Planejamento da contabilidade industrial, 465 Plant, Arnold, 285–287 Plaut, Hans-Georg, 50 Plender, William, 284 Pochteca, 466 Podestà, S., 89

Index Polak, Nico J., 134–137, 141 Polonelli, C., 88 Portuguese accounting, 441–444, 455–466 Portuguese business economics, 455, 461–462 Power without Property, 363 Prats y Aymerich, José, 467 Previts, Gary, 483 price system, 91, 286, 367–368, 485–487 Prieto, Alejandro, 470 Primeiros Princípios de Contabilidade Pura, 463, 464 Principles of Accounting, 465 Principles of accounting, introductory, 465 Principles of Economics, 276–277 Principles of Political Economy, 275 Prion, Willi, 43 Privatwirschaftslehre, 71–72, 136 product costing, 194, 196, 215 production account, 262 production theory, 45, 176 Produzioni, Le, 78 profit and loss statements, 86, 263, 264, 346, 394, 443 Programmazione e controllo in un’ottica strategica, 89 Property Tax Law, 157 proprietary theory, 4–5, 12, 19, 112, 367, 370–373, 394–401, 409–412, 486 Provasoli, A., 88 Prussian Income Tax Act, 348 public accounting, 21, 79–80, 88, 203, 447, 456, 466 Puddu, L., 88

Q Quarterly Journal of Economics, 370

R Ragioneria, La, 67, 442 Ranalli, F., 88 Raninen, Hugo, 161 Rathenau, W., 5, 248–249, 378–379 Readings in the Concept and Measurement of Income, 293–294 “realistic theory of accounts,” 5. See also theory of accounts realization principle, 16–18, 44, 113, 161–162, 334, 340–353 reditualism, 459, 462, 463, 464

511

Rehm, H., 204 Reichsoberhandelsgericht (ROHG), 330–332, 335 Relative Einzelkostenrechnung, 50 Requejo de Sá, Marina Célia, 462 Revista de Contabilidade e Comércio, 459, 460 Ricardo, Ivam, 73–74 Richard, Jacques, 247, 495 Rieger, Wilhelm, 5, 6, 39, 41, 337–338, 442, 443 Riis, Hans Christian, 204–208 Riistama, Veijo, 168, 169 Robbins, Lionel, 286, 287 Robinson, Maurice, 362 Rodríguez Flórez de Quiñones, José M., 446, 448 Rodríguez Pita, Emigdio, 446–452, 454 Roesler, Hermann, 104 Rogina, José, 467 Rohde, Carsten, 201, 495–496 Rossi, Giovanni, 10, 11, 20, 21, 442 Rossi, N., 89 Rowland, Stanley, 288 Ruiz Soler, Luis, 446 Rusche, W., 364 Ruth, R., 364

S Saario, Martti, 161–162, 169, 172 Sacristán y Zavala, Antonio, 446 Sanders, Thomas, 18 Särkisilta, Martti, 167 Sarmento, José António, 459 Savary, Jacques, 247, 252–254 Saxon Income Tax Act, 348 Schär, Johann Friedrich, 4, 5, 39, 41–42, 106 Schmalenbach, Eugen, 2–10, 12–16, 18, 21, 37–49, 52, 71, 75–76, 86, 105–106, 110–112, 135– 141, 186–187, 205–208, 228, 240, 259–260, 297, 329–330, 338–345, 353, 363–364, 378, 422, 442–443, 448–454, 458–462, 470–472 Schmaltz, K., 364 Schmidt, Fritz, 2, 4–9, 21, 39–45, 54–56, 106, 111, 119, 139–142, 186, 259, 329–330, 338, 341, 345–346, 353, 442, 444, 454, 458 Schmidt, Paulo, 462

512

Index

Schmitz, Stefanie, 329, 496 Schneider, Dieter, 46, 442 Schneider, Erich, 45, 50, 214–216, 218, 231, 453, 461 Schönitz, H., 136 “science of commerce,” 272–281 Science of Trade, The, 82 Scott, David R., 19 Securities and Exchange Commission (SEC), 305–308, 321 Securities and Exchange Law (SEL), 108, 109 Sganzini, C., 5, 6 Shand, Alexander Allan, 103 Shimono, Naotaro, 104, 105 Sho Ko Keiei, 103, 118 Siben, Günter, 49 Sillén, Oskar, 185–190 Simon, Herbert A., 213 Simon, Herman Veit, 41, 90, 91, 193, 213–214, 230, 256, 259, 292, 329–338, 345–346, 353 Singer, H. W., 290 Smith, Adam, 275 Solomons, David, 17, 289, 291, 293, 294 Some Accounting Terms and Concepts, 291 Spacek, Leonard, 309 Spanish accounting: 1950s–1980s, 229; approaches in, 229–231; background of, 229; business economics and, 228, 233; development of, 444–447, 471–472; disciplines in, 224–246; education and, 226–228, 237–239, 444–447; explanation of, 224, 441–444; international integration processes, 229–233; international standards, 232; research in, 233–235, 237–239; standards for, 232–237; theories of, 231–232; traditions in, 441–482; trends in, 233–235 Spanish business economics: 1950s–1980s, 229; accounting and, 228, 233; approaches in, 229–231; background of, 224–225, 229; description of, 224–225; disciplines in, 224– 246; education and, 224–228, 237–239; emergence of, 227– 228; evolution of, 235–237; faculties of, 226–228; international

