As a history graduate in another life and an academic accountant today, it is not difficult to gain my attention with a book relating to accounting history. This particular book is the outcome of a research project funded by the Institute of Chartered Accountants in England and Wales and it does what it says in the title, providing a (largely chronological) historical narrative of the work of the Accounting Standards Committee from its establishment (as the ASSC) in December 1969 until it was dissolved in July 1990.
The chapter titles encapsulate the story. So chapter 1, “Present troubles, and more to come” and chapter 2, “The invention of the accounting standard”, discuss the events leading up to the establishment of the ASSC and decisions relating to its remit (narrowing areas of difference) and the design and enforcement of accounting standards. The usual suspects appear – corporate scandals relating to AEI‐GEC, Pergamon‐Leasco and Rolls Razor; Professor Edward Stamp's letter to the Times; the threat of government intervention if the profession failed to act.
Rutherford asks “Why now?” and takes a comparative look at the USA where variety of practice had also been seen as poor practice. Rutherford sees similar but delayed pressures in the UK and a profession that, by the late 1960s, had lost control over the debate.
These first two chapters indicate the nature and style of the book. There are no startlingly new revelations but there is a highly detailed and nuanced analysis – thoroughly referenced and sourced ‐ offering an interpretation of the balance of influence of the main and known events.
Four further chapters (chapters 3, 6, 8, and 10) each cover a five‐ or six‐year period from 1970 to 1990 and, again, chapter titles encapsulate the story: “Honeymoon period: 1970‐1974”; “The going gets tougher: 1975‐1979”; “The art of the possible: 1980‐1984” and “Losing steam? 1985‐1990”. Within this chronological organisation the development of accounting standards is meticulously detailed, with many given their own‐headed sections. This approach makes it a relatively easy book to “dip into” if you are seeking detail relating to an individual standard – useful also if you are trying to encourage students to add some depth and context to their learning (without, heaven forbid, requiring a whole book to be read!). A conclusion to each chapter is also given.
Rutherford details how some standards were uncontentious, for example from chapter 3 we have SSAP3 Earnings per share, SSAP4 Accounting for government grants, and SSAP10 Statements of source and application of funds, but right from the beginning there is a sense of some of the recurring and more problematic (even to this day) issues. During those early years there were concerns relating to the possible conflict between standards and the law and the legality of standards. There were fundamental questions as to whether standards should be subjective (principles‐based) or objective (rules‐based/bright‐lines) and conceptual questions such as: who are the users of accounts and when is profit “earned” or “realised”? There were technical arguments relating to the contents of standards, both from those objecting to proposed treatments in principle and from those self‐referentially lobbying to continue with their current practice. The economic consequences of accounting standards were recognised early. There is also evidence of the councils of the professional bodies meddling in technical detail and showing signs that they expected to be able to influence the content of standards and not always in an agreed manner.
As a result some difficult topics were delayed (spectacularly ED3 Accounting for Acquisitions and Mergers becoming a standard 14 years later), some contributed to significantly narrowing the areas of difference (SSAP9 Stocks and long‐term contracts), some improved financial reporting by innovation without necessarily addressing areas of difference (SSAP10) Statements of source and application of funds, some had weaknesses (such as the flexibility of SSAP6 Extraordinary items and prior year adjustments). Even after publication a number were “slammed” by critical press and company comment and/or continued to pose problems.
Chapters 6, 8 and 10 develop and add to the above. Again, meticulously detailing and sourcing the technical and political development of the discussion papers, exposure drafts and accounting standards issued. Rutherford clearly locates these later developments within an increasingly complex business and institutional environment. So the growing complexity of business issues for which standards were required is highlighted by SSAP20 Foreign currency translation; the political sensitivity of topics by SSAP13 Accounting for research and development and SSAP15 Accounting for deferred tax; the development of arguments relating to the economic consequences of accounting standards by SSAP21 Accounting for leases and hire purchase contracts; the wider international context by SSAP 24 Accounting for pensions costs; the impact of the importation of a continental European prescriptive approach to legislating for financial reporting that resulted from the fourth and seventh directives with the revision to SSAP9 Stocks and long‐term contracts; and the exacerbation of much of the above by the aggressive business environment and earnings management of the 1980s by the revision to SSAP6 Extraordinary items and with SSAP 22 Accounting for goodwill and ED 47 Accounting for goodwill.
