Reviewed by Robert H. Raymond
University of Nebraska
In Corporate Financial Reporting—Public or Private Control Robert Chatov brings what must be a new interpretation to events that have long been familiar to accounting historians.
This book is based on Dr. Chatov’s doctoral dissertation, but additional material has been added, particularly in the policy recommendations area. Prof. Chatov writes from a unique background including undergraduate studies in economic history, a law degree, and eighteen years of experience with Ford Motor Company as well as his doctoral studies. He freely admits that he is not an accountant. He terms his approach sociohistorical, imbued with a legal and economic perspective.
Chatov carefully clarifies the nature of this book in both the preface and the first chapter. It is a study of the effectiveness of independent regulatory agencies, using the Securities and Exchange Commission as the case in point. Primary points for which he looks to history for supporting evidence include:
1. The Securities and Exchange Commission abdicated its Congressional mandate to develop a comprehensive set of accounting rules. The SEC did not want to develop such a set, the practicing accountants had no intention of doing so, and the academic accountants were not asked to.
2. Failure to control the pooling of interest accounting for financial combinations permitted the most incredible stock market speculation in the United States since 1928-29, and brought down the Accounting P ri n ci pl es Board.
3. Starting about 1887 when accounting control was in the financial industrial system, accounting has gone a complete cycle with control being shifted first to the FTC-SEC; then to the practicing accountants; and now back to the financial-industrial system, shared with accounting practitioners and the corporate sector.
4. Accounting is significant in the process of economic development. It should, Chatov contends, be a function of public policy, not corporate policy. This calls for, he believes, a comprehensive accounting code, the objectives of which should focus on the needs of macroeconomic and social public policy. This code should be supported by a special administrative court system to resolve interpretations under the code and to adjudicate disputes between the SEC
and defendants.
In Chapter 16, Chatov runs back through some of the events, this time examining them from the point of view of the sociology of government regulation. Three themes are developed:
(1) the “threat” of SEC intervention whenever practicing accountants do not perform is little more than a ritual;
(2) public statements about constantly friendly relations between the SEC and the accountants is largely a myth—the corporate sector has always been the dominant influence behind the liaison between the accountants and the SEC in their interaction over the determination of accounting principles; and
(3) accountants have achieved professional status in the sense of ability to exercise influence on the public sector, but in continually trying to limit their liability to third parties the public accounting profession might be found wanting when it comes to the public interest.
The tone of the book is reflected by the following paragraph from Chapter 11, “The Difficulty of Regulating Powerful Constituencies”:
The failure of the Securities and Exchange Commission to assert and maintain its authority to prescribe standards of financial reporting at the earliest opportunity was fatal. The Commission was never again able to assert that power. The lesson suggested by the experience of the SEC is that an independent regulatory agency should utilize the full range of its power at the outset of its existence, or fore go the opportunity subsequently to use them as effective instruments of public policy. (p. 171)
Accounting historians should read this book whenever they begin to feel secure in their grasp of the interpretation of accounting history. It will remind them that other interpretations might be possible. As they read they will want to ask themselves whether Chatov’s book is primarily a well rounded scholarly interpretation or the skillful brief of an advocate.
As I read and pondered this book, I developed a list of over twenty potential research projects.
While I recognize that many publications are adopting the notation form used in this book, l find it time consuming, irritating and a discourtesy to the reader.
(Vol. 2, No. 3, p. 7, 1975)
