The Development of the American Public Accounting Profession

Scottish Chartered Accountants and the Early American Public Accountancy Profession

T.A. Lee

• Publisher: Routledge
• Year: 2007
• ISBN:
  9781134139682
• Edition: 1
• Topic: Commerce
• Subtopic: Commerce Général

The book presents a series of researched biographies ofprofessional accountantswho immigrated to the United States and developed their careers there in the late nineteenthandearly twentieth century.

Thisvolume is a tribute to the efforts of a relatively small group of Scots who helped to establish and nurture American public accountancy at a time when demand for its services greatly exceeded the ability of native-born accountants to provide them.

1 The first migrant

Eric Mackay Noble was twenty-eight years old when, in 1875, he journeyed from Edinburgh to board ship at the port of Greenock near Glasgow and sail to New York. Little is known about Noble and there does not appear to be a physical description of him in the public record. On arrival at the Manhattan Island reception point, he appears to have proceeded immediately from New York to Washington in the District of Columbia and practised there as a public accountant until his death in 1892 at the age of forty-five. He was unmarried and the first of the Scots accounting immigrants in this book to die in the US. In Washington, Noble’s professional services included the duties of a commissioner in the Court of Claims.¹ This meant that he was approved to present property claims of clients to the Court and therefore continued the court-related practise he probably experienced in Scotland. Noble’s place in accounting history, however, is as the first CA to emigrate from the UK to the US and develop a career there as a resident rather than as a public accountant visiting that country for purposes of providing an audit or investigatory service for a UK-based client.

Eight men qualified with Noble as members of the SAE in 1871. They all had fathers of either independent means or professional backgrounds. However, despite this homogeneity, their professional careers took distinctly different routes. One man, who was part of a well-known Edinburgh family associated with the Scottish medical profession and the insurance industry, died soon after qualification. Another disappeared from the SAE records in the 1880s and nothing can be found about his career. A third man whose father was a medical doctor with the Honorable East India Company in India practised accountancy in Edinburgh for a short time before immigrating to New Zealand to pursue a career in farming. The fourth member of Noble’s class became the manager of a major Scottish life insurance company based in London. This means that only three of the nine members of the 1871 intake to the SAE membership practised as public accountants in Edinburgh and only two achieved office in the SAE. These features were relatively typical of the early history of the SAE membership.

Noble was the son of a Free Church of Scotland minister in Fife. He was born in the village of Stobbo in Peebles-shire. However, his family roots were in at least three other Scottish counties – Ayrshire, Lanarkshire, and Linlithgowshire – and reflect the migratory character of eighteenth and nineteenth century Scots. He resigned from the SAE in 1875 when he entered the US, but became a member of the newly formed American Association of Public Accountants (AAPA) in 1888. Noble does not appear to have been active in the AAPA. However, he was followed to the US by 160 other Scottish CAs by the end of 1914 and many became active and influential in American public accountancy affairs. Their lives before and after their migration are the subject of this book, as are the careers of 16 other Scots who were not professionally qualified (UQ) prior to immigration.

2 The mobile Scot

The history of the Scottish people demonstrates a national propensity to move from one location to another and there has always been a steady haemorrhaging of Scots to other parts of the UK and overseas. This phenomenon started as a trickle in the seventeenth century and grew to upwards of 100,000 individuals during the eighteenth century. However, it was in the nineteenth century that the migration of Scots accelerated. Quantifying this development accurately is impossible until 1851 because of the paucity of earlier records. However, nineteenth century data generally suggest a period of massive European immigration to the US particularly. Estimates suggest that more than 50 million Europeans immigrated mainly to the US between 1815 and 1914, including 22 million from the UK. From 1825 to 1914, nearly two million Scots left their native land for non-European destinations. Approximately 800,000 went to the US and a further 600,000 arrived in Canada. The total population loss during this period represents approximately 42 per cent of Scotland’s population by the beginning of the First World War in 1914. This compares with an equivalent figure for England and Wales of 25 per cent. Migration was therefore a significant influence on the economic and social life of Scotland and recipient countries such as the US.

