DOCTORAL RESEARCH

Maureen Berry, Editor
UNIVERSITY OF ILLINOIS

Among the concerns expressed about the prospects for academic careers in accounting is the fear of decline or disappearance of the discipline’s renaissance men and women because of narrowing perceptions about meritorious research and methodology. What may well be a critical factor in keeping broad perspectives alive in our field, however, is the continuing interest of scholars from other areas, particularly the liberal arts, in accounting as a second career choice.

The understanding which these experienced researchers can bring to accounting is exemplified by Graves’s comparative analysis of the writings of Schmalenbach, Schmidt, and Mahlberg during Germany’s great inflationary period of the early 1920s. With this very wellwritten dissertation, Graves, who brought to accounting a Ph.D. in German, has now made it possible for linguisticallylimited English speaker to appreciate the German seminal works on inflation accounting as well as the general theories from which they sprang.

A second linguist who follows Graves in opening up the foreign literature is Fortin, whose native tongue is French and who went to France to study how the accounting discipline and profession evolved there after the second world war. From her archival research and personal interviews we gain some vivid impressions of the various institutions and events which shaped the accounting function in France over the past four decades.

A very similar time period was selected by Bracken for his investigation of certain influences on auditing practice in the United States, particularly the effect on development of auditing pronouncements of lawsuits alleging misconduct by client management. He takes the manyfaceted McKesson and Robbins case as his point of departure, emphasizing its force in reversing a general trend away from concern for fraud detection as an audit objective, as well as its importance in redirecting audit attention to the issue of management integrity.

A very different interest is brought to bear in the remaining five dissertations which all look into various aspects of the concept of social justice. Ferraro’s takes precedence as her work reaches back the furthest, that is, to the early years of the fifteenth century in Brescia. This city, in the northern Italian province of Lombardy, became an independent commune in the twelfth century but by the time Ferraro’s narrative begins, Brescia had come under Venetian domination. From her analyses of the central and municipal reports, tax records, and local archives spanning over two centuries, we learn how social justice and welfare suffered at the hands of the local government, and how the situation was exacerbated by the central government’s struggle for control.

The administration of social welfare in a similar, but shorter, period of history is also Tronrud’s concern. Back we go with him to three of the English cinque ports whose main obligation, before the reign of Henry the Eighth and the founding of the permanent navy, was to provide ships and men to protect the country from invasion. From his research in the archives of Romney, Faversham, and Sandwich, Tronrud developed his evidence about the extent of poverty in that part of Kent and the types and costs of relief which each community provided.

We move forward another century in time to imperial Russia in the 1760s when the Russian Free Economic Society was founded in St. Petersburg by the second Catherine. One of its main goals was to assist the indigent in rural communities and Pratt’s dissertation suggests that the society’s experiences could prove useful today to those interested in bringing reform to developing countries.

The last two dissertations bring us back to the industrial world of the twentieth century. Humphreys looks at the effect on industrial relations in France, just before and during the first world war, when industrialists introduced some of Taylor’s philosophies of scientific management. Labor’s fight against these reforms, Humphreys claims, was brought on not only by fears for the status of skilled workers but also by the clumsy way in which the changes were implemented. Ineptness in handling social issues is encountered again in Zahavi’s dissertation which examines Endicott Johnson’s programs to provide for the welfare of its employees. Although management tried various reforms, the success of the firm’s paternalistic attempts to increase loyalty and productive efforts is hard to assess because of discordant class sentiments in the work place. The second world war changed many traditions on the industrial scene and Zahavi’s dissertation closes with a review of the forces which worked to bring about the descent of welfare capitalism and the ascent of new notions of forwarding wellbeing in society.

