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The Richard C. Adkerson Gallery on the SEC Role in Accounting Standards Setting
Accounting and Auditing in the 1930s
The Accounting Profession
- 1937 Occupations Related to Mathematics
What was the accounting profession like in the mid-1930s? While there are well over a half million CPAs today, there were only about 15,000 CPAs in 1933. The major national firms were well in place in the mid-1930s, though much smaller in scope and size. Membership in competing professional groups — the American Institute of Accountants (AIA) and the American Society of Certified Public Accountants — stood at about 2,000 each. Those organizations merged in 1936 with the AIA as successor, ultimately adopting the name of the American Institute of Certified Public Accountants in 1957.
As a national profession, accountancy was still young but about to mature quickly. In 1929, New York was the first state to require a college degree for a CPA certificate, and by 1968, all but 19 jurisdictions had such a requirement. In 1917, only three state boards of accountancy accepted the AIA's offer of a uniform written CPA examination. By 1937, most states used the uniform examination, and all states and territories used it by 1952. The uniform examination established a common national status to CPAs and facilitated cross-state mobility.
Although authoritative accounting standards were few, auditing procedures were in a relatively-developed state in the mid-1930s. However, the accounting profession would soon reel from the discovery of the 1938 McKesson-Robbins fraud. The SEC had launched the most searching investigation ever conducted by a government organization into an independent audit and the practices of the audit profession in general, and in December 1940, issued its report in Accounting Series Release No. 19. While oriented to auditing procedures, McKesson-Robbins indicated the need for the profession to better delineate all standards, both accounting and auditing.
McKesson-Robbins also drew attention to the seasonal nature of the business, a factor that had hampered the profession for years. Before World War II, a substantial majority of businesses closed their books on December 31. Most audits had to be completed in the first few months of the year, forcing audit firms to hire legions of temporary employees, most of whom would be gone by May. This adversely affected all aspects of quality, including recruiting, training, and supervision, to say nothing of morale.
The SEC lamented the personnel problem in its analysis of the McKesson-Robbins scandal: "We deplore ... the necessity for recruiting large numbers of temporary employees during a very short busy season. This condition and the lack of training ... which it ordinarily entails are inimical to attaining the best results from the auditors' services." (4)
The AIA and the Natural Business Year Council had long encouraged companies to adopt a "natural" fiscal closing when their annual operating cycles were complete and inventories and receivables at their lowest points. Now, with the SEC's support, many companies adopted a closing other than December 31 and the firms' workload began to be spread throughout the year. (5)
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