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2064734 Only University of South Wales 2064734 rOR USE JN ONLY BOUND BY UWC LIBRARY BINDERY PO BOX 430 CARDIFF CF1 3XT TEL (01222) 874949 ACCOUNTING CHANGE IN MUNICIPAL CORPORATIONS 1835 TO 1935 H.M.COOMBS PhD 1996 ACKNOWLEDGEMENTS I am grateful to the following for their help and encouragement in the completion of this thesis: The staff at various record offices for access to archive material. Most notably Mr J.Williams, City Archivist, Bristol, Mr D.James, District Archivist and Rebecca Beswick, Archives Assistant, West Yorkshire Archive Service, Bradford, Mr N.Kingsley, City Archivist, Birmingham, Jill Taylor, City Hall, Cardiff, Lynne Burrows, City Hall, Manchester and Dr. J.R.Alban, Principal Archivist, Swansea City Council. The Research Board of the Institute of Chartered Accountants in England and Wales for financial support towards the completion of this research. Professor A. W.Burrowes for his interest, scholarship and agreement to act as supervisor. My joint authors for their help and advice in the completion of the published material: Professor J.R.Edwards, Cardiff Business School. L.V.Liberman, Moscow Finance Academy. D.E.Jenkins, University of Glamorgan. 11 DECLARATION While registered as a candidate for the degree for which this submission is made I have not been a registered student for another award of any university during the research programme and no material has been used in any other submission for an academic award. Various publications of material relevant to the thesis have been achieved and these are referenced with this thesis. The University's Research Degrees Committee has received evidence that with joint publications that while the actual input to each of the publications has varied that the overall contribution by each of the co-authors was fifty percent. Evidence has similarily been sought from indepedent sources from the University of the academic standard of the publications achieved. COPYRIGHT STATEMENT The copyright of this thesis is vested in the author. ABSTRACT This monograph together with its associated publications is concerned with attempting to identify why municipal corporations developed the accounting methods that they used over the period under review. It questions the statement by Jones (1992, 42) that local authorities in general adopted the accounting techniques that they did because of statutory obligations by an examination of the causes of accounting change in municipal corporations. These authorities are seen by this paper and its associated published works as the drivers of accounting change for the system of local government financial reporting. The analysis underpinning this conclusion is done within the context of a model based on the concept of 'actives' and 'passives' in the process of accounting change. The 'actives' represents the driving force behind innovations in accounting practice while the 'passives' are the outcomes of the pressures for change. The 'actives' are sub-divided into motivators, facilitators and catalysts for change. Following an initial introduction and the justification of the choice of municipal corporations as the driver of accounting change in the local government sector the text develops the model of 'actives' and 'passives' and identifies key changes in accounting practice. The overview then examines in detail the factors which caused accounting changes to take place within the context of the model developed by its application to six lead authorities which were the detailed subject of this study. The research examines, in depth, for the first time, inter alia, the contribution of the elected member, the finance officer, the professional accounting bodies, the audit and the press to the development of accounting techniques and practices by municipal corporations. Finally it draws appropriate conclusions from the evidence presented in both this overview and the published works as to why municipal corporations and local authorities in general developed the accounting practices they did. in CONTENTS Introduction 1 The Structure of the Overview and the Research Objectives 2 Periodicity 3 Rural to Industrial Society 3 Politics 3 Education 4 Health 5 Short term and Long Term 5 The Municipal Corporations as a Potential Driver of Accounting Change in Local Government 6 Reserach Framework and Methodology 7 The Context of the research 13 The Nature of Accounting Change 14 The Model in Detail 16 Catalysts 16 Government Legislation 16 Committees of Inquiry 22 Ratepayers 23 Motivators 27 Members 27 Officers 34 Facilitators 40 Professional Accountants 40 Professional Accounting Bodies 42 Audit 43 The Press 47 Review, Conclusions and Suggestions for Further Research 49 IV Bibliography 54 The Publications 60 ACCOUNTING CHANGE IN MUNICIPAL CORPORATIONS 1835 TO 1935 Introduction The study of the process of accounting change in municipal corporations has been a neglected area for accounting historians1 . This is despite the fact that these were large scale enterprises which between 1835 and 1935 grew