Company History:
American Institute of Certified Public Accountants
Incorporated:1887 as the American Association of Public
NAIC: 81392 Professional Organizations
SIC: 8621 Professional Organizations
With over 330,000 members, The American Institute of Certified Public Accountants (AICPA) is the premier professional organization for certified public accountants in the United States. As such, it strives to provide its membership with the resources, information, and leadership that enable them to serve the public and clients in a professional manner. Members of the AICPA must have a valid license to practice accounting (having passed the required examinations), be employed in an AICPA-approved institution, and abide by the organization's bylaws. Consisting of a board of directors, a governing council, and a joint trial board, the AICPA institutes programs and policies, while also providing for uniform enforcement of professional standards by adjudicating disciplinary charges against state society and AICPA members. Moreover, the group publishes the monthly Journal of Accountancy as well as newsletters--The Practicing CPA and The CPA Letter--for its membership.
In 1887, several men, the majority of them Scottish or English chartered accountants who had settled in the United States and started practices there, founded and incorporated the American Association of Public Accountants. Until that time, the profession was vaguely defined; the founding members of the AICPA set out to ensure that accountancy gained respect as a profession through practicing accountants who acted competently and professionally.
The membership grew to around 30 in the first year and 45 active members were listed in 1896. In 1905 the association merged with the Federation of Societies of Public Accountants in the United States of America, which had been founded in 1902. There were 266 members. The organization began publishing a periodical, The Journal of Accountancy, that year. A permanent secretariat for the body was established in 1911. The merged group had retained the name American Association of Public Accountants, but in 1916 it was reorganized as the Institute of Accountants in the United States of America, and shortly after this the name was changed to American Institute of Accountants.
The pre-1916 association essentially had been a federation of state societies; the reorganized body conferred on itself the power to accept applications for membership, prepare its own admissions examination, and draft and enforce a code of ethics for all its members. In the first 10 years after reorganization, the institute grew from 1,150 to 2,064 members. A number of its members formed the American Society of Certified Public Accountants in 1921 to emphasize the importance of the CPA certificate, but this group rejoined the institute in 1936, bringing the membership to 4,890. Thereafter admission was open only to CPAs. The institute eventually stopped giving its examination for admission, accepting members on the basis of what became a uniform CPA examination.
A number of members and state societies contributed in 1917 to an endowment fund in order to establish and support a central library for the accounting profession. This fund enabled the AIA to publish a number of technical books and monographs in the 1920s. During the following decade the institute continued to expand its line, including one of the first efforts to define the principles underlying financial accounting. After World War II, its publications evidenced a strong interest both in detailing practice procedures and expanding the theoretical frameworks supporting the various types of expertise involved in public accounting.
A strong emphasis on professional ethics had been established by the American Association of Public Accountants, which in 1908 had disseminated five rules on the subject, including a prohibition on members' engaging in incompatible occupations and also of paying commissions to the "laity." During World War I, the AIA proscribed practices such as "touting"--that is, all types of "unprofessional" advertising or soliciting for new business--and unrealistically low bidding and contingent-fee arrangements in pursuit of the same. (These rules were dropped in the 1970s as a result of threatened antitrust litigation by the federal government.) The Journal of Accountancy opposed incorporation by accounting firms because they could fall under the control of entrepreneurs who were not members of the profession.
The American Association of Public Accountants resisted efforts by federal government agencies in 1907 and 1914 to introduce uniform accounting rules. At the request of the Federal Trade Commission, the AIA issued, in 1917, a memorandum on balance-sheet audits that became a model for the preparation of financial reports for commercial and industrial enterprises. Such an authoritative statement on acceptable auditing procedures had become necessary because of the growing reliance of banks on audited financial statements for credit purposes. Recognition of the need to standardize accounting rules grew in the 1920s, as the public increasingly bought shares of stock on securities markets.