The book is not entirely chronological. Within the chronological narrative the particular topic of accounting for changing prices is dealt with separately in chapters 4 and 9, Accounting for Changing Prices: The Struggle Begins and Accounting for Changing Prices: The Struggle Continues – and Ends Badly. The special status given to accounting for changing prices reflects its position as the key topic seen as affecting ASC credibility, although Rutherford later suggests that the free choice allowed in SSAP 22 Accounting for Goodwill probably undermined the ASC's credibility and is own self‐confidence more – no other standard setter solved the problem of changing prices but they were able to take a stronger line with goodwill. Chapter 7 Reforming the System covers the 1978 decision to review the structure and procedures of the ASC and the resultant Watts and McKinnon Reports of 1981 and 1983. Of these, Rutherford gives us an interesting classification of clear improvements, probable improvements, unsuccessful outcomes that caused no harm, some outcomes that would have happened anyway and opportunities lost but perhaps inevitable given the real politic of the day – I leave the reader to propose what might fall under each heading!
Abstract issues are also discussed separately, in chapter 5 The Holy Grail. The development but limited influence of The Corporate Report is discussed along with the lack of any further development of a conceptual framework and the limited role of academic research in the development of accounting standards. With respect to the latter, Rutherford sees a “grim dichotomy” (p. 114) with the sort of normative and conceptual academic work that might assist in standard setting ceasing to be valued by the academic community, while its replacement, social scientific research, was ill‐suited to help standard setters being time‐consuming, difficult to design and often inconclusive. I am not sure that the UK's Research Assessment Exercise has done much to ameliorate that position.
Unfortunately one area where there was academic input, Professor Richard Macve's 1981 Report into the usefulness of an agreed conceptual framework, was widely interpreted as concluding that the possibility of agreement was “distinctly slim” (p. 112) and as a result the Committee continued its work without seeking to develop such a framework. Rutherford is more inclined to pick up on Macve's comment that “the important thing is that the effort is made, and seen to be made, to ask the relevant questions” (p. 112) and suggests that a conceptual framework with a less grand vision than presumed by most, might have been of some use to standard setters. Chapter 5 also discusses how financial reporting and company law drew closer together during the life of the ASC and the importance of the political economy of standard setting.
For me, this is the weakest chapter of the book. If the ideas within it hold together at all then they hold together as thematic or summary aspects of ASC standard setting, which may be better placed towards the end of the book.
An overall analysis of the life and work of the ASC is given in chapter 11, Setting accounting standards 1969‐1990: technical and political realms. Rutherford highlights the increasing sophistication of the technical branch of the profession, particularly as it had to deal with increasingly complex issues. This is a useful balance as Rutherford also accepts the long acknowledged problematic issues relating to enforcement and CCAB infighting (funding this book did not let the English Institute off the hook here) with the latter being ultimately seen as the fundamental problem – when considering whether the demise of the ASC was inevitable, Rutherford argues that “if the accounting profession was in the grip of irresistible forces, then they were not pressing in on it from outside – rather they sprang from its utter inability to control it own internal feuding” (p. 300). In considering the effectiveness of the ASC, Rutherford is sympathetic, concluding that the ASC “punched well above its weight for most of its life, contributing more to the improvement of UK financial reporting than the profession that supported it, pretty grudgingly most of the time, was entitled to expect. In so doing it went well beyond its remit to narrow areas of difference, in addition seeking out better methods and innovative disclosures” (p. 307).
Overall, this is a detailed, meticulously researched and thoroughly sourced book – 314 pages of narrative are supported by a further 77 pages of notes and sources, nine appendices and a ten‐page bibliography. Rutherford has interviewed every surviving chairman of the ASC and every secretary except one, as well as many others who were involved in the Committee's work. As such it is also a traditional piece of historical work – there is no “New accounting history” here (Funnell, 1996). Rutherford prefers to follow Evans (1997) to “find out how it happened and reach some tenable though always less than final conclusion about what it all meant” (preface xii).
This book will therefore be of great interest to those wishing to gain an historical insight into the UK standard setting process and to those wishing to understand some of the debates that give context to current financial reporting practices.