Accounting for Inflation: German Theory of the 1920s (The University of Alabama, 1985) by Oliver Finley Graves. This dissertation describes, analyzes, and contrasts the general and inflation accounting theories advanced in Germany during the 1920s by Eugen Schmalenbach, Fritz Schmidt, and Walter Mahlberg. It also considers the significance of these German contributions to the further development of inflation accounting theory, referring to the later work by Sweeney and

First to be examined is Schmalenbach’s “dynamic” priceleveladjustment model which was an extension of his dynamic balance sheet theory dating back to 1908. Because of its origins in, and congruence with, a general accounting theory which was conceived before any periods of significant inflation, the model is based on price level adjustments and seems to be put forward as a temporary measure. According to Graves, the model’s design can be attributed to Schmalenbach’s primary concern with achieving comparable periodic income figures in periods of changing price levels. This, Schmalenbach asserted, required an allencompassing stabilization which, in turn, called for a systematic and stable measuring unit which would adjust both monetary and nonmonetary items for inflation effects. Schmalenbach selected indexation for the measuring unit, after considering and rejecting two other candidates, recommending a wholesale price index published by the German Bureau of Statistics rather than consumer or retail price indexes. These were to be used to express values at the end of a period in terms of some base year price level. Under this approach, individual balance sheet items retained their position relative to other balance sheet items, congruent with Schmalenbach’s view that balance sheet items were not values with lives of their own but merely unallocated revenues and expenses or receipts and disbursements. His lack of interest in the topic of inflation accounting in the latter part of the 1920s when the most severe inflation had ended shows Schmalenbach’s commitment to the tradition of historical cost and his fundamental concern with nominal capital maintenance.

Fritz Schmidt’s “organic” current value model grew out of the great inflation itself and was proposed as a general accounting theory intended for both inflationary and noninflationary conditions. Schmidt identified the reporting of fictitious profits, resulting from an assumed stable monetary unit in periods of rising prices, as the accounting factor which aggravates price level changes and is responsible for the oscillating swings of business cycles. This problem of fictitious profits could, however, be solved by current value accounting which corrects the error intrinsic to the accounting use of a nominal monetary unit. This is effected by separating asset valuation from income determination so that profits could be distributed in full without impairing capital. True shifts in demand would be disclosed so decisions with respect to expansion or contraction of operations would have a sound basis and market disequilibrium would be counteracted. Profit would be determined as the amount realized in” excess of the current replacement value of costs but the primary problem here is in correctly valuing such costs. Schmidt put forward replacement value as of the date of sale on the twin grounds that it allowed for continuity of operations as well as adherence to the organic principle of equality of values in the balance sheet. This organic current value balance sheet would then pass on costs to the income statement which would maintain the firm’s real position.

Mahlberg’s gold mark model was a deflation method which restated ending balances of each monetary account in terms of a prewar gold mark. The restated ending balances appeared on the balance sheet and the gain or loss resulting from the account restatements was recorded in the profit and loss account. A similar treatment was accorded the inventory account but different procedures were followed for fixed assets and capital. Differences between nominal and gold mark values for existing fixed assets were to be recorded when the first gold mark balance sheet was prepared, or at date of acquisition for subsequent additions, and these differences transferred to the profit and loss account. These gold mark values were then to be carried forward with no further restatements. Capital account transaction’s, on the other hand, were to be restated as of the date of occurrence. Mahlberg’s method, then, combines price level adjustments with both operating and real monetary gains and losses. It has the advantage, however, of enabling yeartoyear balance sheet comparisons without the additional

Among the problems of Mahlberg’s approach which Graves considers and critiques are his assumptions about enduring relationships among the values of goods which will withstand disturbances, and enterprise success depending on largescale monetary speculation by entrepreneurs during inflationary periods rather than on their management skills in normal operations.

Outside of Germany, Sweeney appears to be the only academic from the Englishspeaking countries to have been influenced by the work of these three theorists. His 1936 publication, Stabilized Accounting, draws on all of them but, as Graves puts it [p. 166]: “he synthesized and extended what he read to produce what is evidently the first model to attempt to combine priceleveladjustments and current costs in the accounting literature.” However, Graves found it hard to assess Sweeney’s direct influence on inflation accounting in the United States in view of the lack of attribution accorded him by subsequent writers. The fact that the main ideas in Accounting Research Study No. 6 of 1963 were “practically identical” [p. 167] with those in Stabilized Accounting provides an example of the independent development of concepts which have already been brought out elsewhere.

