From the Companies Act of 1929 to the Companies Act of 1948 (RLE: Accounting)

A Study of Change in the Law and Practice of Accounting

Paul Bircher

• Publisher: Routledge
• Year: 2013
• ISBN:
  9781134609161
• Edition: 1
• Topic: Business
• Subtopic: Accounting
• Index: Business

The accounting provisions of the Companies Act 1948 (CA48) represented a major change from the provisions of preceding company legislation, the Companies Act 1929 (CA29). CA48 contained radically different accounting and auditing provisions from those of any previous enactment and represented a substantial stride forward in generally accepted accounting standards. Until the publication of this book the explanation of the changes in CA48 was one that had remained relatively unexplored. This book examines the historical process which brought these regulatory changes about.

CHAPTER ONE

Accounting Change and Historical Explanation

Introduction

The accounting provisions of the Companies Act 1948 (CA48) represented a major change from the provisions of the preceding company legislation, the Companies Act 1929 (CA29) (Appendix One). Lee (1986, p.24) observes that the CA48 contained radically different accounting and auditing provisions from those of any previous enactment. Edey (1950) describes its provisions as representing a substantial stride forward in generally accepted accounting standards. The Accountant (28th July 1945, p.42) said that the report which formed the basis for the new provisions was one of those outstanding events that was certain to leave its mark indelibly on the history of company law. The accounting provisions of the CA48 were thus a significant change but the explanation of this change in corporate reporting regulation is one that has remained relatively unexplored. There thus exists a need for the historical process through which this regulatory change was generated to be further examined.

Accounting History

In a recent paper Harrison and McKinnon (1986, p.233) comment that the historical process accompanying such change in corporate reporting regulation, in particular the process of accounting policy formulation, is a subject that has attracted a good deal of contemporary research. Although such policy formulation can be studied from a variety of perspectives, in preparation for their study they argue that the processes of policy formulation can be, and long have been, understood as social processes with their outcomes reflecting complex interaction among parties interested in or affected by accounting regulation. They note that studies of policy regulation are also usually studies of accounting change, since new policies usually introduce requirements for new practices, and they cite calls for such changes in accounting to be made the subject of study (e.g. Hopwood, 1983, p. 290). They go on to model corporate reporting regulation as a social system, applying the techniques of what they call change analysis to a study of change in Japanese accounting regulation. Their concern is to identify the essential properties of the Japanese system of regulation and the impact of culture upon that system.

Harrison and McKinnon (1986, p.234) stress the need for a historical perspective in their study of accounting change and in this echo other authors such as Burchell et al (1980, p. 23) who commented that:

there is we think a real need for more historical studies of the development of accounting. Just how has accounting come to function as we now know it? What social issues and agents have been involved with its emergence and development. How has it become intertwined with other aspects of social life? And what consequences might it be seen as having had? For until recently we should remember that there have been relatively few social analyses of accounting change and the emergence of the new.

The need for historical studies of change in accounting had also been stressed earlier by Parker (1977) who called for accounting history research to address the issue of the causes of change in accounting practice. (Parker also advanced the hypothesis that accounting practice only changes as a result of strong external pressures such as a stock market crash, a major scandal or a major inflation.)

In their study, Harrison and McKinnon (1986, p.250) stress that their chosen theoretical approach to historical change in accounting social systems should not be deemed the only way to approach the explanation of such change. There are many potential approaches to the historical study of events and change. For example, Abrams (1982, p.214) documents rival historical approaches to the violent peasant uprisings in France in the 1630s and 1640s. Mousnier’s impressively documented, narrative history argued that attempts by the state to introduce direct administration created a situation in which venal officeholders found common cause in resisting the state and that it was on the basis of this unaccustomed leadership that peasant furies exploded when and where they did. However, Porchnev’s scholarly Marxist analysis of the same events argued that peasant furies were to be understood as a class war of the peasants against an unnatural alliance of feudal and bourgeois interests whose own natural antagonisms had been held in check precisely by a collusion in mutual exploitation of the peasantry. Abrams (1982, p.216) goes on to document the further development of that debate, but the example provides a preliminary warning about the theoretical difficulties inherent in the study and interpretation of historical events, even rather small scale studies of change in accounting regulation such as that represented by the new provisions of CA48.

Historical studies of financial accounting and change have, notwithstanding the calls for more such studies to be made, remained relatively scarce and accounting history has indeed even been vilified (Lister, 1984) as unworthy of scholarly attention. Hopwood and Johnson (1986) in their rebuttal of Lister’s assertions point out the central failing of his approach namely that he himself adopts a profoundly a-historical approach. Assuming that modern conceptions and functions of accounting reveal the ‘real’ nature of accounting he is unable to find anything of significance in the gradual processes whereby the ignorance of earlier periods, which failed to appreciate this real nature, has been gradually reduced through time. Hopwood and Johnson (1986) point out the fallacy of assuming this privileged insight into the ‘real’ nature of accounting and judging the past in terms of the present. They assert the value of historical endeavour in attempting to understand the emergence of outcomes and events, of uncovering and understanding the mechanisms of historical change rather than just accounting for it in terms of broad tendencies abstracted from any specific context. It cannot be assumed that the changes in accounting practice introduced by CA48 just represented another step along the road of progress, to the enlightenment of modern practices. Those changes have to be understood in terms of the generative social structures and actions which produced them.

