Accounting for war risk costs: management accounting change at Guinness during the First World War

Abstract

This paper explores management accounting change at the St. James's Gate Brewery of Arthur Guinness & Sons Ltd brought about by the effects of the First World War (WWI). In particular, how additional war risk costs were accounted for internally is revealed. Using organisational routines as a theoretical backdrop, new management accounting practices are interpreted. These new practices allocated war risk costs incurred by head office (in Dublin) to other parts of the company. The key role of existing management accounting routines in the formation of new routines is also revealed. Although WWI was an exogenous driver of change, endogenous change also featured as existing practices guided the creation/adaptation of routines. In essence, accountants within the Guinness Company drew upon their existing knowledge to deal with a new and complex scenario (i.e. the war). Thus, change and stability went hand in hand. Although change did occur, it was moderate and more adaptive, which signifies that existing accounting routines were strong and adaptable to major drivers of change such as WWI.

Keywords:

• the First World War
• war risk costs
• Guinness
• accounting change

Acknowledgements

Our thanks to Eibhlin Roche and Deirdre McParland at the Guinness Archive, St. James's Gate Brewery, Dublin, Ireland. Thanks also to the two anonymous reviewers for their comments on this paper.

Notes

1. Excise duty rates obtained from Excise Tariff of the UK – 1851/1852 to 1959/1960, Customs Intelligence Branch, available at National Archives, Kew, London.

2. Although the literature on management accounting change mentioned here is not typically historical, there are many published archival/historic studies of management accounting (some drawing on institutional theories) in contemporary literature (see, e.g. Jackson et al. 2012; Ogata and Spraakman 2013; Quinn 2014; Spraakman 2006).

3. Burns and Scapens (2000) also include rules in their analysis of the processes of change. It is not intended here to provide an extensive discussion on Burns and Scapens' work, but see Quinn (2014) for a more detailed discussion.

4. Some literature adopts the term continuity as opposed to stability. We regard these terms are interchangeable.

5. For a more detailed discussion on artefacts, see, for example, D'Adderio (2011).

6. More information can be found at http://www.marine.ie/NR/exeres/C22BBD59-9B20-4FE9-B56B-927A7BAC3405,frameless.htm, accessed 23 September 2013.

7. Similarly, there were stores on the island of Ireland in Cork, Limerick, Galway, Ballinasloe, Carlow, Longford and Carrick-on-Shannon.

8. Lord Iveagh is the First Earl of Iveagh, Edward Cecil Guinness, who was Chairman of the Board and divided his time between Dublin and London. When in London, he was regularly updated on events by other members of the Board.

9. It is presumed that this telegraph and the opening of a war risk file arose following the discussions with Lord Iveagh.

10. 2/6 is 2 shillings and 6 pence. A shilling was worth 12 old pence and equates to 5 new pence.

11. Following a German submarine raid in the Irish Sea in the early 1916, a report dated 2 February of that year notes the transfer of insurance to underwriters and cessation of the fund in the company ledger.

12. This is a report authored by J.A. Hayes (Chief Accountant) and mentions transaction amounts. As noted, no ledgers have survived, but it is reasonable to assume that the report is a reflection of underlying ledger entries.

13. This refers to an internal auditor.

14. W.C. Carnegie, Audit Department.

15. It is likely this report was authored by J.A. Hayes, the Chief Accountant.

16. Later documentation dated 30 March 1917 shows that the value of insurance on the steamers which the company took on was charged to the Forwarding Department account in the ledgers – that is, costs were allocated to departments as described previously.

17. A board endorsement was used to communicate decisions made by the board, where the original proposal was brought to the board for consideration.

18. Source: Annual Reports 1914–1918.

19. Further research using Vromen's (2011) work is to be encouraged.

20. It should be noted that Bapuji, Hora, and Saeed (2012) specifically studied the emergence of routines as either strong or weak. They did not explore what could be termed the resilience of strong routines over time.

21. Oldham (1919) noted a very large increase in linen exports during the war period in comparison to the previous decade. Beer and whisky exports in contrast remained stable over the same period.

22. Artefacts are the ‘physical manifestation of the organizational routine’ (Pentland and Feldman 2008, 289).