On balance, in credit

Accountants have long laboured under a cloud. Until well into the 20th century they were usually seen, when they were noticed at all, as mere book-keepers, those who humbly maintained a record of what the real movers and shakers of the world did: "Now't but scorekeepers," as one North Country jibe had it. However, as Edgar Jones shows in this full-scale, commissioned history of Price Waterhouse, "scorekeeping" in business is both essential and, as business itself has become larger and more complex, increasingly demanding.

The great expansion that was to come in the 20th century was little in evidence when, at the age of 28, Samuel L. Price set up his own accountancy practice in 1849. At that time, those who professed to be accountants Q the profession was not recognised by royal charter until May 1880 Q kept simple books for those who were too busy to do it themselves and, more lucratively, acted as liquidators in insolvency cases when the opportunity arose. However, economic and legal changes were slowly but surely creating a more robust demand for accountancy services. The widespread grant of limited liability by the Companies Acts of 1856 and 1862 meant that accounts had to be prepared for a much wider audience than previously and, ideally, constructed to facilitate comparisons among firms, not only among those pursuing the same business but widely disparate ones as well.

Price's business prospered and in May 1865, he expanded his operations, taking into partnership William Holyland, a principal clerk in an eminent City accounting firm, and Edwin Waterhouse, the son of an affluent Liverpool merchant, who had recently graduated from University College London with a "good second-class BA degree".

Although Price, Waterhouse (as the partnership became known in 1874, following Holyland's retirement in 1871) was not at the forefront in developing a theoretical basis for the emerging profession of accountancy Q indeed, Jones notes that Waterhouse, the longest serving by far of the original partners, "was not one of the original thinkers" of a profession not known for original thinking Q it certainly appreciated intellect. In the later 19th century it recruited at least two first-class Cambridge mathematicians (both of whom became important partners in due course) and very many of those who did outstandingly well in the annual examinations of the Institute of Chartered Accountants. This recruitment policy goes far to explain the early success of the firm.

Until well after 1945, auditing was the mainstay of Price Waterhouse's business. In developing this business, its early successful foundation was a significant advantage, for once an auditing relationship had been established it was generally maintained. Moreover, as the client firm grew, especially if it grew by merger, and particularly by merger across national borders, the auditing work grew lucratively as well.

Jones, a professional business historian, is well qualified to write this account of Price Waterhouse, having written extensively on related topics with a special emphasis on accounting. While obviously sympathetic to his subject, he is not uncritical, either as regards the firm or the development of accounting generally. He shows, for example, how painfully slowly external financial reporting evolved, and how eminent accountants, not least those at Price Waterhouse, contributed to the delay. Only sensational scandals, such as the Royal Mail case of 1931, which saw a prominent Price Waterhouse partner in the dock and only narrowly escaping imprisonment, compelled the accountancy profession to consider better ways of informing shareholders of their company's performance. Not until 1970 was an Accounting Standards Committee set up by the Institute of Chartered Accountants to provide an institutional focus for bringing greater theoretical discipline to bear on practical problems. Circumspectly but unequivocally Jones records the conservatism, rigidity and inertia that marked Price Waterhouse from the 1930s until the 1970s, when external competitive challenges, not least in auditing, forced the firm to seek new directions, especially in management consulting. But by then Price Waterhouse had lost the global advantage it had secured in its first century of existence.

The 60 per cent of the book devoted to the firm's development up to 1945 has greater coherence and focus than that devoted to the more recent period, no doubt because it is less easy to write objectively of the living than of the dead. Nonetheless, anyone interested in understanding how a large, successful British accounting firm has developed over the past century and a half, and with it the practice of accounting generally, will find this book well worthwhile.

William P. Kennedy is in the department of economic history, London School of Economics.