Accounting controls:The European Experience;

              Accounting Controls;
THE EUROPEAN EXPERIENCE
by ELMER F. FISHER/Partner, Washington, D.C.
Should the accounting process be administered in the public sector or the private sector? This question has been discussed within the profession and the business commun-ity for some time.
Recent attention focused on the issue by the U.S. Congress has prompted me to evaluate how the profession abroad has been affected by the type of control that has been placed over it. Recently I moved to Washington, D.C., after more than ten years in Europe. Thus, it is appropriate for me to contrast the relationship between government and the public accounting profession as it exists in Europe-an nations to that which exists in the United States. Since this relationship differs in each country of Europe, 1 will consider here its role in only three: the United Kingdom, the Netherlands, and the Federal Republic of Germany. All are industrially developed countries with mature public accounting professions.
The Origins of Accounting
The United Kingdom is considered by many to be the birthplace of accountancy. The role of professional ac-countants can be traced back to the early eighteenth century, when they helped to administer insolvent estates. The actual practice of the profession as we know it today, however, began in the nineteenth century—when business enterprises became larger, organized themselves as limited companies, and expanded abroad. The result was quick recognition of the need to improve accounting systems in order to control remote operations.
During the latter half of the nineteenth century, UK companies began to raise capital from the public. To bridge the credibility gap between the enterprise and the investor, a need for an objective assessment was recognized. Thus came into being audited financial statements.
The Companies Act of 1900 required that all limited companies appoint auditors. Anticipating this require-ment, the public accounting profession pressed to gain legal status, and in 1880 the Institute of Chartered Account-ants in England and Wales was incorporated by Royal
Charter. Shortly thereafter, institutes were chartered in Scotland and Ireland as well.
In response to similar pressures and opportunities, the public accounting profession in the Netherlands was for-malized in 1895 under the Netherlands Institute of Ac-countants, As in the United Kingdom, the Dutch developed the accounting profession primarily in response to the needs of business. However, in the Netherlands, the academic community had a unique influence on the development of accounting rules. A number of accounting and economics professors in the early 1900s were particu-larly outspoken in conveying their "academic" interest in the development of the profession.
The German public accounting profession is nearly as old as its counterparts in the United Kingdom and the Nether-lands, dating back to the beginning of the twentieth century. An important difference, however, lies in the motive for its origin. The German profession has grown out of the particular interests and needs of the very strong German banking industry. German companies have tradi-tionally relied more heavily on debt financing than do companies in other countries. The strength and dominance of German banking institutions made this quite reasonable. In the late nineteenth century, large German banks began to establish auditing groups, either in separate auditing companies or as departments, to carry out auditing and other investigative assignments in connection with their loans and trade financing. Many of today's largest German public accounting firms were started in this way, and leading elements of the profession were captives of the banking industry for many years. A few major German public accounting companies still have bank shareholders, and thus banking ties continue to be of prime importance.
Setting Auditing Standards
In the United Kingdom, the chartered accountant is not licensed or regulated by the government. Under the Royal Charters, the Institutes are responsible for establishing and
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