Abstract: The Railroad Influence on the Development of the American Accounting Profession

Dale L. Flesher and Gary J. Previts


It is hard to overestimate the impact of the nineteenth-century railroad industry on American business and society. This paper examines the links and influences between the profession of accounting and the railroads by examining the early practice of Haskins and Sells, today known as Deloitte. Documents are available for this major firm with roots back to the late 1800s. From these, inference can be extended about the role railroads played in the early CPA profession. It should be noted that this study examines the railroads as one of the pillars of the U.S. accounting profession; clearly there were other influences such as the immigration to America of U.K. accountants in the late nineteenth century that helped form the profession. But one of the main sources of early public accounting talent was the accountants and auditors who had been trained by the railroads and who applied the early uniform accounts established by the Saratoga N.Y. Railroad Commissioner's Convention in the late l870s. Accounting practice and the profession were also impacted directly by railroads. Examples include the format and content of annual reports, the measurement of income with depreciation of long-lived assets becoming not only a theoretical but a pragmatic issue, the standardization of accounting methods and accounts to aid regulators, the concept of retained earnings being a source of capital, and the use of internal auditors, controllers, audit committees, vouchers, and controls over cash. The managerial accounting concepts of fixed costs and variable costs and the impact of efficiency (throughput) on the profitability of large-scale, capital-intensive businesses were learned at the railroads and later applied in heavy manufacturing. In addition, railroads became a type of "college" for accounting and auditing education for at least two generations of accountants.