from organisations delivering small scale local services to enormous 'trading undertakings' which, in addition to providing a wide range of civic amenities, became responsible for the supply of services such as water, gas, electricity and public transport (Coombs and Edwards, 1992a, 181). The leading municipal corporations rivalled the largest limited companies of their day, and undertook activities which gave rise to comparable accounting problems during a period - the late nineteenth century - when the fundamental features of modern day financial reporting concepts and practices were developed (Yamey 1960). The period 1835 to 1935 has been selected for review as it is regarded as 'what historians recognise to be the formative period of continuous progress in developing the United Kingdom's system of local government' (Jones, 1991, 81). Indeed, towards the end of the period of this study, it was possible to comment that 'It is only right and fitting that the municipal system should in all respects give us a lead as to how accounts should be kept; and undoubtedly it is rapidly advancing to this position' (Carson Roberts, 1930, 445). Furthermore, there was relatively little development in financial accounting techniques by local government after 1935 with the initiatives that had taken place during the period of this study still broadly in place in the late 1980s (Coombs and Liberman, 1990, 62-67 f. The work of Rowan Jones is recognised here as an individual who initially pioneered work in the accounting development of local authorities (see, for example, Jones 1985a,1985b,1989, and 1992) Changes in the system of fund accounting used by local authorities were introduced by the Local Government and Housing Act 1989. The method of accounting for capital assets by charging depreciation and interest on the current cost of capital was introduced from 1 April 1 The Structure of the Overview and the Research Objectives The approach adopted in this overview is to develop a framework in which the findings of the published research can be presented. It thus presents the published work as a coherent whole and shows it in the context from which it evolved. The format developed therefore discusses and refers to the original publications but, also includes reference to other material where this material is seen as making a contribution to the arguments advanced. The objectives of the research were to: * Examine developments (between 1835 and 1935) in the form and content of financial reports published by municipal corporations in a stewardship environment, and the audit requirements attaching to those reports. * Aid understanding of the accounting practices presently followed by local authorities. * Examine in depth both the general forces at work within society leading to accounting change, and the specific factors which proved crucial at various corporations at particular points in time. * Develop a framework within which these changes could be analysed. The research also challenges Jones' belief that 'there is a very good reason why local authorities adopt the accounting techniques they do. .... statute law' (1992, 42). 1995 as a result of CIPFA adopting the Parkes report (CIPFA 1988) and the 1989 change in the legislation. Periodicity Hammond points out that if a comparison is drawn between the state of English towns in 1835 with their state in 1935 'we might well conclude that the creation of our modern system of local government is the greatest British achievement in the last one hundred years' (1935, 37). The 1830's were a time of political change with the Whig government passing the Reform Act of 1832, the Poor Law Amendment Act of 1834 and in 1835 the Municipal Corporations Act. At the time of the passing of the 1835 Act the towns 'were under the rule of little oligarchies, seldom public spirited and often corrupt' (ibid., 38). The period covered by the research is one of considerable change for local government and this had important implications for the development of accounting as is shown by this overview and the published works. These major changes are summarised in this section to provide the general context in which the accounting changes which are the main subject of this monograph developed. Rural to Industrial Society The beginning of the period was marked by a society which was in the process of moving from the country to the town. The population of Liverpool was 40,000 in 1760 and 376,000 in 1851 while Birmingham grew from 30,000 in 1760 to 233,000 over the same period. By 1851 half the population of the country lived in towns and by 1881 this figure had risen to over two thirds (Simon, 1935, 198). Politics The passing of the first Municipal Corporations Act is regarded as a revolution (Jennings, 1935, 55). Prior to 1832 there was no general call for the reform of the municipal corporations and the 1832 Reform Act had widened the electoral franchise for members of Parliament from the freemen or the common council of the borough - removing a fundamental complaint.
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