The emergence of accounting as a global profession – an introduction

Globalization and practice units

The initial article entitled, “Assimilation and Americanization in the Progressive Era: Price Waterhouse & Company in the US, 1890–1914”, by Thomas A Lee focuses on how a leading practice unit became integrated within a burgeoning foreign market and served as an influential agency in the transfer of professional values and practice first developed in its home country. The article explains how the British-based firm of Price Waterhouse & Company during the period 1890–1914 established local offices in the United States to serve a growing clientele of primarily US and UK companies. Lee’s analysis is sensitive to the problems confronted by these early immigrant professionals from competing, local practitioners, who at times sought to restrict access to professional markets by championing discriminatory restrictions against the foreign born. Americans during the Progressive era sought to discover new institutional arrangements to protect against what they viewed as disturbing social flux brought about by the transformative power of industrialization, urbanization and immigration. The article explains how the Price Waterhouse practice with its highly developed capacities in accounting and auditing successfully adjusted to these challenges and became assimilated into the American political-economic scene. Lee’s statistical analysis further extends our understanding by documenting how the process of firm Americanization was achieved while maintaining a strong British orientation based on the analysis of personal backgrounds, professional accreditation and experience of its personnel. The story, however, is not limited to successful entrepreneurship. As Lee cogently notes, Price Waterhouse drawing on British precedents eventually exerted significant influence over the definition of governing structures and norms for the incipient American profession.

Globalization, however, may also have adverse effects on the sustainability of an institutional framework that defines the role of a practice unit, leading ultimately to disintegration and failure. These circumstances are addressed in the case study by Rachel F Baskerville, Binh Bui and Carolyn J Fowler entitled “Voices within the winds of change: The demise of KMG Kendons”. Drawing on the analytical techniques of the new institutionalism in organizational science, the authors evaluate evidence gathered primarily from interviews and oral histories dealing with the socioeconomic circumstances that influenced the institutional evolution of the New Zealand based practice, KMG Kendons, whose antecedents date back to 1907. By 1982, the firm had reached a size attractive for merger with the global firm of KMG (i.e., Kleinveld Main Goerdeler). This international linkage was thought essential for maintaining a strong position in the home market for auditing services. The authors, however, point out that the formation of Kendons had inadvertently created internal tensions from the blending of predecessor enterprises with substantially different organizational structures, personnel backgrounds, firm cultures and market settings. Kendons, thus, seemed more a loose confederation than a tightly integrated and focused professional entity. While these fissures in the institutional lattice remained intact until 1985, they began to break down when KMG became affiliated with Peat Marwick Mitchell to form KPMG. The external shock of the Peat Marwick merger brought on “de-insitutionalization” that destroyed the Kendons firm. Unable to maintain practice cohesion, Kendons fragmented, some parts remaining with KPMG, other portions spinning off to other international practices, and a few sectors reverting to local practice status. One of the great strengths of the work is how the authors employ their historical findings to posit a counterfactual outcome. In their post-mortem analysis, they advance a series of provocative institutional and leadership alternatives that might have preserved the integrity of the Kendons practice.

Global organization could also provide a very effective means for accommodating the embedded diversity relating to professional, social, regulatory and economic factors that impinged on practice management. The article by Nandini Chandar, Deirdre Collier and Paul Miranti entitled “Organizational evolution at Lybrand, Ross Bros. and Montgomery in the twentieth century”, like the Kendon study, draws on management theory to explain how a relatively small local firm based in Philadelphia in the late 1890s grew to become one of the world’s leading public accounting firms in the following century. While the models that inform this research originated primarily with the study of manufacturing enterprises, the contribution demonstrates how several key constructs such as diversification, horizontal growth and organizational learning have deep significance also in comprehending the nature of change in giant accounting practices. The firm became a repository of expertise whose capacities for serving client needs continued to grow through the learning derived from expansion into new geographic territories, engagements in new industries, and the growth of knowledge in core service competencies. The training ground for such evolution first came through decades-long expansion in the differing states making up the American union. After World War II the firm’s previously limited global scope, however, greatly increased in response to demand for “seamless” service from major clients whose direct investments overseas expanded enormously. At this point Lybrand entered into a mutually beneficial merger with the British chartered accounting firm of Cooper Brothers which had an extensive worldwide practice. The article also suggests there are limits to the scope of practice diversification rooted in the ethical commitments that underlie audit. Much of the extensive diversification in consulting services, based on the growth of information technology during the 1990s to offset the slow growth of audit practice, eventually had to be pared back. This was due to criticisms of the threats to independence from substantial expansion of consulting services and the prohibition against certain lines of service thought to create dangerous conflicts of interest with auditing under the Sarbanes-Oxley Act of 2002. In addition, the reorientation of service commitments also reflected the opening of opportunities for less conflict-laden assurance services from both industry and regulatory authorities.