In 1934 the institute, in association with the New York Stock Exchange, issued Audits of Corporate Accounts, defining for the first time six accounting principles that firms listed on the stock exchange were required to follow. It also called on accountants not only to certify a company's accounts but also to determine whether or not the system of accounting of a company conformed to acceptable accounting principles. This action was impelled by the establishment of the Federal Securities and Exchange Commission, with jurisdiction over the reporting of public companies, including the power to define generally accepted accounting principles. Alarmed at this piece of New Deal legislation and fearing that their profession would be drawn into the political pressures they associated with government, accountants won an important concession: public financial statements filed with the SEC would be audited by independent accountants rather than federal employees.
In 1938 the American Institute of Accountants established a committee on accounting procedure (CAP). During the more than 20 years of its existence, the CAP issued 51 accounting-research bulletins defining generally accepted accounting principles. In keeping with its basic philosophy of self-regulation, the SEC traditionally accepted the rulings of this body. Also in 1938 or 1939, in response to a massive fraud case, the AIA formed a committee on auditing procedure to provide guidance on the procedures to be followed in examining financial statements. Fifty-four statements on auditing procedure had been issued by this body through 1972, when it was replaced by an executive committee on auditing standards.
By 1941 the American Institute of Accountants had codified its first rules for members to follow as a means of maintaining the independence of the profession. Among the more important rules adopted in the 1950s with regard to this question was one that incorporated generally accepted auditing standards as an ethical guideline for independent audits, and another prohibiting the expression of opinions on financial statements if a member were a director or officer of a client's concern or had a financial interest in such a concern.
A consensus had grown by 1959 that the CAP was inadequate to deal with new developments in corporate policy, taxation, and government regulation. Accordingly, a new Accounting Research Division was established to publish studies of current problems, and a 21-member Accounting Principles Board (APB) was created to consider the studies and on their basis to publish pronouncements that would be binding on members of the institute, which was renamed the American Institute of Certified Public Accountants (AICPA) in 1957. Authority over tax practice was a considerable source of contention between accountants and lawyers until 1951, when the AIA and American Bar Association jointly approved adoption of a Statement of Principles for Lawyers and CPAs in Tax Practice. Other important actions of the 1950s included the establishment of a committee on management services (1954) and a committee on the economics of accounting practice (1957), as well as the creation of a program of continuing education (1958). A Washington, D.C., office was opened in 1959. By 1961, the institute's staff had grown to 165 and was organized into seven divisions.
The APB labored under a number of handicaps: disagreement within the profession about its basic purposes, a perception that its authority was being undermined by the Securities and Exchange Commission, and mounting criticism of the accounting practices used by some conglomerates during the corporate-merger boom of the 1960s. In 1963 three big accounting firms vowed to ignore a board ruling concerning an investment tax credit and successfully faced down the body. Investment bankers did the same to kill a controversial 1967 ruling on convertible bonds. A central theme voiced by the APB's critics was that a private professional organization should not have the right to create accounting standards and impose them on businesses. In 1973, this body was replaced by the Financial Accounting Standards Board, whose membership is not confined to accountants. This association is independent of the AICPA.
During the early 1970s, there developed a consensus that the AICPA needed to establish standards for public-accounting firms as well as individual practitioners. A division for CPA firms was established in 1977, with separate membership sections for private-companies practice and SEC practice. Both sections adopted standards for quality-control reviews as requirements for membership. To remain in good standing, member firms were required to periodically undergo peer reviews of their practice policies and procedures. During 1977-78 two new technical committees replaced the prior executive committee on auditing standards, one of them was established to provide guidance principally for compilations and reviews of financial statements of private companies.
The AICPA also was establishing technical standards for tax practice (1964), management advisory services (1969), continuing professional education (1971), accountants' services on prospective financial information (1985), and attestation engagements (1986). As in the case of auditing, these standards defined the minimum levels of acceptable quality that individual AICPA members were required to achieve in those areas of practice.
