1 5 Accounting research in Italy First half of the twentieth century Introduction The first half of the twentieth century was decisive for academic accounting and management research in Italy, no less than in the German, English, French or other language areas. Yet, seen from abroad, it seems that in Italy (more than in other countries) only a single figure dominated the scene, that of Gino Zappa [ ]. 2 In Germany, for example, there was a whole galaxy of prominent names besides the two major rival figures of Eugen Schmalenbach and Fritz Schmidt. And in the USA, William A. Paton [ ] and A.C. Littleton [ ] may have been the best known international names, but they were by no means the only ones of prominence. However, at a closer look, one may discover that the situation in Italy was not so different. There, Zappa overshadowed many other scholars; but for this very reason, their names and major publications deserve the attention of a wider audience. Above all, it must be borne in mind that other giants of accounting, like Giuseppe Cerboni [ ] and his disciple Giovanni Rossi [ ], as well as Zappa s teacher, Fabio Besta [ ], still published during the early twentieth century. Thus, we pursue two goals: first, to summarize Gino Zappa s contributions to accounting research, together with some remarks about the twentieth century publications of Rossi and Besta. Second, to offer a flavour of Italian accounting studies of other scholars worth mentioning, particularly of such scholars as Vittorio Alfieri, Aldo Amaduzzi, Clitofonte Bellini, Ugo Caprara, Alberto Ceccherelli, Pietro D Alvise, Francesco De Gobbis, Francesco Della Penna, Lorenzo De Minico, Teodoro D Ippolito, Benedetto Lorusso, Vincenzo Masi, Federigo Melis, Ettore Mondini, Pietro Onida, Emanuele Pisani, and others. However, we concentrate primarily on accounting publications, and shall rarely mention those of finance or administrative studies in general. Apart from Zappa s contributions, four features seem to be characteristic for Italian accounting of the first half of the twentieth century, particularly in comparison with France or even Germany. First, an enormous interest in historical accounting studies deeply rooted in Italian tradition. Indeed, the sheer volume of this kind of research is so comprehensive that we can list only a few representative examples.
2 Accounting research in Italy (1) 85 Second, some interest in cost accounting, though not as much as in Germany. Third, relatively little interest in charts and master charts of accounts apart from the work by Onida [ ] (1947a, 1947b) and by D Ippolito [ ] (1932, 1945, 1952, 1963). The pertinent government project for Italian accounting standards goes back to Teodoro D Ippolito was a member of the pertinent Central Commission for the Unification of Accounting, Uniconti. The original description of this project is in D Ippolito (1932), forming the reference point for the framework of the Commission Uniconti and, apparently, for the subsequent French plan contable. The explanation of the limited interest of other Italian accountants in master charts of accounts (during this period) might be found in the following statement: The tendencies towards charts of accounts in Italy are characterized by the fact that in contrast to many other European countries, like Germany, France, Holland, Austria and Switzerland the application of the master chart of accounts was not recommended by any official or semi-official authority or any business circles, and that they were promoted and introduced to actual practice by the universities, (p. 100).... The classification scheme [of Onida s and D Ippolito s master charts] in Italy was tied to the controversy between the accounts classes of Cerboni and Besta in a similar way as this was done in the decade before Schmalenbach s master chart of accounts in Germany, namely by means of the criterion of homogeneity and value analysis (p. 101). (Scherpf 1955: 100 1, translated; notes omitted) Fourth, an equally limited interest in inflation accounting (again compared with the German and French language areas) even if inflation may have influenced Italian accounting more indirectly as Canziani (1994: 147) indicated: The reality of income particularly during inflation and with reference to firms became a topic of troubled speculation in those very years, Late publications by Cerboni, Rossi and Besta Cerboni, Rossi and Besta dominated Italian accounting during the second half of the nineteenth century (see Mattessich 2003), but all three of them continued to publish during the subsequent two decades. In the case of Cerboni, there was mainly one notable publication, namely a self-reflective essay on his creation of logismography. 3 This essay by Cerboni (1902) may have been his swan song; by this time logismography was going out of fashion not only in governmental accounting (where it was abandoned soon after Cerboni left his high position as Accountant General of Italy), but also in business accounting (see also Cerboni 1901, 1902; Rigobon 1914). As an explanation, Canziani (1994: 144) pointed out that: the inner bureaucratic complications of Cerboni s system of doubleentry were developing rapidly as a result of the increasing complexities of firms during this period of Italian economic development.
