Accounting and Financial Reporting by a Late 18th Century American Charity

Abstract

Empirical research to date has neglected accounting and external financial reporting among 18th century American charitable institutions. Contemporary understanding of 18th century American practices is supported by evidence relating to commercial transactions primarily among colonial merchants. Our study examines the accounting and financial reporting of the Charleston Orphan House, the first municipal orphanage in America, from its inception in 1790 through its first five years of operations. The institution was established by city ordinance in 1790 which required the institution “to keep a book of fair and regular accounts of all receipts and expenditures which will be subject at all times to the inspection of the Commissioners.” The ordinance charged the orphanage's Committee on Accounts to “audit” its accounts. The City Council required the institution's board chairman to countersign the financial statements in 1792 before subjecting them to a second “audit.” The Orphan House employed a system of account books that recorded and facilitated the reporting of expenditures and sources of funds. Accounting and external reporting may have been legitimizing factors to overcome the “liability of newness” by promoting a sense of propriety and transparency among benefactors.“I visited the Orphan House at which there were one hundred and seven boys and girls. This appears to be a charitable organization and under good management.”[President George Washington, diary entry, Saturday, May 7, 1791]

Legitimizing amateur status using financial reports: Victorian Football League clubs, 1909–1912

“…Financial statements contained in annual reports traditionally represent a vehicle by which an organization’s accountability is demonstrated to its stakeholders (Unerman, 2000), and have a high degree of credibility (Tilt, 1994). Financial reports have been historically noted as legitimizing the activities of organizations (Irvine, 2002; Daniels et al, 2010; Normand and Wootton, 2010). Napier (2002) also notes that it is fundamental that financial statements do indeed stand in some relationship to real transactions and events.…”

“…Such means of legitimation were especially important for newly created organizations, which could not rely on a history of sound practice to convince donors of their reliability. Daniels et al (2010) examine the accounting and financial reporting of the Charleston Orphan House from 1790 to 1795 and conclude that accounting and external reporting may have been legitimizing factors to overcome the liability of newness by promoting a sense of transparency among benefactors.…”

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“…4 The connection between LG and other local bodies, particularly EIs, is the subject of this study in light of the important role of accounting and accountability ‘in the administration and governance of such organizations and, consequently, in the process of ordering activities within local communities’ (Gomes and Sargiacomo, 2013: 439). In particular, this study focusses on the accounting interrelationship between LGs and non-business and non-governmental associations, which resulted from citizens’ efforts to improve state and LG operations (Daniels et al, 2010; Pridgen and Flesher, 2013).…”

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“…This is to demonstrate the accountability of reporting entities. Daniels, Braswell, and Beeler (2010) examined the accounting and financial reporting of orphanage in America. It was found that the orphanage recorded the reporting of expenditure and source of funds.…”