Synopsis

At the dawn of the twentieth century, neither the U.S. government nor the American stock exchanges required industrial corporations to publish audited financial statements; few companies voluntarily disclosed their financial condition. By 1930, almost 80 percent of the companies listed on the New York Stock Exchange regularly published audited balance sheets. Factors contributing to the spread of public financial reporting included; (1) heavy reliance on outside sources of capital, (2) the growing influence of the public accounting profession, (3) criticism from reformers, and (4) government prodding.

Discussion Questions

1. What reasons did American corporate executives give for not publishing audited financial statements in the early 1900s?
2. How did trendsetters such as U.S. Steel, John B. Stetson Co., and Equitable Life create pressure on other companies to publish audited financial statements?
3. According to William Z. Ripley, what economic and social problems were caused by inadequate financial reporting?
4. How did the Federal Reserve Board (indirectly) encourage American corporations to prepare audited financial statements?