I recently finished reading The Templars by Dan Jones. The Templars are the stuff of legend in many texts movies, and Jones’s book is a great and detailed read on the history of the Templars.
As I did not know a lot about the Templars – outside of movies – I was surprised at how good they became at accounting. The Templars were a military order, founded in 1119 and remained active for about two centuries until their papal suppression in 1312. They were involved in several Crusades to the Holy Land, all of which entailed military and financial resources. It seems as a result of this and their well structured organisation, they became not only good at accounting, but so good they were trusted by others to hold cash assets on their behalf and act as a bank.
Jones’s book gives many insights from an accounting perspective, here are just two examples. A letter from 1220 written by Pope Honorius wanted to ensure that taxes collected to fund the Crusades did not flow via Rome. The Templars were thus used as agents to account for and deliver cash from tax collected to the Holy Land. A second example which appears throughout Jones’s book is how the Templars accumulated wealth as an order over time. They acquired land and similar immovable assets, and these were used productively to generate moveable assets – oil, wine and grains for example. All of this has to be accounted for and controlled. Jones also mentions how ultimately one way the Templars were hurt as an order – their wealth was attacked.
A pint of the black stuff (Guinness) would be most enjoyable now, ten weeks into “lockdown”. Of course, this is not a lament to me wanting a pint, but there is link to Guinness.
For quite a few years now, media and commentators have highlighted the large profits and low taxes of many companies. Take amazon.com Inc, whose Q1 sales in 2020 reached $75 billion (see here for more), or think of Apple, Facebook or many other companies. Before I say anything further, I am not a total socialist, nor am I a total capitalist – there is a happy medium in there somewhere. You may know from reading previous posts that I do some historic research on the Guinness company. Dennison and MacDonagh (1998) in their book Guinness 1886-1939: from Incorporation to the Second World War provide some very useful insights into the general management of the company, and I will draw on one of these now.
Sometimes I ask myself why do some companies need to make so much profit? On the other hand, in a democratic/capitalist society, they are free to do so. Now, with a serious pandemic gripping the entire world, some of our underlying models are at least being questioned. So my question is could companies be happy with a “living profit”. I first noticed the term in relation to Guinness dealings with Irish malt suppliers around the turn of the 20th century. The company wished to encourage the production of Irish malt, but were not willing to buy at the lowest market price. Instead the company noted a “living profit” should be attainable. What exactly this means is not specified, but the general principle if clear. Today, most (not all) companies seem to want lowest cost everything and highest profits – presumably to keep shareholders/investors at bay. Would it not be a great improvement for us all if more and more firms took the approach of the “living profit” espoused by Guinness over a century ago? I am sure economists and others could give me many reasons why not. But, perhaps it is worth having the conversation as the business world comes back a new normal in the coming months.
This is a brief summary of chapter 15 in our book, written by João F. Ribeiro, José M. Oliveira and Maria F. Brandão. This is also the final chapter in the book, so back to normal posts after this. I hope you enjoyed the chapter summaries.
This chapter details some accounting of the Portuguese Companhia Geral da Agricultura das Vinhas do Alto Douro (hereafter Companhia), which was founded in 1756. While also trading, the Companhia acted as a tax collector and regulation of the Douro wine sector. It was obliged to buy production excess, in accordance with the quantities determined by
the state, to avoid lowering of prices in the market. Furthermore, it acted as a creditor, as it had to lend funds to local farmers at a subsidized annual interest rate of 3%. Finally, it supervised improvement works in roads and waterways in the region, making use of collected taxes. All of this implied in needed to maintain good accounting records. The chapter provides a very detailed chart of the organisation of the accounting function and describes the various books of account maintained. The authors note how the “bookkeeping model is in harmony with the teachings of João Henrique de Sousa, the first teacher of the Aula de Comércio – the Portuguese Public School of Commerce created by Pombal in 1759”. This system was also used by other similar companies in Portugal. It is also noted by the authors that income smoothing was a typical feature after 1784, with reported earnings being very similar and accounts such as “Casks Depreciation, Bad Debt Provision, ‘Profit’ Provision and Extraordinary Income/Costs” being used to achieve this.