Edwards and Bell also refer to German thinking in their work The Theory and Measurement of Business Income. Graves [p. 169] suggests that while there are important differences between the Schmidt and Edwards and Bell models, Edwards and Bell’s concept of current value operating income is “substantially the same as Schmidt’s.” The American authors probably did not fully appreciate this, however, because their interpretations of some of Schmidt’s ideas are, as Graves states [p. 168] “puzzling” in view of what Schmidt actually wrote. After comparing recent developments in inflation accounting in the United States with approaches suggested by Schmalenbach and Schmidt, the dissertation closes with a chapter discussing the appropriateness of Schmidt’s current value, model for a U.S. inflation accounting standard.

The Evolution of French Accounting Thought As Reflected By The Successive Uniform Systems (Plans Comptables Généraux (University of Illinois at UrbanaChampaign, 1986) by Anne Fortin. Until the turn of this century, accounting in France was mainly constrained only by the provisions of the Code of Commerce and the 1867 company law. Some efforts had been made at the first congress of accountants, held in the 1890s, to arrive at some consensus on stan dardization of balance sheets but they failed for lack of interest. However, the first professional organization of accountants, the Société de Comptabilité de France, was established and it went on to play an important role in the education of qualified accountants. The provisions of the income tax law, passed in 1917, gradually helped to build up a body of accounting principles, but it was not until the 1930s that decrees were passed requiring consistency in both financial statement presentation and valuation rules in the interests of investor protection.

Fortin’s dissertation concentrates on the development of accounting thought, as well as the accounting profession, in France after the second world war and is based on primary and secondary sources in France, Canada, and the United States as well as personal discussions in France with some of those officials involved in this evolutionary process. The study is divided into three time phases, consonant with the development periods of the three uniform charts of account: 1940 to 1947, 1948 to 1955, and 1966 to 1979. An earlier history spanning three centuries of accounting in France is provided in an appendix.

During the second world war, the need to monitor and control industries motivated the drafting of the 1942 Uniform Accounting Plan as well as the founding of the Order of Expert Accountants and Chartered Accountants. When it ended, a number of considerations, including the decision to undertake national economic planning as well as the need to reform and harmonize accounting in the nationalized industries, led to the creation of the Committee to Standardize Accounting. This committee’s main task was to design an accounting plan which could be used in all sectors of the economy and thus form the basis of a system of national accounts. As a result of its efforts, the General Accounting Plan was published in 1947. It contained a chart of accounts, definitions and rules governing valuation and the use of accounts, financial statement formats, and a section on cost accounting. Although based on an industrial model, the plan was favorably received by companies in various sectors of the economy as well as local governments, and it was implemented by the Higher Council of Accounting created in that same year.

During the 1950s, the Council made a first revision and this was approved in 1957, the same year that the council’s name was changed to the National Council of Accounting. In 1962, a decree was passed requiring the 1957 plan to be adopted in the private sector. However, it soon became clear that once again the plan needed to be revised, one of the chief considerations being a perceived need to improve the possibilities for financial statement analysis. The main changes approved by the Council in 1975 were new criteria whereby assets and debt were classified by economic function rather than degree of liquidity or maturity; separate disclosure of the effect of tax regulation on accounting income; mandatory preparation of a statement of changes in financial position; separate disclosure of production components on the income statement; and the required computation of value added for national income accounting purposes. Unfortunately, the 1975 plan could not be adopted as proposed because, due to its macro and micro orientation, it was not congruent with the European Economic Community’s Fourth Directive. Therefore, in the 1979 draft plan which came into effect in 1983, the requirements for a statement of changes in financial position and the computation of value added were deleted, and modifications were made with respect to functional classifications in the balance sheet.

Fortin’s dissertation reveals the strong influence that company and tax laws have had on the development of accounting in France, as well as the important roles played by the nationalization of enterprises, economic planning, national income accounting, and the EEC. Changes have also occurred in perceptions about user needs. The first two plans were designed primarily for management, government administrators, and investors, with emphasis placed on determination of distributable income and legal claims to assets by various parties. The latest plan, on the other hand, is basically oriented towards the needs of financial analysts, statisticians, and national income accountants. France’s efforts to go beyond the fourth directive’s requirements, which it was free to do, thereby possibly improving its financial accounting and reporting quality, were, however, resisted by those industry representatives on the National Council of Accounting who did not want to have to disclose more information than required of their EEC competitors. In fact, Fortin suggests, it may well be that future developments in French accounting will be conditioned by the directions taken in the European Economic Community.