Underlying the migration statistics for Scotland is a history of persistent economic and social upheaval as, first, agriculture commercialised, and, second, industrial processes expanded and matured within urban centres. These events resulted in a steady internal migration from country to town, with more and more of the population residing in towns and cities until Scotland in the nineteenth century was one of the most urbanised nations in the world. Unsurprisingly, such migrations spilled overland to England and overseas to developing industrial countries such as the US. They were predominantly economic in nature and had long ago surpassed the earlier movements made for penal or religious reasons. The evicted tenant farmer and skilled artisan had replaced earlier immigrants such as the persecuted Catholic, jailed Covenanter, or habitual criminal. The economic model at work was one in which immigrants compared economic conditions at home and economic prospects abroad, and decided that prospects looked brighter in foreign parts. They were therefore more often than not pushed to relocate overseas because of poor conditions at home. These men and women included farm labourers and domestic servants and, increasingly, skilled workers unemployed during frequent economic recessions in Scotland. There were others, however, who were pulled to countries such as the US by opportunities created by new industries and shortages of skills, or by the prospect of better opportunities (as in farming). In the eighteenth century, these immigrants included managers needed by entrepreneurs such as the Glasgow tobacco merchants. Later immigrants took skills in mining, steel making, and engineering and then professional competencies that were in short supply such as in medicine, law, religion, and teaching. The prospect of cheap and abundant land also fuelled much of the early migrations from Scotland.

The movement of Scots to the US reached its peak in the last half of the nineteenth century, with Glasgow as one of the two main UK ports for embarkation to North America (the other being Liverpool). Indeed, between 1865 and 1910, the US became the most popular overseas destination for Scots immigrants. This was a period in which there was a marked disparity in economic performance between the UK and the US. For example, between 1870 and 1913, US total and industrial outputs increased at average annual rates more than double those of the UK. In the early 1870s, the UK had in excess of one-third of world manufacturing output, compared to less than one-quarter for the US. By 1914, however, these proportions had reversed to 36 per cent for the US and 14 per cent for the UK. In addition, the US was changing from a predominantly agricultural economy (53 per cent of value added in 1880) to one dependent on industry (62 per cent of value added in 1909). However, over much of the same period (i.e. 1875 to 1914), the UK was the world’s leading exporter of capital. By 1914, for example, it had almost one-quarter of its national wealth invested overseas, and of this proportion, one-quarter was in the US (predominantly in industries such as breweries, railways, and steel making). This investment triggered the need for public accountancy services to protect individual investors residing in the UK from fraudulent or incompetent management in the US. The first British public accountants to visit the UK were therefore conducting audits or investigations on behalf of British shareholders with commercial operations in the US.

Scots immigrants came from mainly lower middle and working class backgrounds during most of the period of the overall migration to the US. As previously mentioned, the evolution of migrant backgrounds started with low skill occupations with an agricultural focus and gradually included craft and trade skills in areas such as mining, moving to a full range of industrial skills from the early nineteenth century onwards. By mid century, 59 per cent of Scots immigrants to the US were from industrial communities, and by 1885, this figure had increased to 80 per cent. During the latter period, immigrants with appropriate skills were attracted to industrial developments in the US where there was a lack of local expertise. The translation of skills between Scotland and the US increasingly included professional competencies and, during much of the period from 1875 to 1914, Scots immigrants in the US included, first, members of the traditional professions such as medicine and law, and, second, those from the newer professions such as accountancy. The Scottish CAs in this study formed an important subset of the skilled professional immigrants who were essential to this expansion.

3 Propensity to migrate

Although the large majority of Scots immigrants to the US were from lower middle and working class backgrounds, there were also many men (predominantly) from the upper and upper middle classes who decided to leave Scotland for foreign parts. These included several of the accounting immigrants in this study. Because of their family backgrounds, it is difficult to argue economic necessity as a major reason for their migration. The phenomenon of upper and upper middle class men migrating from Scotland in the late nineteenth century is illustrated by a case study analysis of students at the Edinburgh Academy who were at school there with nine of the accounting migrants to the US. The Academy was founded in the New Town of Edinburgh in 1824 at a cost of £12,000 in order to provide a traditional education in the classical subjects of Latin and Greek. Its founders included leading Edinburgh professionals such as Henry Cockburn, an Advocate who was to become one of Scotland’s most famous judges, and Sir Walter Scott, the lawyer and novelist. The driving force behind the foundation of the Edinburgh Academy was a belief held by its founders that the only Edinburgh school then providing a classical education, the Royal High School of Edinburgh, was incapable of doing so to a high standard because of its management by the Edinburgh Town Council. In turn, this lack of quality was perceived by Cockburn and his associates as preventing Edinburgh men from obtaining positions as senior government officials in the Scottish civil service. Once founded, the Academy rapidly became and remains a leading private school in the Scottish educational system.

