AMERICA'S RAILROAD DEPRECIATION DEBATE, 1907 TO 1913: A STUDY OF DIVERGENCE IN EARLY 20th CENTURY ACCOUNTING STANDARDS

In June 1907, the Interstate Commerce Commission (ICC) released new reporting rules that would require railroads to change from betterment to depreciation accounting for equipment. The new rules set off a firestorm of protest because the railroads felt they were already recognizing physical depreciation through the current system. The ICC, however, was looking at the concept of economic depreciation to match the cost of equipment with revenue over the life of the asset in much the same way that industry was beginning to account for its fixed assets. Such economic depreciation, it was felt, would give the rate-setting ICC more stable reported incomes to determine return on assets and the investing public a better feel for the results of railroad operations. The debate began in a cordial fashion but deteriorated into bitter name-calling, civil disobedience, and litigation that challenged both the accounting rules and the authority of the ICC to issue and require them. The ICC partially won the debate, yet railroads were able to keep betterment accounting for track structures another 70 years before the full convergence of industry and railroad accounting standards occurred.