Financial accounting history, however, has remained a rather shadowy venture on the periphery of mainstream accounting thought. Witness Whittington*s (1986) survey of financial accounting theory. He identifies three main approaches to financial accounting theory — the empirical inductive approach, the deductive approach and the new empiricism based on positivism derived from the Chicago School of Economics, but makes no reference to accounting history. Is it the case that financial accounting history has no theory, that it is simple storytelling? Or is it that accounting history should be conducted using one of these theoretical approaches? Or is it just that consideration of accounting history is excluded from the schema presented by Whittington? Such apparent disregard for accounting history neglects the contribution that historical studies can make to the understanding of accounting practice and change therein. Accounting history has an important part to play in the further development of accounting knowledge and the gradual development by historians, sociologists and accountants of a coherent programme for further historical research is an important part of the accounting agenda.

The Role of Theory in Accounting History

One of the principal methodological difficulties of writing accounting history concerns the role of any theoretical perspective. The simplest conception of accounting history might be that of a-theoretical description, just attempting to record what happened. A history of the CA48 might thus be presented as a chronicle, a documentary of actions and events prior to the eventual production of the CA48. However, even the selection of those actions and events deemed relevant to the process of legislative change is theoretically informed. Furthermore, the conservative historian Elton (1967, p.138) commented that to be satisfactory, and in order to avoid the charge of superficiality, historical narrative must also be thickened by the results of analysis. He commented that for action to be understood, its setting, circumstances and springs must be made plain, which must be found not only in the psychology of individuals but also in the details of administration, the economy, the intellectual preoccupations of the time and all the other so called ‘factors’. He commented that the narrative historian should accommodate such material and its analysis but he suggested that such analysis should not be explicit but should be like:

erratic boulders carried along in the glacier flow — paragraphs, sometimes sentences which seem to come naturally at some point of the narrative and step readily into its continuation so that the reader is barely aware of the change of pace.

In writing a history of the CA48 from such a stance therefore one should choose a definite starting point in time (Elton, p.136) and weave narrative and analysis together to construct an acceptable and detailed history. Elton, however is gently accused of subterfuge by Abrams (1982). Abrams maintains that Elton and narrative historians do not confine themselves to an a-theoretical history but actively deploy sociological analysis and theory in their narrative. He comments (p.306) of Elton’s study of the Reformation in Europe that:

Professor Elton may not care for trends, forces and factors but he is quite happy with connections, conditions and causes. He may not choose to speak of structure or structuring but agrees to live with patterns and patterning …. We have little difficulty in reading the overall message … The question is, how much of this is actually achieved by narrative and how much by overt or covert recourse to sociological analysis? My own impression is that the function of narrative in this enterprise is to carry — in a highly persuasive way not accessible to intellectual scrutiny — those bits of argument the author does not choose to make available for direct critical examination on the part of his readers.

Abrams (1982, p.308) comments that the narrative current flows so strongly that the erratic boulders of analysis are swept past before the reader has any chance to examine them carefully. He suspects that that is precisely the purpose of using narrative since its essential feature is this ability both to carry analysis and to protect analysis from the sorts of critical reading appropriate to it. He comments that if the reader were able to plunge into the narrative torrent and gather together all the boulders and pebbles of analysis they would assemble into a substantial analytical mass which could then be appraised. Such an opportunity, however, is not granted. Abrams’ point, therefore, is that as soon as history goes beyond attempting to be a simple chronicle it becomes involved in the sort of analysis which is theoretically informed, but that the theoretical framework deployed is usually constrained in the narrative tradition to being unarticulated. He comments that the narrative historians battle for an integration of narrative and analysis is one which can never be fully accomplished. The rules of narrative do not permit adequate analytical treatment of what is being represented. Indeed, the persuasiveness of what is being represented is directly threatened by such treatment. As Johnson (1979, p.201) comments, in works of history, the organising ideas and presuppositions may lie very deep. They none the less exist. Abrams* objective is to see a full and explicit declaration of the theoretical perspective being deployed by historians and this derives from his basic thesis that in their fundamental nature history and sociology are in fact indistinguishable. He comments (p.ix) that at the heart of both disciplines lies a common project, a sustained attempt to deal with what he calls the problematic of structuring. Both disciplines seek to understand the puzzle of human agency and both seek to do so in terms of the process of social structuring (p.x). This puzzle of agency with which both disciplines are concerned is the problem of finding a way of accounting for human experience which recognises simultaneously and in equal measure that history and society are made by constant and more or less purposeful individual action and that individual action, however purposeful, is made by history and society. Actors make a world of objects which then construct the actors. The puzzle of agency is the problem of individual and society, consciousness and being, action and structure. It is, he comments, easily and endlessly formulated but stupefyingly difficult to resolve. People make their own history but only under definite circumstances and conditions. They act through a world of rules which their action creates, breaks and renews. They are creatures of rules, the rules are their creation. People construct their own world — the world confronts them as an implacable and autonomous system of social facts. The variations on this theme are innumerable (p.xiii) . It is what Berger and Luckmann (1967, p.2) call their awesome paradox.