Nine Scottish accounting migrants in this study were educated at the Edinburgh Academy. A further four migrants had siblings educated there. A characteristic of education at the Edinburgh Academy was and remains that parents of students have to be well-off to be able to afford the fees charged. For this reason, migration by Edinburgh Academy students to the US for economic reasons is less probable than for other immigrants in this study. The following analysis in Table 3.1, however, reveals a surprisingly high incidence of migration among members of Edinburgh Academy classes attended by the nine accounting migrants who were educated there. Data for the analysis were taken from The Edinburgh Academy Register: A Record of All Those Who Have Entered the School Since Its Foundation in 1824 (1914, T & A Constable: Edinburgh) and supplemented from other sources (migrant = immigrant Scottish accountant educated at Edinburgh Academy; school entry = year in which immigrant Scottish accountant entered Edinburgh Academy; class size = total number of students in Edinburgh Academy class entered by immigrant Scottish accountant; total migrants = number of students in class known to have subsequently immigrated from Scotland; England = immigrants from Scotland to England, Wales, or Ireland; India and Far East = immigrants from Scotland to India, Ceylon, China, Malaysia, Burmah, etc; North America = immigrants from Scotland to the US and Canada; Africa = immigrants from Scotland to all parts of Africa (including South Africa); Australia and New Zealand = immigrants from Scotland to these countries; and other = immigrants from Scotland to European and South American countries).

Table 3.1 Immigration and Edinburgh Academy students

The analysis in Table 3.1 reveals the popularity of migration among students at the Edinburgh Academy who entered it between 1860 and 1892. Restricting the analysis to those students who entered the Academy at the same time as the nine accounting migrants, a total of 580 students can be observed. All of these students came from upper and upper middle class backgrounds that suggest immigration ought not to have been for economic reasons when leaving school. Yet, 55 per cent of students migrated on a permanent basis to various parts of the world. More than one-quarter (26 per cent) of this group moved within the UK and Ireland in a form of internal migration (typically to England as merchants or medical practitioners). A further one-quarter (27 per cent) moved to India and the Far East (mainly to various colonies then comprising the British Empire). The remainder arrived in parts of North America, Africa, and Australasia (42 per cent) (usually to countries in the British Empire), as well as Europe and South America (5 per cent). The migration factor was present in all nine classes of the Edinburgh Academy represented in Table 3.1 and it was therefore not an unusual occurrence. Indeed, overall, more Edinburgh Academy students in these classes migrated than remained in Scotland.

Table 3.2 Occupations of Edinburgh Academy migrants

Table 3.2 reports the occupations of the Edinburgh Academy migrants moving outside the UK and Ireland on a permanent basis – i.e. a total of 234 students (including the nine accounting migrants) (military = army and navy commissions; professions = accountants, engineers, medical practitioners, and lawyers; commerce = merchants, bankers, factors, and insurance managers; agriculture = farmers, planters, and ranchers; other = government officials and teachers; per cent = percentage of total comprised of each stated occupation).

According to Table 3.2, the largest proportion of the Edinburgh Academy school leavers who migrated overseas where either army or naval officers (27 per cent). Many served in various wars in South Africa and China as well as in British colonies such as India and remained there when they retired. The next largest group worked in agriculture, again predominantly in British colonies (21 per cent). Many were tea and coffee planters and several had trained professionally before employment as planters. For example, two SAE members switched from public accountancy to planting as did a lawyer who qualified as a Writer to the Signet (WS). These agricultural occupations created trading opportunities between the UK and the British colonies and 17 per cent of the migrants worked as merchants, agents, bankers, and factors in countries such as India, Canada, and Australia. A small proportion of the immigrants were professionally-qualified men (19 per cent) spread over several professions, including 14 CAs. The remaining migrants were government civil servants and teachers.

The above figures reveal that late nineteenth century migration to the US by Scottish accountants was a very small part of a greater migration that appears to have been stimulated not only by economic and social conditions at home but also by economic and social opportunities overseas. What appears to have been central to the overall migration was the expansion of the British Empire and the trading opportunities, government administration, military activity that this created. In other words, trading resulted in military presences to fight and police, and civil servants to administer the colonies. Within this general development, there also started to appear a need for specialist professional services such as accountancy. Most interestingly, however, this need was most pronounced in the developing industrial state of the US rather than in the under-developed agricultural states of the British Empire such as India. The Scots accounting immigrants were therefore attempting to satisfy a need for specialist professional services associated with an advancing industrial economy.