integration processes, 229–233; research in, 237–239; standards for, 232–237; traditions in, 441–482 Spencer, H., 367 Sprague, C. E., 15, 17, 367 Spranzi, A., 89 Stabilized Accounting, 18 stakeholder model, 166f, 176, 486 Stamp, Josiah, 283–284 standard costs variance, 20 Statement of Accounting Principles, A, 18 Statement of Basic Accounting Theory, 113 statement of funds, 262–263 Statements of Financial Accounting Concepts, 113 static accounting model, 485–486 static accounting theory, 6–10, 41, 330–338 static balance sheet theories, 254, 443, 451, 453 Stock Corporation Act, 331–332 stock market crash, 305 Stone, Richard, 17, 289–291 Structure of Scientifi c Revolutions, The, 85 Studies in Accounting, 293 Studies in Costing, 293 Studies in the Economics of Overhead Costs, 140 Studies in the History of Accounting, 293 Study of the Balance Sheet, 204 Sumner, W. G., 367 Swedish accounting: 1920s to 1940s, 185–187; development of, 190–197; education and, 185– 190; explanation of, 184–185; fi nancial reporting, 194–195; management accounting, 195–197; research in, 197–198; shift in, 192–193; standards for, 187–190; traditions in, 184–200 Swedish business economics: 1920s to 1940s, 185–187; description of, 184–185; development of, 190– 197; education and, 185–190; shift in, 192–193; standards for, 187–190; traditions in, 184–200 Sweeney, Henry, 3, 18 system of values, 12–13

Index T Tax Act, 348 Tax Law, 157, 347–348 Tecnica amministrativa societaria, 84 Tendencies Positives em Contabilidade, 463 Tendenze Nuove, 77–78 Teneduria de libros al alcance de todos, 467 “Tentative Statement of Accounting Principles Affecting Corporate Reports, A,” 319–322 Teorías de contabilidad general y de administración privada, 446–447 ter Vehn, Albert, 3, 186–188 Terzani, S., 88 Theorie der Produktion, 453 “theories of the fi rm,” 385–394 theory of accounts, 4–5, 11, 15, 21, 442–444 Theory of Accounts, A, 19 Theory of Business Enterprise, The, 363 Theory of the Balance Sheet, 215 Thirlby, George, 292 Times, The, 279, 280 Tinen, John Victor, 469 Toki, Masazo, 106 Torres, Millan, 466 traditional accounting logic, 487–489 Tratado completo de contabilidad, 447 Tratado de contabilidad general ó teneduria de libros, 467 Tratado elemental teórico-práctico de Contabilidad general, 446 Tridente e Antonio Renzi, Nicola, 82–83 Truth in Accounting, 18 Tweedie, David, 294, 295 20th Century Capitalist Revolution, The, 363

U Ueda, Teijiro, 118 Ueno, Michisuke, 106 United Kingdom accounting: accountancy and, 281–284, 289–296; commerce and, 273–281; development of, 273–274; economics and, 271–273, 285–287; education and, 281–285; fi nancial accounting, 15–19; income accounting, 289–291; LSE and,

513

278, 283–293; post-World War II, 291–296; pre-World War II, 281–291; traditions in, 271–303 United Kingdom business economics: commerce and, 273–281; post-World War II, 291–296; pre-World War II, 281–291; professionalization of, 274–277; traditions in, 271–303 United States accounting: AAA role in, 310–311; AICPA role in, 310–311; business enterprise analysis and, 366–378; corporate standards for, 319–322; developments in, 304–326; German connection and, 361–384; influences in, 304–319; institutional analysis, 366–378; institutional economics, 362–366; Italy and, 385–419; milestones in, 304–306; regulatory influences in, 306–310 United States business economics, 304, 320 Urwick, Lyndall, 285 U.S. approach, 486–488 U.S.-Generally Accepted Accounting Principles (U.S.- GAAP), 42–43, 52–53, 309

V Value and Capital, 289 value cycle theory, 5 van der Schroeff, H. J., 143 variability accounting system, 196, 217–219 Vatter, William, 19 Veblen, Thorstein, 19, 363 Vehmanen, Petri, 172 Vidal, Cruz, 456, 459, 460, 472 Viganò, Enrico, 90, 420, 496 Villa, Francesco, 12 Virkkunen, Henrik, 161–164, 168 Virtanen, Kalervo, 172 Virtanen, Unto, 161 Volmer, J. G. Ch., 132–133, 142 von Colbe, Walther Busse, 37, 47, 49, 491

W Wagenhofer, Alfred, 45 Walb, Ernst, 4, 7–8, 43, 106, 111–112, 185, 330, 342–344, 375 Walton, Seymour, 17

514

Index

Wealth of Nations, 275 Weber, Jürgen, 51 Weyermann, M. R., 136 Whittington, Geoff rey, 294, 295 Wicksteed, P. H., 286 Wildman, John, 310 Williamson, O. E., 91 Wirth, María Cristina, 460, 462 Wirtschaftlichkeitsrechnung, 50 Working Rules for Field Work, 108 Working Rules for Financial Statements, 106 Working Rules for Manufacturing Cost Accounting, 107 Working Rules for Reporting, 108

Working Rules for Valuation, 107 Worre, Zakken, 209, 212–214

Y Yamashita, Katsuji, 111, 119 Yamey, Basil, 292, 293 Yoshida, Ryozo, 104, 106

Z Zambon, Stefano, 177, 385, 496–497 Zan, Luca, 385, 497 Zappa, Gino, 2, 10–16, 20, 73–75, 78–87, 225, 231, 421–422, 428, 432–433, 437, 442, 453–455, 458–464, 471–472