3 86 Accounting research in Italy (1) Rossi (1901a, 1901b, 1907a, 1907b, 1921), who also has been promoting logismography, manifested a similar tendency. Already the title of his book, Nuovi studi di Ragioneria e battaglie critiche (1907a), revealed the clash between the traditionalists and some challenging modern thoughts. This referred to the thoughts of Besta rather than Zappa, who at the time, was not yet a major force in accounting theory. Besta, who had become prominent during the last decade of the nineteenth century, was during the first quarter of the twentieth century still the leading scholar when he completed his three-volume magnum opus (Besta 1922 see also Besta 1880). This new trend (rooted in the older version of Spencer s and Comte s positivism) related accounting to economic theory, put great emphasis on management control (be it for private or public enterprises), and emphasized the applied scientific nature of accounting. Besta also represented another novel trend, the shift from a personalistic to a non-personalistic (materialistic) theory of accounts along Villa s interpretation. Finally, and for Italian accounting most decisively, Besta began to oppose the logismography of his predecessors. But Besta s thoughts still moved within the framework of the proprietary theory, without much consideration of the entity theory; above all, his system still rested on the balance sheet and its valuations (see also Besta 1910). Besta s work has been highly praised, also outside of Italy. Schneider, for example, spoke (with reference to Italy during this period) of a development of accounting theory which reaches its climax in the comprehensive and outstanding (mustergültigen) work of Fabio Besta (Schneider 1981: 124, translated). The first volume of Besta s magnum opus (1922) was published in 1891 and the other two between 1909 and For Besta the centre of accounting was a fund, consisting of active (or positive) and passive (or negative) components, in other words, assets and liabilities. A first series of accounts was kept for the different real elements (assets and liabilities), and a second series for the ideal parts, derived from the variable total sum of the fund. The changes in assets and liabilities (original or elementary changes) determined the corresponding changes in the fund (derivative changes); thus, the entries were necessarily double and only double (cf. Besta 1922: Vol. III, 1 3, 61; passim). Besta addressed our real accounts as position accounts, whereas his derived or ideal accounts corresponded to our nominal accounts (i.e. capital and income accounts). Besta regarded all transactions as changes of proprietorship, and thus recognized only two kinds of transactional effects: those in a single account that constituted an augmentation of proprietorship ( positive ), and those that indicated its diminution ( negative ). In the awkward language of the time, he then regarded positive variations as augmentations of assets or diminutions of liabilities and derivative augmentations of net fund positive magnitude; and negative variations were diminutions of assets or augmentations of liabilities and derivative diminutions of net fund positive magnitude (cf. Besta 1922: Vol. II, book 6th, Chapter II, art. 3: 304ff.; Vol. III, 5ff.). The double-entry system required that the accounts for the total fund and its variations (proprietorship accounts) and the accounts for the different elements of the fund
4 Accounting research in Italy (1) 87 (assets and liabilities accounts) were in opposition, so that in the first class positive variations were entered in credit and negative ones in debit, whereas in the second class positive variations were debit and negative credit entries (Besta 1922: Vol. III, 3ff., 61ff.). Besta defined accounting as a science of economic control, applicable to every sort of enterprise, or economic entity family properties, the owners equities of firms or public utilities and government entities. In this light, periodic income was a specific change of capital. Yet, his notion of economic control included the antecedent and the concomitant as well as the subsequent. That meant control included not merely all the calculations, estimates, conjectures and final balance sheets that threw light upon the stewardship of management, but also the administrative enforcement or those acts that compelled managers, employees and workmen to carry out their duties with care and precision (cf. Besta 1922: Vol. I, 30 41; passim). He established a general business framework, outlining the organizational design as a premise for economic control. This allowed management to make rational decisions and govern the business according to economic laws. Thus, Besta clearly outlined the proprietorship theory. His magnum opus was the best treatise on an equity-based accounting system. Schneider characterized Hügli s and Schär s contributions as of pale one-sidedness compared to those of Fabio Besta s and pointed out that: [Besta] is the first to relate accounting to economic theory, e.g. he uses