Accounting for Alcohol – part 14 “The Monastery of Silos and its wine cellar in Ribera del Duero through its accounting books (14th, 18th and 19th centuries)”
This is a brief summary of chapter 14 in our book, written by Lorenzo Maté, Begoña Prieto and Alicia Santidrián. This chapter details the activities at the Monastery of Silos relating to wine and its production, control and consumption through its accounting books. The monastery is a Benedictine monastery of Silos and was founded in the 11th century. The Rule of St Benedict has general rules on the moderate consumption of wine, and the account books at the monastery give some detail on what was consumed and what it cost.
The chapter reveals records from 1338. These accounts have information on the harvests of wheat and wine production. In the account, the incoming (recebta) and outgoing (despensa) of goods in kind (bread, wine) were noted first; and then income and expenditure in monies. A total of 1,550 16 lire pitchers were received during the year and over twice that was consumed (the being locally produced). The total cost is noted at 4,140 maravedis. Sample accounts from later years are also given and these tend to show more detail. The authors also provide a detailed chart of all the books of account of the monastery and outline how these books were used for various forms of accountability. For example, the Father General of the Valladolid congregation received accounts every six months, which were audited by monks having “intelligence in accounts”. The Father General also made two visits to the monastery during their four-year term of office. Such visits were a control mechanism, and the chapter provides some details on comments made during a visit in 1826.
Accounting for Alcohol – part 13 “Accounting in Spanish co-operative wineries during the 20th century”
This is a brief summary of chapter 13 in our book, written by Francisco J. Medina-Albaladejo. This chapter focuses on co-operative wineries in Spain. They emerged in the late 19th century and have played an increasingly important role in the sector ever since – now accounting for over 70% of wine production in Spain. The chapter explores the accounting records of three Spanish co-operative wineries – Rosario (Murcia), San Isidro (Murcia) and Pinoso (Alicante) from the 1930s to the 1980s.
In the early part of the 20th century, the co-operative model was not very successful. Most wineries were under-capitalised, their financial position precarious and their management non-professional. They operated within the framework of the 1885 Commercial Code,5 which required the use of double-entry bookkeeping, through books such as libro de diario (journal book), libro mayor (ledger), libro de inventarios y balances (inventories and balances book), libro de actas (minute book) and the annual preparation of balance sheets. In essence, the accounting practices used by co-operative wineries before the 1940s directly reflected the characteristics of these organisations – small organisations composed of small and medium-sized landowners with no training in accounting, who followed simple administrative procedures and adopted accounting methods which were dictated by external state pressures in the form of legislation.
During the Francoist period, 1939-1971, financial support of the state saw a boom in co-operative wineries. However, the support provided by the Francoist regime did not contribute to the implementation of sound management policies. In accounting terms, a 1942 Act, and its attached regulations, established accounting systems that differed little from those that had already been put in place in the preceding decades. Single- or double-entry bookkeeping was required, depending on the complexity of the operations carried out by each co-operative, as well as annual balance sheets.17 The regulations also recommended producing annual reports, but this was optional.
After Francoism, the mid-1970s witnessed substantial changes in the wine market. Consumer preferences adopted a new pattern: instead of low-quality wine to be consumed daily as part of the Mediterranean diet, consumers began demanding smaller
quantities of better-quality wines, which were bottled and better presented in general. From the point of view of accounting, the state tried to adapt the existing legislation to the new conditions and bring it closer to European regulations. A 1971 decree made double-entry bookkeeping compulsory, regardless of region and the scale of operations, and also demanded that co-operatives submit a profit and loss account to the public regulators, along with the balance sheet and the annual report, which was no longer optional. In addition, the decree gave members the right, for the first time, to request information on administrative issues and accounts. The outcome of this decree was the homogenisation of accounting practices among Spanish co-operative wineries.
Accounting for Alcohol – part 11 “Accounting and wine in Anjou (Maine et Loire) during the 19th century”
This is a brief summary of chapter 10 in our book, written by Valentin Taveau and Béatrice Touchelay. They use the archives of the département of Maine et Loire and the
accounts books of two Maisons de vin, that of René-Jean Goubault-Lambert and that of Jean-Baptiste Ackerman-Laurance. The period covered is between about 1810 and 1870.
