Costing

The novelist, the dramatist and the poet have largely passed the accountant by. How could his dry bones be made to live? Perhaps authors have been right in the past, leaving the service professions, as we now call them, to minor figures like Bob Cratchit and Mr Wemmick, in whom the dullness and servility of their daily works is redeemed by warmth and eccentricity at home. The senior lawyers, in the manner of Bottom the weaver, have taken the best parts, reading the dramatically perverse will, appearing as guileful advocates in the courts, laying down the principles of business in cases with mysterious names such as the Carbolic Smoke Ball Company, handing down judgments that unconsciously reflect their social ethos. The accountants, by contrast, have provided no drama. In Dickens’s time they had hardly asserted themselves as a profession, being subsumed, as far as they were noticed at all, among the clerks and bookkeepers.

The accountant is indeed a dull dog through the earlier stretches of Edgar Jones’s book, mainly concerned with keeping track of things in money terms. But he gains in stature and rewards from the Companies Act of 1844 onward, as he assists the businessman and the Protestant ethic to carry Britain from the simplicity of agrarian society to the complexity of the industrial. He comes into his own with the proliferation of firms, their shifting of assets, their growing scale, their greater fixity of capital. There are also importunate shareholders, mounting tax demands (both for trading and for dying) and conflicts over liquidations to be dealt with.

The manner in which the accountant evolved to his present state is presented through the evolution of Ernst and Whinney, one of today’s giant firms, and its components, set in the context of the profession generally. Dr Jones provides a first view of the history of the modern accountant that is excellent in itself and provides the basis for further investigation. Proceeding mainly, though not exclusively, through the history of a particular firm gives a unity to the book, as well as offering a consolidated body of source material. It could, however, be argued that the Institute of Chartered Accountants in England and Wales, in celebrating its centenary in 1980, should have taken a broader view of its past and given a wider remit and more time to Dr Jones. Even so, many intriguing sidelights are pursued, such as the development of accountancy handbooks, accelerating as British manufacturers discovered, in the 1880s, that their grip on markets was being weakened by Germans and Americans who had turned to cost accounting. The accountant is also delineated in the service of government, in running the collectivisms of wartime and the industrial rationalisations of peacetime, together with the salvaging of early lame ducks, as with the catastrophic collapse of the Royal Mail group, culminating in 1931 in Lord Kylsant’s imprisonment.

In a sense, the accountants’ role has been a passive one – they have not aspired to, much less contrived, their present very powerful position. They have been impelled to it by circumstances greater than themselves: but once arrived, they have become the custodians of the business system, at least so far as it rests on calculation. Two of the steps in their progress from the status of humble ancillary to their present eminence have a special interest. The first has to do with their function as liquidators, potential or actual. Over large areas of industry in the growth years of the 19th century, especially in the various branches of engineering, the founder of the firm was an energetic innovator, with little sense of costing and marketing, largely preoccupied with invention and development. A stage of maturity would be reached in which a heavy capital had to be serviced. The decennial trade cycle would bring a cash crisis and a demand from creditors for repayment. What the later Victorians came to regard as the Darwinian process of natural selection operating among these firms would be mediated by the accountant. He might be called in to control the founder’s romantic fascination with technical achievement, imposing on the firm, in the name of the creditors, a pattern of rationalisation, costing, and concern with markets. Thus the functions of the entrepreneur and the accountant could become reciprocal, the innovative energies of the one being subjected to the rationalisations of the other.

So important a function could lift the accountant out of the modest role of checking the books to that of considering the performance of the enterprise as a whole, over time. This gave the directors the possibility of rational reasoning and planning: increasingly, they asked the accountant to join them. Something similar occurred in banking, when mergers, involving difficult problems of valuation, were carried through, placing a premium on the accountant, or when the banking system went through a phase of large-scale liquidation, as with the Overend Gurney crisis of 1866. The accountant, in his proper role, however, was not a decision-maker but a calculator of values and performance and a construer of potential.

The second great leap in role and status, accelerating in pace over the past two decades or so, has been the result of business concentration. The capital requirements of industry and commerce, together with the technical and organisational imperatives of scale, have caused business to be dominated by ever fewer and ever larger firms. The service professions, including the accountants, have followed along. It is their function to try to keep account of the shifting pattern of assets in this new, more complex and more volatile situation. They must also provide the means of monitoring performance, and averting internal anarchy by notionally disaggregating the conglomerate, so that the efficiency and functioning and rate of return on each (formerly separate) component can be calculated. Only thus can the conglomerate be saved from malfunction, illiquidity, loss of direction – and the traditional danger of misappropriation.

Whether those who form and run such conglomerates understand what is fed to them by their accountants, and make proper use of it, is another matter. So, too, is the question of how far this inner accounting could and should be made accessible to shareholders, trade unions and the public, and the responses that might ensue if it is. Further, how far should the state force its way into these arcana before the lame duck syndrome appears? As notions of planning are extended, the state needs to know much more of such matters than it has heretofore. But this may be in conflict with the secrecy traditionally said to be essential to the market system. Multinationals pose the challenge of surveillance on a global scale. Accountants, if invited, can bring a form of rationality into the business system – but only up to a point: beyond that there are the great shocks and the gross ambitions and misjudgments that can bring chaos.