replacement values by appealing to Ricardo s value theory (reproduction costs) and concerns himself thoroughly with present value (Ertragswert) calculations of real estate and leases (Schneider 2001: 98, translated). Besta had many faithful disciples who developed and refined his ideas: Vittorio Alfieri [ ] (1912, 1918a, 1918b), Pietro D Alvise [ ] (1920, 1932b), Vincenzo Vianello [ ] (1924, 1935), Francesco de Gobbis [ ] (1915, 1927), Pietro Rigobon [ ] (1902, 1920), Carlo Ghidiglia [ ] (1906, 1909a), Vincenzo Armuzzi [ ] (1902, 1906, 1940), Benedetto Lorusso [ ] (1911, 1912, 1922) and Alberto Ceccherelli [ ] (1915, 1931, 1947, 1948, 1953). Other scholars, such as Vincenzo Masi [ ] (1945, 1946a, ), Egidio Giannessi [ ] (1935, 1943) and Alberto Riparbelli [ ] (1943, ), can be considered as having further developed Besta s theories. But the most notable of Besta s disciples was Gino Zappa, who, between 1921 and 1949, held the chair of accounting in the University of Venice, where Besta had previously taught. 5.3 Zappa s contributions In Zappa s view ( ; 1937) the central theme of business accounting was income determination. This basic phenomenon became the foundation of all explanations of the accounting process particularly of accounting theory and the balance sheet and income statement. Zappa emphasized the relevance of the
5 88 Accounting research in Italy (1) income statement and the dynamic aspects of accounting. Just as in Schmalenbach s dynamic accounting theory, the balance sheet was in Zappa s scheme an instrument of income determination. Zappa s accounting theory, emphasizing income determination, was a fourseries-of-accounts theory. Being different from Besta s theory, it distinguished two series of real accounts (those for assets, on the one hand, and those for liabilities and owner s equities, on the other, translated as status accounts by some Italian authors) and two series of nominal accounts (expense and revenue accounts, translated as achievement accounts by some Italians). Debit entries were seen as initial assets, augmentations of assets, diminutions of equities, and expenses. Credit entries were: initial equities, augmentations of equities, diminutions of assets and revenues. The profit and loss account illuminated the general correlation between positive and negative income components attributable to definite activities. The balance sheet showed a system of stocks (a fund of values ) for future income determination. Income components were based on monetary exchanges (cf. Zappa , 1937: 321; cf. Caprara 1923) and were considered as amounts of exchange values. Income is, in essence, a fact of value and therefore of distribution because it is determined only in the exchange and for the exchange (cf. Zappa , 1937: 326). Income expressed the flow of values, measured and based on a well-defined period connecting two points of time and two funds or stocks of values, namely the beginning and ending capital of the period (cf. Zappa , 1937: 278f.; see also Caprara 1923). Although the premise for this so-called income system originated with Fabio Besta, Zappa s school imparted to it a new theoretical basis that differed fundamentally from Besta s original theory. 4 According to Zappa s income system, the pre-eminent object of the financial statement was not to determine the status of capital (as Besta did). Zappa did not believe in determining the value of capital by adding up the value of individual elements, he rather equated the value of a business (and its capital) to the amount that could realize its future earnings capacity. Capital, in the sense of capital value, was simply future income discounted or capitalized (cf. Zappa 1937: 306, 307). More precisely, the value of any resource was the discounted value of its future returns. In whatever way resources might be distributed and symbolized, the entire system of resources was merely a means to an end, the creation of income. The value of capital must be determined from the value of its estimated future net income, but the value of income was not derived from the value of the capital. The income stream was the joint product of many factors; it resulted from the business activity under utilization of an available capital (cf. Zappa 1937: 277, 283, 296 7, 306 7). Discounting the future income flow was seen as a means of determining the value of capital, but not as the only component. Another, a complementary one, was the revaluation of the balance sheet and its capital, from which one attempted to forecast future net income and, specifically, the distributable future income. The balance sheet capital was determined through the interdependence of the values of its individual elements. In other words, the value of one item was
