The era of modern U.S. accounting began in 1896 when the industry created the title “certified public accountant” (CPA) and its initial requirements, according to Investopedia. Here is a look at the historical context of accounting and how that evolution has impacted the profession today.
The Early 1900s and the Growth of the Accounting Industry
In 1913, the U.S. government instituted its income tax to fund its part in World War I, increasing the need for CPAs, the Investopedia article states. The same year, the U.S. Congress passed the Federal Reserve Act of 1913, establishing the Federal Reserve System, according to the Federal Deposit Insurance Corporation (FDIC).
The Roaring 20s and Great Depression
In 1927, the National Banking Laws and the Federal Reserve Act — also called the McFadden Act — banned interstate banking.
In the wake of the Great Depression, the accounting industry embarked on internal improvements. In 1930, the New York Stock Exchange and the AICPA revised financial reporting best practices. U.S. Congress passed the Securities Act, creating the Securities and Exchange Commission in 1934.
The Banking Act of 1933, or the Glass-Steagall Act, temporarily created the FDIC and separate lines of commerce for commercial and investment banking. Congress amended the Act two years later, making the FDIC a permanent entity.
The 1950s Bring the Computer Revolution
In 1952, IBM debuted its vacuum tube computer for business. Replacing tubes with transistors in 1959 lowered prices and increased use among accountants.
In 1950, the Federal Deposit Insurance Act consolidated prior legislation on the FDIC. Congress passed the Bank Holding Company Act six years later, adding to the Federal Reserve Board’s duties and holding company compliance.
Regulations Grow During the 1960s
According to the Accounting Foundation, many Americans felt banking issues contributed to the 1920s stock market crash. In response to this, in 1966, Congress passed the Financial Institutions Supervisory Act, expanding the powers of Federal banking agencies to enforce the law.
Passing the Truth in Lending Act (TILA) in 1968 (nicknamed the Consumer Credit Protection Act), Congress defined the legal disclosures for loans and regulated transaction cancellations. The Fair Housing Act of 1968 banned discrimination based on an individual’s religion, race, or national origin in housing.
Computer manufacturers replaced transistors with microchips in 1961, lowering computer prices. Software makers developed early bookkeeping applications.
Introducing Early Personal Computing in the 1970s
The 1970s became a decade of personal and popular change with massive cultural shifts that influenced changes to the entire financial industry through the following laws:
- Fair Credit Reporting Act of 1970 regulates consumer credit information collection and access and provides personal credit report access.
- Bank Secrecy Act of 1970, also called the Currency and Foreign Transactions Reporting Act, prevents and detects money laundering and terrorism financing using bookkeeping and reporting methods.
- The Flood Disaster Protection Act of 1973 requires financial institutions to require homeowners in flood zones to purchase flood insurance when offering them an FDIC loan.
- Fair Credit Billing Act of 1974 amends the TILA. It set time limits on creditors’ responses to consumer billing inquiries and banned them from taking adverse action before investigating a consumer complaint.
- Home Mortgage Disclosure Act of 1975 set public loan data reporting requirements for lenders.
- Fair Debt Collection Practices Act protects consumers from abusive practices by debt collectors.
- The Equal Credit Opportunity Act of 1976 added protection from discrimination due to gender or marital status to those set in the Housing Act.
- Consumer Leasing Act of 1976 amended the TILA to require disclosure of accurate lease terms for personal rentals.
- The Right to Financial Privacy Act of 1978 created federal government procedures for obtaining a person’s financial records.
- Financial Institutions Regulatory and Interest Rate Control Act of 1978 established compliance and limits for bank insider transactions and created the Federal Financial Institutions Examination Council (FFIEC).
- The International Banking Act of 1978 created a regulatory framework for foreign banks.
Early personal computers from IBM and Tandy entered American homes.
The 1980s and Beyond
In 1988, Congress passed an amendment to housing practices that protects individuals with disabilities and families with children from discrimination. The World Wide Web (WWW) debuted in the 1980s, an outgrowth of the government’s 1960s defense computer network.
In the 2000s, the government strengthened protections against money laundering and mortgage lending. Accounting software helped ease compliance pains. Today, Software as a Service (SaaS) applications allow CPAs to balance books from anywhere.
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