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New York City served as the first home for accounting in
the United States. It was here, in the early decades of the 19th century, that
sole practitioners began to offer accounting services to the public, and that the
nation’s first self-styled accounting school taught bookkeeping and mathematical
science for a brief time beginning in 1818.
Public accountants appeared in
greater numbers during the 1850’s in both New York City and Philadelphia. By the
1880’s their work had become increasingly professional in nature by providing more
than the routine accounting functions. There were 155 public accountants in New York City
in 1886 and accounting firms in partnership form existed there from as early as 1866.
Philadelphia’s Wharton School of Business was established in 1881, and began to teach
accounting in 1883.
During the last quarter of the nineteenth century business and industry flourished
throughout the nation, with New York City as the principal commercial center. Industrial
concerns incorporated and their securities were publicly sold; there were financial panics
in 1873 and 1893; monopolies were created; labor unions emerged and strikes took place;
Congress enacted an Interstate Commerce Act and the Sherman Antitrust Act to regulate
business.
As business organizations and regulation grew so did the larger New York public
accounting firms. At first there were imports from England, namely Barrow, Wade, Guthrie +
Co. in 1883, and Jones, Caeser + Co (now Price Waterhouse and Co.) in 1890, but then
American firms were founded – Haskins & Sells (now Deloitte &
Touche) in
1895, and Lybrand, Ross Bros. & Montgomery (now Coopers and Lybrand) in 1898. Large
organizations prominently U. S. Steel in 1891, engaged the larger CPA firms to audit their
records. In 1902 U.S. Steel began the practice of having auditors elected by stockholders
and publicly issuing an audit certificate signed by the CPA firm.
The first U. S. accounting organization was the Institute of Accountants and
Bookkeepers formed in New York City in 1882 and later known as the Institute of
Accountants. Many of its members engaged in public practice and one class of them needed
to pass difficult exams. It focused upon pioneering accounting education and providing
accounting literature.
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In 1887 the first national organization of public
accountants was incorporated as the American Association of Public Accountants. Today its
name is the American Institute of Certified Public Accountants. It had been founded at 45
William Street in downtown Manhattan and most of its early members practiced in New York
City. In 1892 it was granted a provisional charter by the New York State Board of Regents
to start a college for accountants; however, the school was not successful.
CPA
exams were first given in December 1896 when New York State gave the profession of
independent certified public accountants its first legal recognition. An exam candidate
had to be at least 25 years old with 3 years experience, at least one of them in a public
accounting office. The initial exam and its early successors dealt largely with
today’s basics but reflected public accounting practice of that era.
Two years and two exams went by before six CPA certificates were finally issued as
a result of the third exam in 1898. By 1906, after 10 New York State exams, only 188
certificates had been granted based upon examinations although 185 were granted based upon
waiver of the exam for persons who had practiced public accounting for at least one year
before the passage of the 1896 CPA law. Throughout the United States only 617 certificates
had been issued by 1906, half of them in New York.
During the first decade of the twentieth century the CPA profession grew rapidly
in prestige and an increasing number of larger corporations chose to retain CPAs to
perform periodic audits. The need for properly educated accountants was growing much more
quickly than the supply.
In 1900 only 12 colleges and universities offered accounting courses, and only 4
of them included auditing courses. New York University started classes in the first
department of accounting in 1901. In 1902, evening classes sponsored by the Pennsylvania
Institute of Public Accountants began to prepare students for the CPA exam. Those classes
were turned over to Wharton in 1904. Accounting literature was almost nonexistent at the
time.
This was the educational and professional environment in public accounting when
the Pace brothers embarked upon their educational venture in 1906.
By Allan M. Rabinowitz
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