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1929 Stock Market Cr

Accounting and the Stock Market Crash of 1929

Susan Hart

Introduction
The 1929 stock market crash is one of the most significant financial crises in the history of the United States. The years following the crash would prove to be ground-breaking for the accounting profession. These years consisted of an increased awareness of the accounting profession and the most extensive changes in financial reporting requirements experienced in the United States. Financial reporting transformed from a management focused, unregulated activity to a series of requirements, strictly regulated by the federal government, with the purpose of protecting investors. This change was brought about by the combined efforts of the accounting profession and government. To understand the significance of these changes it is important to understand the economic, political and business environments leading up to and subsequent to the 1929 Crash.

Environment leading up to the 1929 crash
There was real growth during the 1920's. Total real income rose by 10.5% per year from 1921 to 1923 and by 3.4% per year from 1923 to 1929. This growth was fueled by new technologies and industries including automobiles, electricity, telephone, telegraph, radio, appliances and aviation. Additionally, there was an increase in causal activities such as highways and airports. Demand for capital was fulfilled by issuing equity securities. The government had a laissez faire attitude with a hands-off approach. An unregulated environment combined with high optimism and speculation was an inevitable formula for high prices in the stock market. The period was described as an "orgy of speculation and over optimism" by Samuel Eliot Morison, an American historian and Harvard graduate. However, not all stock prices increased at the same rate. Most of the significant increases related to industries where there was the most cause for optimism such as utilities and others previously mentioned....