ABSTRACT
In reality, many business leaders probably resisted financial reporting because they didn’t want their transactions and the results of their decisions exposed for public scrutiny. Factors contributing to the spread of public financial reporting included: heavy reliance on outside sources of capital, the growing influence of the public accounting profession, criticism from reformers, and government prodding. The new corporations were in industries such as mining, steel production, automobile manufacturing, and radio broadcasting that required huge amounts of capital. Public accountants used their growing influence to promote more complete financial reporting. The common accounting gimmicks included overvaluing assets, deducting expenses directly from retained earnings, and crowding sales into the last period. The Federal Reserve Act of 1913 established the Federal Reserve Board to oversee the country’s banking system. The Board, in an effort to help banks reduce their default rates, began encouraging banks to ask borrowers for audited financial statements. The companies had wide leeway in valuing and classifying their assets.
