Financial reporting in the context of crisis: reconsidering the impact of the 'mania' on early railway accounting

Abstract

The patterns of change in the financial reporting practices of the early railway companies, and their causes, are important aspects of the evolution of accounting practice more generally. They have accordingly been widely discussed in the literature, although the views expressed have rarely been supported by reference to any very substantial or systematically derived bodies of empirical evidence. One of the most interesting and important suggestions in this literature is the claim that the early UK railway companies voluntarily made both quantitative and qualitative changes to their published accounting statements, in response to a crisis in shareholder confidence in the second half of the 1840s, consequent upon the collapse of the railway mania of 1845–47. The quantitative response involved the disclosure of far more information and the qualitative led to changes in the conceptual basis of reporting, from a cash to an accruals basis, changes that met with the satisfaction of the shareholders concerned and were important parts of the gradual evolution of financial reporting. The paper undertakes a systematic analysis of the financial accounting practices of the major early railway companies from 1840 until 1855. The mapping of the variety of such practices, and their changes over time, enable a re-examination of these important claims concerning the nature of the financial reporting response to one of its earliest crises.