6 Accounting research in Italy (1) 89 seen as dependent on all the others and vice versa. This stems from the interdependence of the production factors represented by those values (based on a more general interdependence principle of evaluation for all elements of the pertinent economic system ). 5 Of course, one did not expect too much from the balance sheet capital when used for purposes foreign to its nature, as in the case of liquidation or merger of the firm. In the latter case, the notion of capital value did not derive so much from the system of values, but from an autonomous and unitary assessment that resulted from the economic capital of the firm. According to Zappa (1937: 87 90) the expected future net income was the fundamental factor in the estimation of economic capital value, because the latter could be considered equal to the sum of the anticipated value of the income stream (discounted at the discount rate, whereby due account had to be made for the risk factor ). Capital gains and capital losses were not treated as positive or negative items of income of the pertinent fiscal period. 6 They constituted adjustments of the estimated income realized in preceding fiscal periods where they were regarded as anticipations of the future, upon which every attempt to measure income had to be based. With the passage of time, such capital gains changed the character of income itself (cf. Zappa 1937: 140). The problem of income measurement was inseparable from the problem of measuring changes in capital value. According to Zappa, business income consisted, above all, of gains generated beyond mere capital maintenance (in real terms). Capital maintenance was a precondition for the existence of income. Although Zappa opted for multi-purpose valuation and periodic re-valuation, his capital maintenance concept was considered neither a real financial (nor a physical) one but one based on the present value notion and supposed to maintain income capacity. 7 Whenever the present value was considerably below or in excess of acquisition costs, a comprehensive revaluation had to be undertaken. This was particularly important in the case of long-lived items; their capital gains were not recorded as realized income. However, capital losses were viewed as special losses, and treated accordingly. 8 In the process of determining the business value, the discounting of future income flow was not the only factor; another complementary one was the revaluation of the balance sheet and its capital. From this Zappa attempted to predict the future income flow and, more specifically, the future periodic income to be distributed. This re-valued capital became the initial balance for the subsequent accounting period. It also was one of the points of reference for comparing the economic capital value, calculated by means of discounting the future income. This comparison was Zappa s criterion of rationality for measuring economic capital. 9 Zappa argued that the distinction between economic (real) and monetary (nominal) revaluation would not suppress the unifying logic underlying the revaluation process. That is to say, general price-level changes (due to changes in purchasing power during inflationary or deflationary periods) or changes of specific prices, were considered part of the environmental turbulence that
7 90 Accounting research in Italy (1) could critically affect a firm s future. To harmonize the system of values with such changed economic conditions, a general revaluation process was required and not merely one limited to individual classes of balance sheet values. Zappa s proposal (1937: 583 6) for revaluations of the net worth in balance sheets relied on conventional accounting based on historical costs. He linked the revaluations to a general periodic revision of the system of values. Thus, he believed that acquisition costs offered the best starting point, even if requiring adjustments later on. Zappa considered specific price indices or other current price indicators as unsatisfactory. Zappa searched for a method of maintaining real capital by maintaining the income capacity of the firm, measured by the change of economic capital during the period under ceteris paribus conditions (i.e. without counting dividends or capital withdrawals). Yet, he regarded a general comprehensive revaluation as justified only under favourable economic conditions of the enterprise (i.e. increased earnings capacity). Obviously, a revaluation of fixed assets and other items could convert acquisition costs into current market values. In Zappa s opinion, the cost basis was acceptable, provided one made periodic comprehensive revaluations by means of a general revision of the system of values. These would take into consideration realistic depreciation, price-level adjustments, market value, replacement value, appraisal value and so on. In other words, the new conditions and economic prospects were determined by dynamics of the environment and that of the enterprise. 