FROM THE FIRST CORPORATE ACCOUNTING PRACTICES IN THE OTTOMAN EMPIRE: EREGLI COAL COMPANY AND ACCOUNTING BOOK RECORDS XIXth CENTURY Assoc. Prof. Dr.Toraman,Cengiz Balıkesir University Address: Eski TMO Binaları Yanı, İİBF İşletme Bölümü,Bandırma, Balıkesir, Turkey Tel:+90 266 7143575 Fax:+90 372 7143577 e-mail:[email protected] Dr. Öğreten, Ahmet, Zonguldak Karaelmas University Address: Karaelmas Üniversitesi, İncivez,Zonguldak, Turkey Tel:+90 372 2571566 Fax:+90 372 2571566 1 FROM THE FIRST CORPORATE ACCOUNTING PRACTICES IN THE OTTOMAN EMPIRE: EREGLI COAL COMPANY AND ACCOUNTING BOOK RECORDS ABSTRACT In the Ottoman Empire traditional bookkeeping style was employed up until the end of the 19th century. This style, developed uniquely by the Ottomans, was in no way related to simple entry account keeping method of the west. Accounting records of the Eregli Coal Company which was one of the first modern corporations in the Ottoman Empire were kept in this traditional system. The purpose of this study is to give information about Eregli Coal Company and its activities. Accounting records of this company, which was established by six national partners, for the first period of operations covering over 3 years between November 1842 to November 1845 are examined towards this end. With Sultan Abdulmecid’s participation as share holder the company was renamed the New Company and continued its activities until the control of Eregli coal basin was transferred to the Ministry of the Navy. Investigation of first period accounting records show that the main factor contributing to the losses incurred by the Company is the sale of coal to government owned enterprises and high interest loans incurred from bankers as a result of these uncollectible credits. Keywords: Accounting, coal, company, hazine-i hassa, income statement 3 LES PREMIERES PRATIQUES DE COMPTABILITÉ CHEZ LES OTTOMANS: LA COMPAGNIE CHARBONIERE D'EREGLI ET LES REGISTRES DE COMPTABILITÉ RÉSUMÉ Jusqu’à la fin du 19ème siècle, les pratiques de comptabilité furent réalisées selon le système traditionnel de comptabilité Ottomane. Cette méthode est un système développé par les Ottomans de façon vernaculaire et qui ne ressemble pas à la méthode de registration simple de l’occident. Les registres de comptabilité de la « Compagnie de Mine de Charbon d’ Ereğli », qui est l’un des premiers entreprises de l’Empire Ottoman fondé de façon moderne, furent tenus de selon les méthodes traditionnelles. La raison principale de cette recherche est de présenter la Compagnie de Mine de Charbon d’ Ereğli et de donner des informations sur ses activités. Les registres de comptabilité ayant trait aux activités de production et d’investissement et qui forment la première période qui comprend les trios premières années : du début du mois de Novembre 1842 jusqu’à la fin du mois de Novembre 1845 de cette entreprise fondée par six associés avec un capital totalement nationale furent étudiés dans cette objective. La compagnie, avec l’association du Sultan Abdülmecid, a pris le nom de Nouvelle Compagnie et poursuit son activité jusqu’au jour où le bassin de charbon d’ Ereğli fut passé sous la direction de l’administration du Ministère de la Marine. Quand on analyse les registres de comptabilité sur les activités d’investissement de la première période, on voit que le facteur principal du déficit sont les créances dues aux ventes réalisés aux entreprises économiques publics et les sommes empruntés aux banquiers avec de grands intérêts en raison de la difficulté d’encaissement de ces créances. Mots Clé : Comptabilité, charbon, compagnie, trésor royale, tableau de recettes. 4 1. Background on Ottoman Accounting System Many of the institutions and organizations developed during the Ottoman Empire were advanced compared to its contemporaries and in light of the conditions and resources of the time. The Ottoman revenue office had an important place in this system and successfully performed all the fiscal affairs of a geographically vast empire. The accounting system developed during the Ottoman era was successful in establishing and preserving very detailed records of expenses and revenues over centuries of a vast empire which in its peak had spread through to Hungary and Algeria in the west, Crimea in the north, Middle East in the east and almost to the Sahara in the south. Western scientists, statesmen and other observers investing the fiscal system of the Ottoman Empire have written various records detailing the perfection of the system. The Italian scientist Luigi-Fernando Compte de Marsigli who presented the Ottoman military structure to the west, states in his work titled “L’Etat militaire de l’Empire Ottoman, ses progress et sa decadence”: “In Turkey the system used for administration of fiscal affairs, be it record or transaction wise, is so fine and ordered that any Christian state can realize regulations that will alleviate many misappropriations that have a very small chance of being recognized in