Globalization, culture and professional ethos

The article by Sam McKinstry, entitled “From ‘colonial reciprocity’ to international supremacy: Scottish chartered accountancy and its ‘discourse of superiority’ in context, 1854 to the present”, draws on the analytical framework of Michel Foucault to explain how Scottish chartered accountancy has responded historically to globalization. Unlike the deep criticisms associated with many Foucauldian accounts, this article also registers a more open-minded view about the social implications of professionalization. In pursuing this line of inquiry, McKinstry stresses the significance of Foucault’s notion of “discourse”, which involves all forms of communication and ideation that shape public perceptions about the proper ordering of society. A discourse of superiority emerged among elite Scottish chartered accountants, initially as a justification for blocking feared market encroachment on their professional services from new commercial laws promulgated by the London government in the nineteenth century. The purported lower competency of rival groups served as a rationalization for efforts to exclude them from practice. McKinstry explains that the credibility of such a creed of superiority required proofs of social uplift that took the form of, among other developments, the raising of educational requirements, qualifying standards and practice guidelines. From a global perspective, this at first related to questions of qualification equivalence in determining reciprocity with other professional bodies. By the end of the twentieth century, with increasing integration of global practice, however, the discourse of superiority evolved to reinforce the professional image of Scottish chartered accountancy as a worldwide credential potentially open only to aspirants who could satisfy its challenging prerequisites. The persuasiveness of the ethos of excellence, the author further argues, magnified the influence of the small but prestigious community of Scottish chartered accountants through their disproportionally high recruitment to leadership positions in emergent global governance organizations.

The influence of embedded cultural values is central to C Richard Baker’s study entitled, “A comparative analysis of the development of the auditing profession in the United Kingdom and France”. Baker explains that governance in these two countries diverged because of historical differences in the conception of the relationship between the individual and the state. In Britain, with its liberal traditions, a laissez faire policy prevailed, leading to a proliferation of private groups vying for control over these activities. In France, on the other hand, consistent with its Roman law heritage, oversight authority became centered in government. Each national group developed in distinctive ways as the demand for audit services grew in response to the rise of corporate enterprise and capital markets. The bifurcation, however, eventually proved wanting in satisfying the objectives of promoting professional harmonization and the free transfer of professional services within the European Union (EU) during the later decades of the twentieth century. Although the EU allowed substantial flexibility in local practices, the process was ongoing. Baker concludes by stressing the importance of understanding the differences in belief systems about the proper ordering of society within a multicultural and multinational environment when confronted with the challenge of defining general rules for governing professional endeavor.

The article entitled, “The emergent Institute of Chartered Accountants of India: An upper-caste profession”, by Jasvinder Sidhu and Brian West, provides another useful example of how embedded social relationships can significantly modify individual access to professional membership. While chartered accountancy had been present in India during the Raj, its forms and practices had essentially been exported from England, a pattern consistent with other non-settler colonies. This changed in 1949 with independence and the formation of the Institute of Chartered Accountants of India, which established national autonomy in this segment of accounting’s broad community. Although the political system had changed radically with independence, the strong influence of traditional social hierarchies continued. India remained tightly bound through its four varnas or castes, which effectively controlled access to particular types of work. Professions like chartered accountancy were largely open only to candidates from the most prestigious caste, the Brahmins. The pull of traditional social mores continued to condition recruitment to chartered accountancy in the contemporary era. India had secured national autonomy while leaving intact key features of Hindu culture. The authors note that in more recent decades, the government of India’s growing sensitivity to democratic pressures has led to the formulation of new policies that encourage broader social access to professional careers, including chartered accountancy.