As the authors note, the archival records provide an example of accounting practices that were still quite in their infancy and reflect businesses that were not well managed. Indeed in that case of Goubault-Lambert, the authors suggest the account books are a chronicle of a bankruptcy foretold. The main book of account for was the Grand livre which recorded the transactions between the business and partners/customers and was classified by account type – similar to a general ledger today. The authors note little in the way of summary or analysis, and also not several periods throughout the financial years when days or weeks of time seem to be omitted. In the case of the Ackerman-Laurance business, the Grand livre is better maintained and more detailed and includes details about production, sales, inventory and payables – although the book dates from the latter half of the century, and be attributable to the business being taken over by the founder’s son. In both cases, it is interesting to note that the Grand livre captures personal/family transactions also. This is similar to many earlier books of account, where the business and family/owners were not separated as per the present day entity concept.
This is a brief summary of chapter 10 in our book, written by William Jackson, Audrey Paterson and Darren Jubb. The chapter examines some of the roles that accounting has played in the transformation of the whisky industry from its simple roots to its current complexity, with particular reference to the development of the Distillers Company Limited (DCL). It covers a period from 1850-1925. The scale of the whisky industry around 1885 was quite large, yielding about one-sixth of all revenue of the United Kingdom. As the authors note “given the scale and importance of this to the British government, it is easy to understand why excise/revenue men were swarming around the distilleries. Under these conditions it can be no surprise that the quality and completeness of accounting data would be of the very highest standard”.
The volume of whisky produced increased dramatically in the middle of the 19th century and some producers made initial attempts to cooperate in 1856 and 1865. Although the first attempt was short-lived, the second had more duration, and six of the larger grain whisky producers formally combined into the Distillers Company Limited (DCL) in 1877. In the 1890s, whisky boomed which ultimately led to the Pattisons crash in 1898. As noted by the authors “what followed was a period of lost confidence, retrenchment, falling sales, a recognition of overvalued stocks throughout the industry and a need to reduce the production of spirit. It was at this time that DCL began to adopt a pattern of activity that would see them attempt to rescue the industry from its woes. Recognising the overcapacity in the industry and the weakness of many of its players, DCL began to acquire distilleries, often at very low prices, and take them out of production in order to protect the future values of existing whisky stocks”. The came the First World War, which affected all business., but DCL became the UK’s sixth-largest manufacturing company by 1930. As the authors suggest “there can be little doubt as to the importance of accounting practices to this development”
This is a brief summary of chapter 9 in our book, written by Marie Sarita Gaytan.
Tequila, nowadays, is a globally popular drink. Its origins are from a drink (also from the Agave plant) called pulque. As a Spanish colony, Mexico, had vast supplies of agave. Technological advancements in the process of distillation, in the early 18th century saw the commercial production of mezcal, a generic name for all distilled agave spirits. Demand for mezcal from Tequila increased when Mexico gained independence from Spain in 1821. By the turn of the 20th century, tequila was being marketed in the US, and by 1907, there were 96 distilleries, producing upwards of 800,000 gallons a year. From an accounting perspective, this growth is likely to be driven by the perceived demand and profitability of tequila distilling at that time. Prohibition, later, increased the price of alcohol (and associated profitability) and created a new international smuggling enterprise along the US-Mexican border.
After Prohibition and the Second World War, Tequila sales to the US grew. In 1943, La Prensa reported that as much as $250,000 worth of tequila was being imported into the United States per month. In 1944 taxes on tequila and vodka imports were reduced
by 5 percent, which cut costs from $4.99 per fifth to $4.45 per fifth. Lower prices and new demand subsequently led to the first tequila “boom” : between 1940 and
1945, the production of tequila increased nearly 400 percent. Making
the most of these circumstances, Mexican distillers increased production in
order to quench the thirst of American consumers and benefited from increased sales and profits. Brands such as Jose Cuervo capitalized on the mounting interest and started to invest heavily in magazine and newspaper ads. By the mid-1950s, US-based distributors were spending upwards of $100,000 to promote the “Mexican beverage in cocktails and mixed drinks”.