For Abrams (p.3) the solution to the problem of agency is the study of process. Process is the link between action and structure. The idea of process and the study of process are the tools to unlock the awesome paradox. He asserts that in this study of process lies the way that history and sociology marge. The shaping of action by structure and the transforming of structure by action both occur as processes in time (p.3). Both history and sociology are concerned with this process, and the problematic of structuring is central to them both. Abrams (p.xv) comments that:

Whatever the apparent preoccupation of historians and sociologists … it is the common and inescapable problematic of structuring which gives their work its final seriousness.

Abrams’ objective therefore is to bring out into the open the theoretical schemas covertly deployed by historians and to make explicit their fundamental concern with the problem of structuring. The theoretical manifesto which he suggests, for both sociologists and historians, is the work of the social theorist Giddens whose book, Central Problems in Social Theory, Abrams describes (p.xvii) as the first work in which the problematic of structuring is adopted as the basis of general theory. He cites Giddens (1979, p.8) who comments:

Sociologists have been content to leave the succession of events in time to the historians, some of whom as their part of the bargain have been prepared to relinquish the structural properties of social systems to the sociologists. But this kind of separation has no rational justification, with the recovery of temporality as integral to social theory, history and sociology become methodologically indistinguishable.

Giddens social theory, such as is appropriate to a small history of accounting change, is outlined below. Its relevance to such a history lies in the fact that histories go beyond simple chronicles of actions. Even in the small history below, institutions (manifestations of social structure) intrude — the corporate economy, the State, the professions. The explanation of the observed actions is made in terms of these institutions. Action is rendered meaningful in relation to them. History can be told taking such institutions as given but they recur in the analysis and interpretation that every history, except a simple chronicle, attempts. The social theory of the relationship of such institutions to action, their influence upon and their reconstruction by the actions that are the subject of the history thus forms the theoretical backdrop to the study. Such theory is deployed continually in the analysis of events made by historians. Abrams comments (p.xv) that these theoretical presuppositions provide the sense of significance and coherence that historians bring to the world in order to make sense of particular events. These theoretical presuppositions are what he calls problematics. Although Giddens’ attempt at a formal general theory is only one such problematic, its full articulation of the centrality of structuring (in fact Giddens calls it structuration) and its wide acclaim render it useful to the present study.

There is one final point to make before turning to Giddens’ work. The study of a change in the law relating to accounting is a very small history by comparison with the histories of revolution, class formation and other examples that might be envisaged as being more appropriate sites for worries about the theoretical content of history. But Abrams (1982, p.6) is kind enough to note that the same issues are germane also in what he calls micro-history:

History, the interaction of structure and action is not of course something that happens only on the large stage of whole societies or civilisations. It occurs also in prisons, factories and schools, in families, firms and friendship … And even in these small scale social settings teasing out historical processes, the sociology of becoming, is for the sociologist the best way of discovering the real relationship of action and structure, the structural conditioning of action and the effects of action on structure. It is simply the most fruitful way of doing sociology. What we discover when we treat small scale social settings in this way is merely a history in which ordinary individuals loom larger than usual and in which the detailed interdependence of the personal and the social is accordingly that much more easily seen.

The Role of Giddens’ Social Theory in Accounting History

Financial accounting practice exists as social practice. Each set of accounts produced exhibits the interplay between the individual and the social. Accountants produce accounts but not just as they please. Their actions are constructed by the social structure of accounting, by the rules that are relevant, from company law to ssAPs to understandings of best practice. These rules are enforced by mechanisms that vary from their internalisation by accountants to professional and government sanctions. Financial accounting practices are produced and reproduced on an individual basis but through time there endures a generative structure that creates observed practice. This interplay between action and generative structure lies at the heart of Giddens’ social theory in what he calls the duality of structure. The study of the recurrent interaction between action and structure is what Giddens calls his structuration theory. Structuration theory (or what Abrams calls the problematic of structuring) is the formal modelling of the way in which social practices (including financial accounting) are ...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Original Title Page
• Original Copyright Page
• Acknowledgements
• Table of Contents
• Chapter One: Accounting Change and Historical Explanation
• Chapter Two: The Accounting Provisions of the Companies Act 1929
• Chapter Three: Emerging Pressure for Reform
• Chapter Four: Company Law Reform and the Board of Trade
• Chapter Five: Academic, Institutional and Professional Opinion
• Chapter Six: The Development of Accounting Practice
• Chapter Seven: The Genesis of the Companies Act 1948
• Chapter Eight: Review and Conclusions
• Appendix One: The Accounting Provisions of Companies Act 1929 and Companies Act 1948
• Bibliography