United States of America

The earliest financial statements in the United States were similar in many respects to modern ones, with such features as a depreciation allowance that offset the cost of buildings and equipment (and livestock and slaves). Industrialization increased the complexity of commercial operations, and accounting procedures became more complicated. Alternative procedures developed because no common framework existed for establishing accounting principles. Various historical events have influenced the development of accounting principles (see Table I.1). For example, the introduction of the income tax in the United States in 1913 required detailed and defensible accounting records. Various tax laws have allowed different accounting practices, and many of the alternatives are reflected in current accounting standards. The problems caused by accounting alternatives were recognized as early as the First World War, when the federal government attempted to audit cost-plus fixed-fee military contracts. As a result, a plea for uniformity was issued in the Federal Reserve Bulletin in 1917. By the beginning of World War II, standardized auditing procedures had been adopted in place of standardized accounting procedures, and non-uniformity increased as increasingly difficult and complicated transactions developed. Accounting procedures have evolved and adapted to a changing business climate over a period of many years (Chatfield, 1974; Zeff, 1976).