And, of course, the story continued as tequila became the internationally known drink it is today
This is a summary of the next chapter in our Accounting for Alcohol book, which was written by Viatcheslav Sokolov, Svetlana Karelskaia and Ekaterina Zuga. As the chapter (and post) title suggests, this chapter details accounting practices around vodka in Russia. For me personally, this was a very interesting chapter as I knew very little about accounting in Russia in general.
The chapter details accounting records around vodka dating from the early 1600s. In the 16th century, Russia gradually introduced a state monopoly over the production and distribution of alcoholic beverages. At this time, alcohol could be sold only in special drinking establishments owned by the state, known as kabaks. Profit generated by kabaks was captured made in kabak books, a special type of accounting register, and this profit was reported to the State. In 1649, a standardised system of accounting for alcohol was introduced State wide, and this remained in place until 1832.
In 1817, excise taxes were imposed on private alcohol manufacturers. The tax was based on actual the total output permitted by the producer. Producers recorded different types of beverages in a special book, where they registered the volume of product output, its bottling and delivery. Thes books were maintained using the double entry system. Later in 1895, the State for the first time issued a statute which described vodka, and effectively monopolised its production through strict controls on private producers. This implied Provincial Excise Offices played a key role in the accounting process. They kept ledgers to track cash flows, assets and settlements with the manufacturers, distributors and financial institutions relating to production and distribution of alcoholic beverages.
This is a summary of the next chapter in our Accounting for Alcohol book, written by Karen McBride and Tony Hines. It explores accounting and controls for alcohol in the Royal Navy in the time of Nelson, and is a really interesting topic.
In today’s world, we may find it difficult to imagine, but beer and other forms of alcohol were part of the normal diet of a sailor in times past. As the authors note, beer was bulky to carry and required much room to store, and of course, it had a cost and needed to have an inventory level maintained and controlled. Thus, the British Royal Navy instituted rules and procedures to ensure alcohol use was controlled, both in terms of cost and volume per sailor. The authors provide some examples of forms used to comply with these regulations, and here is a great example from 1808:
It appearing that considerable quantities of wine and spirituous liquors have
been fraudulently run-on-shore from His Majesty’s Ships of War and Transports,
to the great prejudice of His Majesty’s Naval Service, and diminution
of the Revenue; for the better preventing of such practice in future, and
for punishing those who shall dare to continue or renew it, all Captains or
Commanders of His Majesty’s Ships or Vessels are hereby strictly required,
and positively directed, not to suffer any of those species to be ever issued
to the Companies, or any part of the Companies, of the Ships or Vessels
respectively under their command whilst in the Home Ports, nor at Sea, until
after the Beer is all expended.
The chapter is guided by Focault’s notion of governmentality. Rather than I explain this in the context of the chapter, the author’s words are very useful:
Foucault’s work observes that the unthinkable may become thinkable, where procedures and methods are put in place for one purpose but end up being utilised for another purpose that was not expected at first (Foucault, 1980). We argue that initially
the accounting and control of beer was determined for cost and provision
control; beer was issued for the seafarers’ health and well-being, replacing often
foetid water. Later it was used for the prevention of scurvy. Finally, it was used to
keep the men in a controllable but mildly inebriated state, which alleviated the
hardships they were under. Accounting was instrumental in this, as it provided
the means by which the allocation was measured and supplemented.
The chapter has many examples of how accounting was used in the control of alcohol on ships, including some comment on the Royal Navy’s own brewery in Portsmouth. It is well worth a read.
This post #3 in my summary of a recent edited book. Chapter 3 is written by Desmond Gibney and explores proposals to acquire the brewing sector by the British government during the First World War. Desmond draws on archival records of the Macardles brewery in Dundalk, Ireland.
