Professional Knowledge and the Historical Emergence of Accounting Norms

Abstract

Accounting norms preceded generally accepted accounting principles (GAAP), but little is known about how and why these norms emerged. We hypothesize that private-sector institutions aimed at building a knowledge base among practicing accountants fostered accounting norms before formal standard-setters appeared in the 1930s. Establishing an association between knowledge-building institutions and accounting norms requires that we (1) identify the form and function of specific institutions that developed the professional knowledge base, (2) show that these institutions facilitated professional knowledge development, and (3) illustrate how knowledge acquisition, dissemination, and retention dynamically results in spontaneous emergence of homogeneous behavior indicative of a norm. We provide evidence of an association between knowledge-building institutions and accounting norms using a combination of historical analysis and simulation modeling techniques. While our focus is primarily historical, most of the institutions we investigate still operate today. Thus, our analysis clarifies how modern accounting is shaped by powerful forces that influence practices long before an accounting problem is considered by standard setters.

Keywords: knowledge sharing, norms, accounting profession, agent-based modeling

JEL Classification: C63, M40, N21, N22