their current state by investigating this system” (Belen, 1931:48). The Ottoman accounting system mentioned here was adopted from previous Turkish and Islamic states and developed upon. It is a known fact that Ottoman rulers were rather flexible in their adaptation of experiences of previous Turkish-Islamic states. Accountancy profession with its roots in the Emawiad, Abbasid, Ilhans and Seljuk states was perfected under Ottoman rule. It is widely accepted that the Ottoman Empire was influenced by the Ilhans who in many areas and especially in fiscal matters were highly developed at their time. Although they adapted principles of their fiscal policies 5 and rules from their predecessor states Ilhans had a better organized fiscal structure and a more advanced fiscal system then their contemporaries ( Barthold, 1931:48). In the pre-Ottoman era the term “siyakat” was also used to refer to accountancy profession. Also because this script was used for accounting records over many years by many other Turkish states that preceded the Ottoman Empire it was thought of as a science and the science of accounting was eventually called “ilm-i siyakat” (literally the science of accounting). In many books on accounting this word was also used to mean accounting. Also the accounting of the revenue office was referred to as state (government) accounting. These titles show that a great deal of importance was placed on performing of fiscal duties and that accounting was a branch of science with an especially important emphasis in the Near and Middle East. The first accounting book to survive to present is a title named “Sa’adetname” which was written by Felek-alay-i Tebrizi in the year 1307, 187 year previous to Pacioli, who in the west is accepted as the founder of accounting. It is uncountable that an accounting culture existed in the west before Pacioli’s work. It is very likely that this culture was influenced by the accounting culture of Near and Middle East. It can also be stated that it is very likely that this culture flowed from the East to the West as a result of the trade between these regions. When the fact that revenue-expense records were first kept in France and England in the 14th century, that the provincial budgets were combined into the general budget in France in the first half of the 16th century and in Prussia a general state budget was first prepared in the 17th century. In books authored by Ottoman revenue workers for the purpose of teaching accountancy a method of recording called the “merdiban method” (ladder method) was used and the Ottoman recordkeeping system was shaped in accordance to this method. During the second half of the 19th century double entry method eventually replaced siyakat. Double entry method was translated and adopted from books authored in the West, especially France. Double entry method which came to the Ottoman Empire with these translated works was used in every day Turkish with no relation to siyakat and with time the siyakat script was abandoned (Guvemli, 1995:94). 6 2. Accounting Practices in the 19th Century Ottoman Empire Accounting practices until the 19th century fallow traditional Ottoman Accounting system. This was a unique system developed indigenously by the Ottomans that is very un-similar to the west’s simple entry bookkeeping. Ottoman’s initial experience with double entry bookkeeping dates to the second half of the 19th century. Therefore it can be said that the Ottoman Empire adopted double entry bookkeeping without ever experiencing the western simple entry accounting (Guvemli, 2000:321). Legal infrastructure which is one of the important developments in modernization of accounting thought was developed during the mid century. “Kanunname-i Ticaret” (Trade Law) was introduced in 1850 and remained in effect until 1926. The source of this law was the “Code de Commerce”, or trade law, legislated in Napoleonic France in 1807. Kanunname-i Ticaret is to a large degree simply a translation of a large portion of the French legislation into Turkish. This legislation had a large share in establishing of trade rules and regulations including company charters, determining of accounting records and record keeping. All these developments made double entry bookkeeping applicable in the Ottoman Empire. Unfortunately failure of Ottoman’s attempts at industrialization between 1840-50 and failure to develop adequate capital accumulation in the private sector due to wars during the second half of the century delayed application of double entry bookkeeping in the private sector until the 20th century. Companies that were chartered during this period were mostly owned by non- Muslims and these companies established their accounting systems based on their own methods or languages. Existence of Duyun-u Umumiye (General Debt Office) and pressure from outside powers had a large role in this state of affairs. Non-Muslim entrepreneurs wanted to manage their enterprises according to their own cultures.