One of the drivers for the government acquisition of the trade was the temperance movement, which combined with the need for men to fight the war brought the notion to the government. A quote from Thomas Whitaker MP summarises the issue very well:
Drink is the greatest cause of inefficiency, waste, and loss of time, and
consequent under-use of plant and machinery, and an output considerably
less than the largest possible. Its production and sale wastes food, coal, and
labour, and occupies ships, docks, and railways which are badly needed for
vitally important purposes.
At the same time, the brewing sector was a powerful lobby, and if the trade were to be acquired and shut down, compensation would be required. Desmond explores how valuations would be made, and reveals that a multiplier method would be used. This method would average profits from a number of years and then apply a multiplier would be applied. This method is still used to today, and today, like then, an issue was to ascertain the reliability of the accounting records used to calculate profit. The directors of the Macardles brewery took the opportunity in 1915 to ascertain the real value of their assets in preparation for any negotiations with the government. The proposed scheme did not of course happen, but it is interesting to look back 100 years ago and see techniques used today in use then.
This post #2 in my summary of a recent edited book. This chapter by Alonso Moreno analyses the narrative information disclosed by a Spanish brewery, El Alcázar, from 1928–1992. The objective is to determine if the tone of the corporate reports is related to profitability. Today, the brewery belongs to the Heineken group.
The study focuses on a document entitled Memoria which is, in essence, similar to the Chairman’s Statement. Software was used to analyse the words in this report to determine the tone of the words. The tone (positive or negative) was related to other variables such as performance (profit) and the person acting Chair of the board. Over the full time period, there were more positive than negative references, irrespective of the actual performance of the company. This is a phenomenon called impression management and is something a lot of companies engage in still today. The interesting thing about this study is that overall, a positive tone dominates, despite many political events during the timeframe.
Along with my good colleague João Oliveira, I recently edited a book titled “Accounting for Alcohol -An Accounting History of Brewing, Distilling and Viniculture”. It stemmed from my own research on accounting history at Guinness, the world famous brewer of stout in Dublin. The book has 15 chapters covering many topics around accounting and beer, wine and spirits. In this first post, I will summarise Chapter 1, which is titled “The introduction of accounting machines at Guinness” and is written by Carmen Martínez Franco and Martin Hiebl. Over the coming weeks, I will provide a similar summary of each chapter. I hope you like it.
This chapter tells the story of the introduction of accounting machines at Guinness in the late 1920s. These machines, a Smith Premier machine costing around £200 at the time, could be simply described as typewriters with a built-in calculation function. These machines were at the time a new technology. In the modern day, it may be hard for us to imagine that all invoices and statements to customers were typed. I can only imagine the difficulty of having to add and check the sums on each typed item. These machines offered a solution to this problem, and by association made the accounting department at Guinness more efficient. The numbers of staff reduced by about 11 in one year according to the authors, customers were able to receive statements on a monthly basis – something not possible before then – and checking of discount calculations were no longer required. It also allowed Guinness to develop standardised procedures around customer transactions. The authors cleverly compare this technology change of nearly ninety years ago to more contemporary technology changes in the accounting world. They conclude there were several similarities – good management, gradual implementation and delivered efficiencies.
I recently published a paper in Accounting History Review about a company called Bennett’s and their accounting in the early 1900s. This company provided malt, mainly to Guinness in Dublin. In the research for the article, it became apparent that producers of malt did not do very much management accounting. Bennett’s, for example, seemed not to cost their production process very often and seemed to accept the market price offered by breweries like Guinness.
One would thus think Guinness may have been in a strong position to dictate the price of malt, but this seemed not to be so. In an official corporate history of Guinness, a note is made of the fact that the malt providers should make a “living profit”. What this means is not defined, but when I read this I could only think of the contemporary idea of a “living wage”. This latter concept is to pay staff more than the minimum legal rates of pay (if there is one) and give them enough income to live – but not too much. I did a Google search for the term “living profit” and surprisingly – at least to me – there are no explanations or mentions. I cannot help but think that today the idea of a living profit could be applied in many supply chains, and indeed companies (and their shareholders) could ask themselves do they really need to make so much profit – think Apple, for example. I firmly believe history can teach us a lot, and this is one good example where some altered thinking might benefit society as a whole.