Other Developments in Financial Accounting for Business
Database development continued for many years. In collaboration with the UK Government’s Board of Trade (and subsequent reincarnations, for example, the Department of Trade and Industry (DTI)), which carried out the primary standardisation of accounts in order to produce industrial analyses in Business Monitor publications, the Cambridge Faculty went on to extend the database of accounts until 1990 (Goudie and Meeks 1986; Meeks et al. 1998). Whittington had moved on in 1972, to chairs in Edinburgh and Bristol, but advised from a distance, and spent a spell back in Cambridge working on his influential conceptual book on accounting for price changes (Whittington 1983).[1] [2]
By the time of his return to the Economics Faculty as Price Waterhouse Professor of Financial Accounting in 1988, Whittington had developed a range of interests in accounting theory and accounting regulation (Whittington 2007). His 1990 paper with David Tweedie set much of the agenda for accounting regulation for the next decade, and he was asked to join the new UK Accounting Standards Board and then, in 2001, the International Accounting Standards Board (IASB)—both of them chaired (to acclaim) by Whittington’s co-author, Tweedie. In this role, Whittington can partly be seen as resuming his efforts to standardise company accounts: in 1960s Cambridge this was to produce data amenable to comparative statistical analysis by economists; around the millennium it was to allow investors to conduct reliable comparative financial statement analysis for companies across the UK Stock Exchange and then (with the IASB) across the world’s equity markets.11 Philip Brown, one of the fathers of the dominant modern accounting stream in the USA, wrote (2008): ‘[A]ny careful reader must be impressed by the sheer quality and practical import of Whittington’s work over more than 40 years ... Whittington has rendered great service to academia, to British commerce and industry, and to the accounting world at large’ (ibid.: 559).
In his 1971 book, The Prediction of Profitability, and various papers, such as Whittington (1972, 1978), Whittington had exploited the Cambridge databank to identify information in companies’ past accounts which might predict their future profitability—for example, their size, their past rate of growth, and their sources of finance. The ambitious development of Stone’s national income accounting by Barker, Peterson, and their colleagues made possible another approach to predicting companies’ future accounts. The huge CGP multisectoral macroeconomic model of the UK was linked by Andrew Goudie and Geoff Meeks to companies in the Cambridge databank. The CGP model had achieved sectoral/industrial disaggregation of past and projected national accounts. Marrying industries with individual large companies enabled Goudie and Meeks to model the impact of macroeconomic developments—for example, a change in the exchange rate—on the future accounts of individual companies, and to aggregate and feed back the resulting company sector financial accounts into the macroeconomic model (Goudie and Meeks 1981, 1982; Goudie et al. 1987).
Building on the sector-level relationships developed by King (1976), each of the hundred largest companies was separately modelled within the macro model. This allowed for the elimination of aggregation bias in econometric estimates—for instance in the dividend function (Goudie et al. 1987). The extra information on the distribution of values across members of the company sector made it possible to answer questions not amenable to aggregate analysis, for example, how great was the impact of tax exhaustion on tax receipts from companies (Goudie 1984). Also, the availability at the company level of balance sheet data as well as flow accounts permitted new approaches to modelling company failure, estimating the impact of macroeconomic developments on the solvency, and probability of failure, of individual businesses (Goudie 1987; Goudie and Meeks 1991, 1998).
- [1] There was a lively interest throughout this period among Faculty members in how to measure profit.Publications include King (1975), Meeks (1974), and Meeks and Meeks (1981). There were vigorousdebates, discussion papers, and newspaper articles involving, among others, Wynne Godley, BobRowthorn, and Adrian Wood (the latter working on his 1975, A Theory of Profits).
- [2] The Economics Faculty provided a very active environment for analysing regulation in this period.Whittington participated in the work of David Newbery’s team on the regulation of utilities and helpedinform Meeks’s work on estimating the costs and benefits of accounting regulation (Meeks and Meeks2002; Gwilliam et al. 2005; Meeks and Swann 2009).