4 Departure and arrival cities

The accounting migrants to the US described in this study came predominantly from four Scottish cities or towns – i.e. Aberdeen, Dundee, Edinburgh, and Glasgow. These were the major Scottish commercial or professional centres of the time and Aberdeen, Dundee, and Glasgow were major Scottish ports. Even Edinburgh had an adjacent port link of Leith. Most of the migrants arrived in the US at the Manhattan reception point in the port of New York, with the remainder entering at ports such as Chicago and Minneapolis. The following notes provide a brief background to these cities.

Aberdeen

Aberdeen was first settled on the banks of the River Don in the north-east of Scotland prior to the twelfth century. The town received a royal charter to manage its affairs in 1124 and became a religious and educational centre in the region. The University of Aberdeen had its origins in the town by 1494. Occupations of early Aberdonians included agriculture and fishing, and the development of port facilities established a merchant community and later industries such as shipbuilding. The arrival of the railway in the second half of the nineteenth century further assisted Aberdeen’s growth as a commercial centre. It particularly improved communication between the town and other main centres of commerce in Scotland. By 1871, Aberdeen’s population was 88,000 and, forty years later, this had grown to 151,000. It became a city in 1899. By the time of the migration of Aberdeen CAs to the US, Aberdeen had several banks and insurance companies formed there in the late eighteenth and early nineteenth centuries. It also had a well-established legal profession with the Faculty of Advocates in Aberdeen chartered in 1774. There was a small community of CA firms. The SAA was formed in 1867 with twelve members. By 1884, it had twenty members and two apprentices. Thirty years later, in 1914, there were 75 members and five apprentices. Aberdeen was therefore not a large producer of CAs between 1875 and 1914. Its links to the US, however, were strongest during the North Sea oil boom of the 1970s and 1980s when the city became the port base for off-shore oil rigs, many owned by US companies.

Dundee

As with Aberdeen, Dundee was a small port settlement formed in the eleventh century. Situated on the north bank of the River Tay on the east coast of the central lowlands of Scotland, the town became a royal burgh in 1191 and a city in 1894. By the fourteenth century, it had a population of approximately 4,000 and its major activities were the importing of wines from France and Spain, as well as grain, hides, and wool. Woollen weaving was a main industry from the fifteenth century. However, this died away by the eighteenth century to be replaced with the manufacturing of linen, thread, and leather goods. The population in 1801 was 26,000. Sixty years later, it had increased to 90,000 largely due to an Irish immigration because of the potato famine. In the nineteenth century, a whaling industry developed and linen manufacturing gave way to the production of jute products such as sacks. In 1871, the population of the town was 119,000 and, in 1911, 629,000. There were relatively few CA firms in Dundee and most of the migrants trained with firms in Glasgow. They all became members of the IAAG. It is interesting and unexplained why Dundee accountants did not train either with SAA or SAE members despite their relative proximity. Dundee remains today as a major commercial centre in the east of Scotland.

Glasgow

Glasgow started as a religious settlement on the banks of the River Clyde on the west coast of the central region of Scotland. The date for this foundation was about 543 and the town’s population by the late twelfth century has been estimated at 1,500. In 1175, the town received a royal charter and, by the end of the fifteenth century, it was a major academic and religious centre in Scotland. The University of Glasgow was founded in 1450. The town became a major trading centre from the early 1500s with crafts such as metalwork, weaving and brewing. By 1670, it was the second largest Scottish burgh after Edinburgh. The tobacco trade with the American colonies began in the early 1670s and Glasgow became the main tobacco importing centre in Europe by the 1730s. By then, a major trade in sugar and rum had also been established with the West Indies. Dredging the River Clyde in 1772 allowed large vessels to dock in Glasgow and this became the catalyst for shipbuilding and other heavy industries. By the nineteenth century, Glasgow was described after London as the Second City of the British Empire and was famous for industries such as soap, distilling, glass, sugar, and textiles. Proximity to raw materials such as iron ore and coal enabled major industries to develop such as locomotives and shipbuilding. The city benefited in this regard by mass urban migrations from the Highlands of Scotland and Ireland. In 1871, Glasgow had a population of 477,000 and this grew to 1,055,000 by 1911. As well as its merchant and industrial heritage, the city had a substantial professional community. In 1867, for example, there were 210 members of the Faculty of Procurators in Glasgow. This was the main legal body in the city and was chartered in 1796. The Glasgow Stock Exchange was formed in 1844. The IAAG had been founded in 1854 with 49 members. In 1884, it had 118 members and, thirty years later, 826 members with 102 apprentices. Glasgow remains today as a major commercial, financial, and industrial city in Europe.

Edinburgh

Edinburgh is the...