Entry 5 of 10 · 1721

After the bubble, send for the accountant

Charles Snell investigates after the South Sea Bubble. Why does difficult scrutiny become welcome only after confidence has gone?

Before a financial scandal, an awkward question can make you unpopular. Afterwards, everyone wants to know why nobody asked it.

Charles Snell enters the history of auditing at that second moment. In 1721, after the South Sea Bubble, he examined records connected with the affair. His report is regularly presented as an early landmark in English auditing.^{Note 1}

The familiar temptation is to promote a landmark into a starting gun: here, at last, was the first auditor’s report. But medieval account examinations alone should make us cautious about treating 1721 as auditing’s birthday. “First” needs a definition—first surviving example of which kind of report, addressed to whom, and produced for what purpose?

Snell remains interesting when we retire the superlative. In fact, he becomes more useful.

The commission matters

In The Priesthood of Industry, Derek Matthews, Malcolm Anderson and John Richard Edwards describe Parliament bringing in Snell to investigate a firm belonging to a director of the South Sea Company. Leonard Hein’s history identifies the firm as Sawbridge & Company.^{Note 2} That is a more precise account of the assignment than saying that Snell conducted a modern annual audit of the South Sea Company itself.

The nature of the assignment matters: this was an investigation commissioned in the aftermath of a crisis, directed at particular affairs. The identity of the person asking for the work helps explain the questions it was intended to answer.

A recurring audit and a retrospective investigation can overlap in techniques while differing substantially in purpose. An investigation may start with a specific suspicion, concentrate on a defined set of transactions and try to reconstruct responsibility. An annual financial-statement audit has a different mandate and reporting framework.

Calling both an audit without explanation can make the history look simpler than the work was.

It can also inflate expectations in the present. If the public’s image of an auditor is the expert summoned to expose a spectacular fraud, a report on financial statements may seem to promise that same investigation every year.

Confidence changes the appetite for evidence

The enduring question is why an accountant becomes so desirable after confidence has collapsed.

One answer is that the audience has changed. People who once wanted reassurance now want explanations. Transactions that previously supported a success story become clues. Connections between people and firms become objects of inquiry. The cost of asking difficult questions suddenly looks much smaller than the cost of having left them unasked.

This is an interpretation of the pattern, not a claim to know Snell’s private thoughts or to possess every detail of his working papers. The surviving milestone provides a starting point for asking how scrutiny gets authorised.

That question reaches directly into the modern audit committee room. Imagine a company expanding rapidly through unusual transactions. Management offers an attractive account of the strategy. The auditor asks for more time to examine a relationship that complicates it. Is that request treated as useful protection or as an obstacle to delivering results?

The answer helps determine whether scepticism is possible before a scandal makes it fashionable.

Getting beyond the emergency repair

Christopher Humphrey and his co-authors argue that audit reform repeatedly concentrates on repairing the delivery and regulation of an established audit model, while giving less attention to what audit should be for.^{Note 3}

Read alongside Snell’s story, their argument suggests a practical distinction. Hiring expertise after a crisis can help establish what happened. Building institutions that welcome unwelcome evidence beforehand is a separate achievement.

That means giving auditors access, time and a route to people who can act. It also means being explicit about what an assignment can establish, so that a limited piece of work is not sold—or received—as a universal certificate of trustworthiness.

Snell does not need to be the first auditor in history. His place after a spectacular collapse poses a question that is still uncomfortable: when the same difficult inquiry would have been less popular, would anyone have commissioned it?

Next: The day obsolete accounting records burned Parliament.

Sources

1. ICAEW Library, Timeline of the history of ICAEW and the accountancy profession, entry for 1721. Its cautious description, “possibly the oldest English audit report of its kind”, does not establish a universal first. ↩
2. Derek Matthews, Malcolm Anderson and John Richard Edwards, The Priesthood of Industry: The Rise of the Professional Accountant in British Management (Oxford University Press, 1998), p. 121; Leonard W. Hein, The British Companies Acts and the Practice of Accountancy, 1844–1962 (Arno Press, 1978 reprint of his 1962 dissertation), p. 144, for the name Sawbridge & Company. This article relies on the historians’ accounts, not direct examination of Snell’s report; it does not adopt Hein’s additional description of the firm as a subsidiary. ↩
3. Christopher Humphrey, Amanda Sonnerfeldt, Naoko Komori and Emer Curtis, “Audit and the Pursuit of Dynamic Repair”, European Accounting Review 30(3) (2021), 445–471, especially pp. 446–447. The modern audit committee scenario is illustrative. ↩