10 Zappa ( , 1927) was not merely a formal but also a substantive innovator as far as accounting was concerned. He viewed his theory of quantitative determination as inseparable from the study of the organization and the management of an enterprise (avoiding any pure formalism). Consequently, accounting was seen as investigating the structure and economic life of the azienda (i.e. the enterprise, or an institution or other entity, by some Italians addressed as a concern ), as based on the foundations of monetary-quantitative determination. Its purpose was the managerial-economic control that would attain the objectives of the enterprise efficiently. Thus, organization theory and management theory became inseparable from accounting theory (cf. Zappa 1927: 20, : Vol. I, 106). He also devised a kind of system methodology by employing such concepts as system, sub-system and super-system. 11 Economia aziendale (as a system) constituted an overall or meta-theory as far as the enterprise was concerned. Thus, the economia aziendale was conceived as consisting of interconnected sub-systems that revealed the entire azienda in all its complexity. Zappa expressed his view in the following way: if one believes that an organic whole can safely be broken down, and if one believes that the even greater range of phenomena under investigation requires a high degree of specialization, then we can accept the scientific autonomy of the three disciplines of management, organization and information systems. However, we must not forget the many ties, both obvious and hidden, that join those three disciplines. A knowledge system
8 Accounting research in Italy (1) 91 cannot be developed, or worse, given credence, when being isolated from the knowledge that constitutes its natural substratum and logical complement. (Zappa 1927: 33, translated) Zappa s approach to economia aziendale was that of an institutionalist, as he emphasized typical institutions such as the family, the business enterprise, a public body or a cultural institution. For him the azienda was the economic entity, a concept that covered all kinds of economic units (not only the business entities that served the market); it included areas such as: 1 Azienda di consumo privata (institutions of private consumption), typically households. 2 Azienda di produzione privata o pubblica (institutions of private or public production), i.e. the business firm such as agricultural enterprises, trading companies, financial institutions (banks, insurance companies, etc.), as well as services entities. 3 Azienda composta pubblica (public institutions), typically the governmental bodies (municipal, provincial, regional, state and federal governments), i.e. entities generating goods and services and involved in public consumption (specifically through taxation). 4 Azienda di vari istituti (various other institutions), e.g. cultural, scientific, religious and educational entities, as well as political parties. Zappa also stated that the so-called macro-economic phenomena could not be investigated or understood without a sufficient knowledge of micro-economic behaviour. However, economia aziendale required the examining of markets and the environment that gave meaning to the economic decisions relating to the management and the organization of each individual azienda. The accounting measurement of income, capital, cost of production and so on, were supposed to clarify relevant aspects of changes in market prices and clarify the movements based on the knowledge of every kind of entity participating in production, consumption and exchange. For further details on Zappa s contributions and revolution, see Bianchi (1984), Biondi (2002) and Canziani (1987). Zappa not only continued Besta s work but also revolutionized Italian accounting (and management theory to an even higher extent), basing it partly on Mach s [ ] critical-positivism, partly on pragmatism as interpreted by the Italian philosophers Giovanni Vailati [ ] and Federigo Enriques [ ]. Zappa s theory manifested influences from a wide spectrum of economists and philosophers. In Zappa (1910) he still adhered to Besta s views, investigating the accounting valuation criteria for limited companies, and presenting a comparison between historical versus current cost basis. But his accounting magnum opus, La determinazione del reddito nelle imprese commerciali, I valori di conto in relazione alla formazione dei bilanci (Zappa ) was hailed as revolutionary. Its pivot was valuation and the economic notion of
9 92 Accounting research in Italy (1) income; 12 it was influenced by the newer trend of neo-positivistic, pragmatic and economic thought. Canziani asserted in this connection that: The conclusion of the Pigou vs. Hayek debate is that Great Britain failed to respond to the need for change, but in two countries namely Germany and Italy innovative (and somewhat controversial) accounting ideas were developed, which tried to cope with the new theoretical and practical problems which inflation (and renewed epistemologies) had given rise to. The standard authors in the field are Eugen Schmalenbach for Germany (Dynamische Bilanz, 1919) and Gino Zappa for Italy (Il Reddito, ), who arrived at similar conclusions along different paths. (Canziani 1994: 152) The last sentence may give rise to two important questions. First, to what extent did Schmalenbach and Zappa influence each other? Second, why was each of them silent about the other