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.
On a recent research project I read an article from 1914 which was written by an “old” accountant of the time. On testing accounting students knowledge through examinations (s)he notes “we see interesting problems set out in symmetry and order”. This made me think about what has changed today.
Indeed we still use examinations in university and in professional bodies. They are a good tool to test knowledge, and increasingly examinations draw on methods such as case scenarios which are less structured in an effort to imitate real life scenarios. However, no matter what we do as teachers, we cannot replicate the real world. This is of course where professional development and on the job training come in. I do hope we at least provide the basic knowledge to help students hit the ground running when they start their careers. We can only improve the value of this basic knowledge by trying to get students to use their knowledge in an unstructured way. In an examination scenario, this means we need to use fresh ideas and new ways to ask standard material – this can be tricky sometimes, but it helps both students and us teachers to apply ourselves in a more real world fashion.
You may know that Ireland has been marking the centenary of the Easter Rising this year. There have been many events to mark the occasion all over the country. So, for what it is worth, I decided to write this short post on what accounting was like back then.
The first thing of note is that Eamonn Ceannt, one of the signatories to the Proclamation of a Republic was in fact an accountant. He worked in the city council, and according to an article in the Irish Times dated March 14, 1916, an Accountant in such a role earned £300-450. At this time not many accountants were actually professionally qualified as today.
Second, some useful insights are provided from a report of the AGM of The Institute of Chartered Accountants in Ireland – as reported in the Irish Times of May 22, 1916. The report notes that 82 members had enlisted for active service and were fighting on the European continent. The Easter Rising was condemned. The AGM report also notes an on-going wish to have the accounting profession legally recognised – something which was attempted in 1926, when the Irish Free State had been formed and began to enact its own legislation. It would not be until much later in 2003, that actual recognition was achieved. Finally, in a related point, the report notes the role played by Chartered Accountants in the calculation of excess income taxes to be paid to support the war effort. It is noted that the government of the time will likely not question any accounts or tax calculations prepared by responsible accountants.
A few weeks ago, the annual Academy Awards took place. At some point in the run up to the awards, I found a nice post by Cheryl Meyer in the Journal of Accountancy. The post “5 films to inspire CPAs” was not only a reminder of some great movies, but also a reminder of the varying and broad role accounting and accountants play in society.
On favourite on the list is The Shawshank Redemption. If you have never seen it, do. The lead character Andy Dufresne (Tim Robbins) makes life a little more comfortable for himself while serving time through doing tax returns for prison officers and keeping accounts of the Warden’s corrupt dealings. The good accounting allows Andy to take all the corrupt cash for himself on his escape from prison.
My second favourite is The Untouchables. The model used to imprison Al Capone in this movie is still widely used today – get the criminals on tax laws or “lack” of earning to match their lifestyle. For example, the Irish Criminal Assets Bureau uses this concept quite effectively. I’m a big Sean Connery fan too!
When some one asks me for a simple definition of management accounting, I typically say “the provision of decision-making information to managers”. This in my view covers all aspects of what a management accountant typically does, be it the provision of financial or non-financial information, short or long term view etc. Of course, some management accountants are also decision-makers, for example when they occupy a CFO role in a large company for example.
I don’t know if I should be surprised or not, but I read an old article from the Irish Times of 22 January, 1971 (by C Power) – a few years (but not many) before my time. The article was giving career advice to budding accountants of that time. I quote:
” A more specialist sector, however, is the cost accountancy field. This is a key area – indeed cost accountants are often referred to as management accountants because of their function of providing accounting information to aid management decisions”
The bit is bold is above is not that dissimilar from my simple definition I guess, with the exception being the maybe narrower word “accounting” as part of the definition. I do like simple definitions, as they often do stand the test of time.
As you know I’m sure, 2014 was 100 years since the outbreak of the Great War, or World War 1 as we know it today. Myself and a colleague were lucky enough to do some research on how management accounting was affected by the war. I will summarise our work here, but you can find the full paper here.
We studied how the war affected management accounting at Guinness – yes the world-famous stout. I had already carried out some research at Guinness, so I was aware that even before 1914 they had a relative complex management accounting system. They were quite good at allocating costs to various cost centres.
As the war broke out, the accountants and managers initially viewed it as a short-term event. It became apparent soon enough that would not be the case. Thus, Guinness started to view additional costs (such as extra insurance costs) as normal costs and allocated them to various cost centres. For example, if Guinness shipped to Liverpool or London, the freight costs were normally charged to the receiving depots owned by the company. With the war in full swing, the additional insurance costs for these trips was also allocated to the depots.
The company made other changes too, but the above example is a good case of existing practice being modified to deal with new business issues- something which management accountants still do a lot of today.
Quite a tough question above I guess. I have always been interested in what technology can do for business – both as a management accountant and academic. It is probably fair to say that the past decade has so much more technological change than previous decades. We have seen smart phones, tablets, the cloud and social media all appear and take over our lives and change how business is done.
Personally, I am watching how accounting in small business is now potentially so much easier than ever before. For example, all a sole trader needs is a smart phone and they can issues invoices, records expense and even get paid. I would hope that over time this will become a reality. However, at the same time I am quite aware that it will be while before we see small businesses not having some manual recording.
I have also recently become a little interesting in accounting history. It has been commonly accepted that symbols used on clay tablets used by traders in ancient Mesopotamia were a precursor to modern writing. These clay tablets were in effect what we call invoices or delivery notes today. One would imagine that writing would help simplify business of the ancient Mesopotamians, and replace the symbols on the tablets. Recent archaeological finds in Turkey however suggest otherwise. It would seem the tablets and symbols survived for many centuries after paper and writing were in common use. So I wonder will it a few centuries before small businesses take advantage of the present day accounting technology ? Incidentally, it seems tablets (but not clay ones) are probably a very simple way to manage small business accounting.
I have been reading a book recently on the history of the London Underground. It’s called Underground to Anywhere by Stephen Halliday and I actually bought it in the London Transport museum, on Covent Garden. Of course the tube is 150 years old this year, and you will find more about that here.
Reading the book I was quite surprised by how much accounting was in there. Two things stand out from the early days of the tube which related to accounting. First, the financing seemed to be quite precarious. As each line was built by private companies, private finance was raised. And when results proved less than expected, it seems quite a bit of creative re-financing went on. The author actually notes that without the somewhat suspect and complex financing, London’s Underground may not have grown to what it is today.
The second thing was the fares structure in the early days. Before lines were connected, the fares seemed to have been standard at say 2 pence. However, the author notes that the various companies started to raise and lower fares and certain times, or lower fares overall to increase passengers numbers and revenue- a classic cost, volume profit (CVP) scenario.