The Accounting Profession’s Specifications of Procedures and Actions Following Initiations of Selected Legal Actions Involving Allegations of Illegal Or Improper Management Acts: 19391978 (Mississippi State University, 1983; Vol. 45/03, p. 871A)1 by Robert M. Bracken, This study investigates the impact on the audit function of actions at law for alleged management misconduct, during the period 1939 to 1978, and is mainly based on library research in the accounting literature and the business press, as well as pronouncements by the American Institute of Accountants and the American Institute of Certified Public Accountants.

Bracken found two particular instances of periods where legal action was correlated with the relatively frequent issuance of auditing statements. This strongly suggested why the profession was motivated to act as a body to modify certain auditing practices. The fact that these outbursts of activity were followed by relatively long periods without judicial proceedings raises the assumption that the actions taken by the accounting profession had met public expectations.

The committees responsible for issuing auditing pronouncements during these forty years or so acted very consistently by handing down specific auditing procedures to be followed or audit actions to be taken almost every time a significant court action was resolved. As a result, the concept of “due professional care” was gradually defined with respect to such issues as misconduct on the part of client management, the use of judgment in decisionmaking by practitioners, and the need to redirect attention towards fraud detection. For example, pronouncements concerned with managerial misconduct laid stress on the need to evaluate the integrity of management personnel and to determine whether there had been complete and honest disclosure.

In Bracken’s opinion, the accounting profession’s approach to changing auditing goals, responsibilities, and practices today is a rational method of dealing with an audit environment where conflicting ideas exist about the responsibilities of businesses and auditors, and where society is not likely to want to pay for fees connected with extensive testing for fraud. Unless and until clients develop and implement controls over managerial misconduct which can be audited, and there is active involvement by independent parties in the control and oversight of management actions, the auditor will continue to be limited in his or her ability to provide services related to detection of improper management acts.

Economy and Society in Brescia During The Venetian Domination, 14261645 (University of California, Los Angeles, 1983; Vol. 45/01, p. 274A) by Joanne Marie Ferraro. Ferraro analyzed the relationships between local government in Brescia and its Venetian rulers, mainly during the sixteenth and seventeenth centuries, in order to learn how the balance of power was displaced when Venice asserted its authority. Her research evidence was primarily obtained from reports by central and municipal officials, tax records, and local histories. Venice’s strengthened interest in governing its territorities, which were known as the Terraferma, came about as a result of the decline in sea trading. Because the Terraferma were then of considerable economic importance, the Venetian government tried to increase its political influence in Brescia so as to gain more control over Brescia’s resources.

At the same time, change was also taking place, politically and economically, at the local level. Due to the deterioration of commerce and industry, political power had been acquired by the landowners. This oligarchy then took over control of most of the municipal infrastructure, such as food provisioning, administration of justice, and imposition of taxes, as well as the financial and charitable institutions. This expansion of power by both the Venetian and the Brescian governments was accompanied by constant antagonism between the two as the local group tried to withstand the political and fiscal inroads Venice was making on its authority.

Ferraro concluded that the internal developments in Brescia could be considered typical of the social and economic discontent which existed throughout Italy at that time. Taxation was escalating and mismanagement by those in political power affected not only local government finances but also the institutions for social welfare. The strains resulting from this disregard for social justice snapped in 1644 when the Brescian bourgeoisie tried to sever the aristocracy’s exclusive hold over the municipal government. These attempts at reform were to no avail, however, the political and financial control remaining with the local oligarchy for the remaining life of the Republic.

Poverty in Three English Towns, 15601640; A Comparative Approach (University of Toronto, Canada, 1983; Vol. 45/02, pp. 6012A) by Thorold John Tronrud. This is a comparative study of poverty and relief for the poor in three towns: New Romney, Faversham, and Sandwich, in the English county of Kent, during the sixteenth and early seventeenth centuries up to the time of the English Revolution. Using evidence obtained from each community’s corporate, judicial, and parish records, Tronrud evaluated the various attitudes expressed about poverty and vagrancy and examined the extent of indigence, as well as the types and associated costs of relief made available to the poor. He found that each town’s philanthropic response differed and in order to try and learn the reason for this, Tronrud looked at three main variables: economies and municipal finances, religious inclinations, and internal political relationships.