be it in general or, at least, in their major works? A partial answer to this may be provided by Scherpf (1955: 104, translated) who pointed out that: The modern [i.e. before 1950] direction of Economia aziendale in Italy is one which Gomberg s  Verrechnungswissenschaft pursued.... Just like Gomberg, the Italian school refuses the notion of Betriebswirtschaftslehre.... It also attacks the German research methods [in footnote, reference to Onida 1947b: 9]. Such a statement may seem surprising (particularly in the face of the similarities between Zappa s and Schmalenbach s theories) but can easily be misunderstood. Obviously, the Italians had no objection to the mere notion of Betriebswirtschaftslehre; and if they really attacked the German methodology, it was precisely because the difference was a methodological one. 13 To understand this reaction against the German approach, one ought to examine the similarities as well as differences between the Italian economia Aziendale and the German Betriebswirtschaftslehre and the accounting aspects of both. Apart from the quest for a smaller number of accounts, for example, by Zappa (making a master chart of accounts practically superfluous), the distinction between the Italian economia aziendale and the German Betriebswirtschaftslehre was, according to some Italian scholars, the supposed fact that the former referred to a broader and more universal notion. This is the very reason why some Italians preferred to translate economia aziendale with the term concern economics instead of, for example, management economics that would sound less outlandish to the English ear. The argument was that an azienda need not necessarily be a business entity but could also be that of a household or government organization. 14 Indeed, the Italian, as well as the German, notions were originally conceived as the foundation stones of a new discipline integrating accounting, production and organization theory, marketing, etc. This made
10 Accounting research in Italy (1) 93 eminent sense at the early part of the twentieth century when the pertinent literature in many of these sub-areas was relatively small, and when one needed a united front to consolidate a young and struggling discipline. Today, when the immense amount of management and administrative publications can be contained only through increasing specialization, these advantages may no longer have the same relevancy. And language areas, like the English one where the term business administration referred, even decades ago, to a portmanteau expression rather than a truly unified and unifying discipline are nowadays reaping the advantage of unimpeded specialization in research, be it in accounting or any other related discipline. This is not tantamount to loosing sight that all the specialized subjects are embedded in the common endeavour of studying business, governmental and other entities. Yet, in Europe this Anglo-American view is still not yet generally accepted. For both Zappa and Schmalenbach the pivotal point was relevant income measurement. Viganò characterized Zappa s accounting theory in the following words that would hold no less for that of Schmalenbach: The concern is a dynamic entity, so costs and revenues really exist as elements of the income itself. A concern exists over time; over time only income exists. Net worth (in Italian, capitale netto contabile) is thus a derived concept, static, and artificial, far removed from the dynamic nature of the azienda. Except for monetary items, net worth is seen as consisting of deferred costs and revenues rather than assets and liabilities. The balance sheet is thus derived from the profit and loss account. (Viganò 1998: 389) As regards valuation, again the basic thrust was apparently the same for Zappa as for Schmalenbach. Both seemed to have had a bias in favour of the acquisition cost basis, but they were realistic enough to accept a multi-value basis when necessary. Thus, in the theories of both scholars one encountered values other than acquisition costs (in Zappa s theory even replacement values and present values). A minor difference may have been Zappa s embracing of Irving Fisher s notion that capital was determined through income, thus paying slightly more respect to the balance sheet as a static picture, though one less relying on the past than the future. Some believe that this can be reconciled with a preference for acquisition costs instead of present values because in Zappa s system the cost basis was acceptable, provided one made periodic revaluations of the capital on the basis of discounted future income flows. However, Zappa did have reservations against Fisher s income notion, mainly because it was conceived in view of personal consumption and not so much for business entities. A major distinction between Zappa and Schmalenbach was the latter s comprehensive treatment and important contributions to cost accounting, while Zappa s interest in cost accounting is still disputed. This has been admitted by Viganò (1998: 389), who says that such theoretical