The development of a professional ethos in some cases differs significantly from the Anglo-American model of autonomous professionalism. Such was the case in German-speaking Europe involving early attempts to promote controllership as a discernible professional endeavor. The article by Utz Schäffer, Alexander Schmidt and Erik Strauss, entitled “An old boys club on the threshold to becoming a professional association: The emergence and development of the association of German controllers from 1975 to 1989”, reminds us that the factors influencing the organization of accounting labor within a corporation are different than those encountered in independent practice. While auditing, financial and cost accounting were well established, the notion of controllership was new to German business in the 1970s. As corporate employees, the scope of independent associational activity was far more restrictive for controllers as compared to public accountants. Thus, the rationale for the formation of an association of German controllers initially focused more narrowly on training, networking and promoting public awareness. It eventually led to the formation of the Kontrollers Verein, which exercised its influence through its magazine, regional meetings and annual congresses. The essence of professionalism in the German case involved the dissemination of useful knowledge to mid and top level industrial executives. Although the establishment of certification practices and the definition of generally accepted controller principles were discussed, such plans were never implemented. Nor were proposals for rigorous testing, perhaps, because of the potentially adverse effect that poor performance might have on individual careers. Instead, the Verein concentrated on organizing forums for communicating best practices and facilitating learning through peer interaction in specialized sessions. The authors also suggest that the desire to promote professional closure was not high because of the implicit restricted access to particular accounting functions embedded in German commercial law.

Globalization and the convergence of associational models and professional standards

The article entitled “The first 32 importers of an English professional accountancy qualification: Opportunities, incentives, impact”, by Robert H Parker, focuses on the early transfer of an English professional qualification outside its initial geographic bounds. Focusing on the life experience and agency of 32 pioneering chartered accountants, the study illuminates four different patterns related to the export of professional firms and ideas as some accountants began to abandon the notion that their expertise was best organized on a local level. The initial impetus for accounting globalization came in 1875 when the London-based Society of Accountants in England (a forerunner of the contemporary Institute of Chartered Accountants in England and Wales) decided to innovate by opening its membership to practitioners operating within the compass of the British Empire. The epicenter of the new system was England and Wales, which became associated with the cultural notion that its expertise was “English”. The revision of the geographic dimensions, perhaps, also reflected a growing sensitivity to the unique information requirements of the increasingly global reach of English finance and commerce. Parker’s study explains how the outcome of the export of personnel and beliefs varied in four ways depending on the influence of embedded social factors in the import markets for professional services. Despite significant membership expansion in Scotland and practice intercourse between North and South, the English professional credential did not achieve the elite status there because of the strong pull of the well-established, prestigious, local professional bodies, as also discussed by Sam McKinstry in his contribution in this volume dealing with the Scottish discourse of superiority. Unlike Scotland, Ireland seemed more receptive to English chartered accountancy, probably because of the relative underdevelopment of local professional bodies due to its predominantly agricultural economy. The experience in a settler colony like Australia was more akin to Scotland because of the initiatives taken by local practitioners to organize their own national professional bodies. In a non-settler colony like nineteenth-century India, on the other hand, local subjects were not given the right to form professional bodies. Instead, professional accreditation had to be imported from authoritative bodies based in Britain. This early pattern identified in Parker’s study has had a lasting effect on the evolution of professionalism within the confines of the British Empire, as several of the other articles in this volume affirm.

