Reviewed by Robert Jennings, Jr. Indiana University Southeast
In Price Waterhouse & Co. in America, Arno Press has reprinted C. W. DeMond’s 1951 history of the accounting firm in the United States. Originally printed for internal distribution only, this work provides an historical insight to the development of Price, Water-house & Co. and to the development of many of our accounting standards. Most chapters contain interesting discussions of ac counting issues and growth problems of the profession (if one can skip the numerous required references to various individuals of the company).
The book traces the origins of the partnership of Price, Water-house & Co. from London in approximately 1865. At this early stage,
“The principal work undertaken consisted of liquidations, bankruptcies and arbitrations, but another important con-tribution to the practice was the introduction of prospec tive borrowers of money to those who had funds available and were prepared to lend them.” (p.2).
Activities began in the United States as early as 1873 primarily with mergers and audits of the U.S. related subsidiaries of British firms. Most work papers and report drafts were sent from the origi nal New York or Chicago offices to London for review. Finally, in 1895, with the establishment of Jones, Caesar & Co., direct account ability to London ceased, and a new American firm began.
The partnership of Jones, Caesar & Co. retained a distinctly British flavor for many years as evidenced by the influence of its first senior partner, Sir Arthur Lowes Dickinson, appointed in 1901. The reader is introduced at this point to many of the difficulties faced by accountants at the turn of the century including, surpris ingly, problems with the media. At the turn of the century, an Amer ican brewery wished to reduce depreciation expense in order to permit a dividend payment, and several Chicago newspapers im-mediately agreed, stating that
“. . . the whole charge was an invention of these tiresome English Accountants, got up to rob the poor ordinary shareholder of his capital dividend.” (p.22)
Additional accounting problems encountered included treatment of contingencies and the desire by some companies to show stock dividends received as income.
As the growth of the firm is chronicled, the author discusses new offices established throughout North and South America including the first offices of a national firm in such cities as Detroit, Los An geles and Seattle. Although tedious at times, the discussion in cludes theoretical descriptions and various anecdotes which help to enliven the reading. Spurring continued growth of the firm were the introduction of income taxes, escalating mergers and consolida tions, and ever increasing audit engagements. At times the early progress of the firm seemed to mirror the American economy as marked by business expansion and panics, but growing regulatory demands provided the major impetus.
Early partners were very active in the establishment of various professional societies. In 1904, Joseph E. Sterrett was named the chairman of the first International Congress on Accounting in St. Louis. By 1910 this activity had propelled another partner to na tionwide prominence and through him, Price Waterhouse & Co. achieved a level of success previously considered unattainable. Although Dickinson had provided the foundation, it was through George O. May that the firm achieved fame.
George O. May, a partner for thirty-eight years, led Price Water-house through the period during and after World War I, the stock market crash of 1929, the rise and fall of offices during the depres sion, and ultimately, the McKesson-Robbins case. A major innova tor, he published the first formal standard audit report as well as numerous other authoritative works. During World War I he con sidered employing women to alleviate the manpower shortage. A major force in achieving cooperation between the New York Stock Exchange and the American Institute of Accountants, May was asso ciated with Price, Waterhouse & Co. until his retirement in 1940.
The author’s last chapter of significance deals with the McKes-son-Robbins case of 1938 and 1939. Although the firm is ultimately absolved of all responsibility, DeMond goes to great lengths to sup port the work of Price, Waterhouse & Co. and to provide justifica-tion for the audit work, or lack thereof, performed in this situation. Prior to McKesson-Robbins, generally accepted auditing standards did not require the actual observation of physical inventory or the confirmation of receivables. Subsequent discovery of management fraud and collusion in this case forced a re-evaluation of the audi tors’ responsibilities. Price Waterhouse & Co. ultimately repaid the entire audit fee of approximately $500,000.00, although the firm maintained that it had acted entirely within the scope of accepted practice at the time.
Apart from numerous references to personnel changes and trans fers, this book provides valuable background information on many accounting practices and procedures used today. The reviewer be-lieves that students of accounting history and educators will find this work immensely helpful in understanding the development of accounting principles and the accounting profession in the United States.