In 1948, the AIA published an analysis of the financial reports of about 600 leading corporations. This was the first in what became an annual reference work, with comparisons showing trends in the treatment of similar items in the financial statements of different corporations. In 1973, the AICPA established a national automated accounting-research system. The world's largest accounting and auditing database, it enabled users to research the annual reports and proxy statements of over 4,000 public companies.
In 1988, AICPA members approved a plan that the organization's president described as the most comprehensive quality-improvement program ever undertaken by any profession, including mandatory quality review of firm accounting and auditing practices. By 1995 about 40,000 firms had participated in an approved-practice monitoring program. The AICPA modified its ethics code to specifically apply to members in industry, who in 1995 constituted 41 percent of the organization's members. Some 283 disciplinary actions for violations of the AICPA code of professional ethics were reported in the 1980s.
The AICPA established three new divisions in the mid 1980s: tax, personal financial planning, and management consulting. An information-technology division was added in 1991. The auditing-standards board issued nine new statements in 1988 and substantially changed the auditor's report to make it more user-friendly. These were the most extensive changes in auditing standards in almost 50 years. In 1992, the organization adopted a bylaw allowing CPAs to practice in any organizational form (including incorporation) authorized by a state. A special committee was appointed in 1994 to provide useful information for decision making.
By the late 1980s the continuing-education division had several hundred offerings in video- and audio-assisted self-study formats, group courses, and seminars. As an outgrowth of a policy objective established in 1968 to end racial imbalance in the accounting profession, the AICPA, in 1985, was providing scholarships to 398 students in order to enable minority students to enter the profession. More than a dozen doctoral students were receiving fellowships. Beginning in 2000, the AICPA required, as a condition of membership, 150 hours of accountancy education.
In 1991 the AICPA moved 650 of its 750 employees from its quarters in Manhattan's Rockefeller Center to Harborside, New Jersey. Association officials estimated that the move would save $125 million over the next 20 years. Barry C. Melancon was appointed president and chief executive officer of the AICPA in 1995, succeeding Philip B. Chenok, who had served in the post since 1980. Olivia F. Kirtley, the first woman to be the organization's chair, held this post in fiscal 1999 (the year ended July 31, 1999). She was also the first chair to be a company employee unaffiliated with an accounting firm.
The AICPA's membership reached 337,454 in fiscal 2000. During the mid-1990s members working in business and industry outnumbered those in public accounting for the first time; the figures for fiscal 2000 were: business and industry, 46.4 percent; public accounting, 39.4 percent; government, 4.2 percent; education, 2.3 percent; and retired and miscellaneous, 7.7 percent.
The AICPA's responsibilities in 2000 included establishing auditing and reporting standards, influencing the development of financial accounting standards underlying the presentation of U.S. corporate financial statements, and preparing and grading the national Uniform CPA Examination for the state licensing bodies. It was conducting research and continuing-education programs and surveillance of practice and was maintaining more than 100 committees, including: Accounting Standards, Accounting and Review Services, AICPA Effective Legislation--Political Action, Auditing Standards, Federal Taxation, Information Technology, Management Consulting Services, Professional Ethics, Quality Review, and Women and Family Issues. Its publications included Accounting Trends and Techniques, CPA Client Bulletin, CPA Examinations, CPA Letter, Digest of Washington Issues; The Journal of Accountancy; Practicing CPA, and Tax Adviser.
Principal Divisions
CPA Firms; Information Technology; Management Consulting Services; Personal Financial Planning; Tax.
Further Reading
Chenok, Philip B., "Fifteen Years of Meeting the Challenges," Journal of Accountancy, June 1995, pp. 66-70.
Cook, J. Michael, "The AICPA at 100: Public Trust and Professional Pride, Journal of Accountancy, May 1987, pp. 370, 372-74.
Edwards, James Don, and Paul J. Miranti, Jr., "A Professional Institution in a Dynamic Society," Journal of Accountancy, May 1987, pp. 22, 24-26, 28-30, 32-34, 36-38.
Penney, Louis H., "The American Institute of CPAs--Past and Future," Journal of Accountancy, January 1962, pp. 32-39.
— Robert Halasz