He concluded that political considerations played the greatest role in setting policies for social welfare because good political ties with the citizenry were essential for the authorities to be able to impose the new taxes and other financial burdens needed to provide relief. Financial considerations, in contrast, were of comparatively minor importance because of the fact that the relatively low cost of the poor relief programs did not pose any threats to municipal solvency. This was at least partly due to the low incidence of poverty in two of the three communities. Certain factors, such as the town’s economic characteristics, the frequency and extent of epidemics, and the role played by religious beliefs, including the effects of Puritanism, significantly influenced attitudes about poverty and how it should be ameliorated. Tronrud suggested, in summing up, that maintenance of civic peace was the essential element in effective policies for social relief.

Taylorism in France, 19041920: The Impact of Scientific Management On Factory Relations and Society (The University of Oklahoma, 1984; Vol. 45/03, pp. 9134/A) by George Gary Humphreys. Humphreys’s work throws some light on patterns of industrial relations over the turn of the twentieth century by examining the history of Taylorism in French industry during part of the belle époque, He draws out the linkages between Taylorism and the traditional discord between management and labor over autonomy and discipline, as well as the unique way in which Taylorism developed during this time.

The adoption of Taylor’s philosophies by some French entrepreneurs had both social and technical motivations, given their constant concern over discipline in the factories and their attempts to deal with social issues after the Paris Commune. Before the first world war, Taylor’s ideas about scientific management were espoused by engineers, such as Henry Le Chatelier, as well as pioneers in the automotive industry, including Louis Renault. However, the inept way in which Taylor’s methods were implemented drew opposition from the skilled workers who perceived the new approach as a threat to their domination of the production process. It was their fight to maintain both status and prestige which provoked the strikes at Renault against the new management movement.

Wider endorsement of Taylorism resulted from the war and the economic planning which followed it. The massive wartime needs for armaments led to high level government support for scientific management and its reforms were embraced by French engineers looking for professional advancement. By 1920, however, a number of factors worked against expansion of the Taylor movement. These included conservative reaction to economic intervention by the state, the Bolshevik revolution and postwar strikes, economic insecurity, and considerable resistence to management reforms by small companies.

Workers, Managers, and Welfare Capitalism: The Shoeworkers and Tanners of Endicott Johnson, 18801950 (Syracuse University, 1983; Vol. 45/02, pp. 6134A) by Gerald Zahavi. The term “welfare capitalism” was given in the late nineteenth and early twentieth centuries to a movement promoted by progressive business firms seeking to take on some of the responsibility for the welfare of their employees. In the view of these liberal entrepreneurs, a firm’s personnel should be entitled to fair treatment and consideration and not be merely regarded as one of the basic inputs to the production process. Consonant with this concept, various industrial reforms were introduced in attempts to build up loyalty, improve morale, and lessen conflicts. Opinion, however, is still divided as to the extent to which such corporate efforts were successful in meeting these three goals. So, Zahavi undertook this investigation to assess the relative success which the Endicott Johnson Corporation experienced with this philanthropic philosophy.

By tracing the development of the Endicott Johnson firm, one of the largest shoe and leather manufacturers in the United States, as well as its labor relations history during the main period of corporate welfarism, Zahavi provides an interesting case study of the community which the company’s owners and managers tried to establish out of its two dozen factories and tanneries.

The dissertation commences by examining the growth of the shoe industry in the late nineteenth century and analyzing the tensions between management and labor which were both typical of the industry in general and the firm in particular. Next follows a record of the gradual appearance of paternalism at Endicott Johnson, together with details of its welfare system. The author goes on to explain the class sentiments expressed with the factories and tanneries and why this environment tempered labor’s reactions, and limited the success of programs which management attempted to build on the basis of a classfree philosophy.

Several elements combined to challenge the welfare capitalism approach and the study concludes by examining the related management and labor responses to the impacts of the Great Depression, the emergence and growth of the industrial unions, and the advent of the second world war. As an epilogue, Zahavi details the downward course which beset both the company and its social philosophy in the postwar years.