LENS Business, Law and Policy
History by the Numbers
What Accounting Can Tell Us About the Past—and the Present
One of the dependable controversies of the American presidential election season is the timing and release of the candidates' tax returns.
This year, both Vermont Sen. Bernie Sanders and businessman Donald Trump faced criticism when they didn't release their tax returns in a timely fashion. (As of mid-September, Trump still had not released his).
Nearly all major party presidential nominees since 1976 have released some form of their tax returns—even though there's no law compelling them to do so. Voters simply expect it.
This American ideal of financial disclosure offers a window into our country's cultural values, explained Case Western Reserve Distinguished University Professor Gary Previts, PhD, co-author of the seminal History of Accountancy in the United States and a founding member and the first president of the Academy of Accounting Historians.
Our national interest in disclosure, he said, can be traced back to the late 19th century, when public outcry in the United States over the growing wealth and power of corporations reached a fever pitch. Eventually, state and federal governments intervened, compelling businesses to submit uniform reports of their finances.
"People were buying into the idea of disclosure as a social remedy," Previts said.
That view of the value of financial disclosure is an outgrowth of the political history of the United States. "The social contract in our system provides a fundamental right to own property," said Previts, who also serves as the E. Mandell de Windt Professor of Leadership and Enterprise Development at the Weatherhead School of Management and is a certified public accountant.
This extends not only to your house or car, but to your financial investments, too, which means that money-management firms not only have to make your funds accessible, but also keep you updated on their status.
In comparison, financial disclosure requirements in China and Russia are relatively limited, Previts said, because those countries' economic systems are built on different beliefs about property ownership and disclosure. Given these circumstances, Previts said, businesses will mirror the surrounding culture and keep information to themselves.
Accounting can shape culture, too. Previts noted that the ongoing transition from pensions to 401(k) plans (individual retirement accounts) in the United States has been transformative. "The Financial Accounting Standards Board in the 1980s essentially told corporations: 'You have these contracts with the unions, people are living longer, health care costs are going up. You are underestimating the amount of your liability.'" Companies responded by shifting responsibilities to personally managed retirement accounts. "There you are, at age 18 in your first job, having to manage your own investments."
The cultural effect of this accounting shift has defined the modern financial era. "What's unique about this period we're in now is the fact that almost everyone is invested somehow in the capital market process," said Previts. The fate of this new generation—in the midst of a reported $36 trillion intergenerational wealth transfer to heirs—requires more education focused on financial literacy, Previts said. A new class of investors needs to be reminded to take advantage of the disclosure rights enacted by previous generations—to meet with their advisors, to push for answers. "The sunshine that comes with disclosure only helps if your eyes are wide open," he said.
At least, Previts noted, that's what history tells us.