Discussions on accounting criteria at the Bank of Spain in 1859: Market price vs purchase price value, accrual basis accounting and other items

Abstract

This paper deals with the discussions on accounting criteria taken place at the Board of Directors of the Bank of Spain short after its establishment. Shareholders pretended that Public Debt and real property should appear on the Balance sheet at market price values and some members of the Board of Directors shared this opinion. This was against the accounting principle of purchase price, which was the generally accepted at that time. Another burning matter discussed was the convenience of a wider disclosure of financial issues. The way to implement an accrual basis accounting was also a discussion subject as well as even the model that the published Balance sheet had to adopt. These discussions were so harsh that even the Governor, that is, the highest responsible of the institution, began to think to resign, although his appointment was made by the Government and not by the shareholders.

Another questions regarding accounting were also the object of bitter criticism that caused the

corresponding retorts on the part of the Bank in defence of its actuation and reputation.

It seems that nowadays many of the arguments used to defend some accounting principles or to reject others are overcome. Nevertheless, it has to be concluded that the same reasons put forward in those times have been recently heard on the occasion of the acceptance of International Accounting Standard (IAS) in Europe. About 150 years later, in some way, the wax continues burning in the oil-lamp of the controversies.

In order to insert the subject matter within its context, the paper begins with an explanation of the background of the Bank of Spain’s establishment in 1856. For this purpose, it departs from its predecessor, the Spanish Bank of San Fernando, which in its turn was successor of the Bank of San Carlos, founded in 1782. The banking changes began at that time as a consequence of a new normative framework. Its configuration constitutes the starting point of the current Spanish banking system.

The economic environment was stimulated by legislation on several more favourable fronts, which facilitated the entry of foreign investments as an economic path to develop the country.

Under the new order, the Bank of Spain did not enjoy the traditional supremacy of its predecessors and experienced the pressure from the competitors, i.e., the Credit Societies, which under this denomination were authentic private banks. On the other hand, the Bank had to learn to assume some opposition to their management, administration and accounting criteria in the shareholders’ meetings. This opposition constitutes properly the subject of the paper as seen above.