The article by Grietjie Verhoef, entitled “Globalisation of knowledge but not opportunity: Closure strategies in the making of the South African accounting market, 1890s to 1958”, draws on hitherto unexamined archival resources to support the qualification of the settler model explanation of the origins of South African accountancy. The main interpretive difference centers on the uneven impact of professionalism among the various groups making up South Africa’s multicultural polity. What Verhoef has discovered was that the militancy for professional reform during the early decades of the twentieth century was limited primarily to immigrant British practitioners and did not involve any significant participation of the Dutch/Afrikaner or Black tribal populations. The narrowness of the social base in a society with a significant degree of national and racial diversity seemed more pronounced than in the settler colonies of Australia and Canada. The main dynamic involved the competition between immigrant representatives primarily of the London-based Society of Incorporated Accountants and Auditors and the Institute of Chartered Accountants in England and Wales, as the demand for professional services increased after the discovery of gold and diamonds. Both groups sought to effectuate closure to their advantage through association formation, legislation, examinations, educational requirements and competency designations. While there was transfer of knowledge from the home country, the influence of the exporting agencies were eventually eclipsed with the formation in the 1950s of an autonomous South African system of professional governance.

The study by Ana Alexandra Caria and Lúcia Lima Rodrigues, entitled “The evolution of financial accounting in Portugal since the 1960s: A new institutional economic perspective”, addresses how emergent reporting requirements of an integrative European Community changed the trajectory of professional development in Portugal. The authors in this case, however, look to the new economic theory espoused principally by Douglass C North to provide a framework of analysis. The institutional development of accountancy remained stultified from the 1920s to 1970s because of the economic rigidities imposed by a powerful dictatorship. Accounting policies were tightly controlled by the state and served as an adjunct to the national tax system. Reform came in the post-revolutionary period of political and economic liberalism that emerged in the 1970s. A major driver of change was government itself, which established a high priority for conforming local accounting initially to the national reporting requirements of the Organisation for Economic Co-operation and Development (OECD). Although more elaborate than earlier models, the OECD system essentially standardized accounting by requiring a high degree of uniformity in methods and formats to codify vital information for fiscal administration and national statistical reporting. Further liberalization also resulted from government’s desire to conform to the common practices promoted by the European Union. Thus, by the beginning of the twenty-first century the principles-based International Financial Reporting Standards (IFRS) system emerged as the new standard. The greater dependency on judgment in the application of IFRS also increased the prestige of accountants who, however, remained directly governed by agencies of the state.

The article by Noura A Altaher, Maria C Dyball and Elaine Evans, entitled “A study of the emergence of the Kuwaiti Association of Accountants and Auditors”, extends our understanding by providing insight into developments in Middle Eastern protectorates, a topic hitherto not addressed very much in the large body of studies about professionalization within the boundaries of the British imperial system. Profession building in Kuwait during the early years prior to the infusion of mammoth oil revenues, responded both to the terms of the protectorate agreements and the relatively economic underdevelopment of local society. While surrendering its autonomy in foreign policy to Britain, the protectorate agreements left power for local affairs in the hands of Kuwait’s sheikdom. During the early decades of the twentieth century, the relative isolation of the nation was reflected in the dearth of either foreign or domestic accountants. The small cadre worked generally for corporate enterprises rather than independent practices. There was a small influx of refugee Palestinian public accountants in the late 1940s after the founding of the state of Israel. However, no particular associational model took hold. Accounting bodies from other sectors of the empire exerted virtually no influence. This would change with increasing oil prosperity. The impetus derived from educational institutions such as Kuwait University whose graduates found employment primarily in government service. They saw advantages to greater group cohesiveness in accountancy beginning in the 1970s. Initially, Muslim practitioners considered employing traditional bonding agencies known as Dewaniya, which drew together males to discuss and reach consensus about matters of mutual concern. This notion was eventually displaced by a government-sponsored formation of the Kuwaiti Association of Accountants and Auditors in 1973. The acceptance of the new structure, the authors argue, may have been facilitated because of its broad consistency with the approaches and structures implicit in broadly accepted tradition of Dewaniya.