This paper explains how and why Anglo-American accounting and auditing, along with corporate governance and capital markets, evolved over many centuries in response to changes in market forces and technology. We first trace the development of practices that were included in U.S. corporate governance (including accounting and auditing) before the 1930s. We then describe the nature and effect of the increase in U.S. regulation from the 1930s and the development of fair value accounting. Finally, we give an assessment of the current state of accounting, auditing, and corporate governance. Our historical accounts suggest that the approach to accounting and financial reporting is more consistent with stewardship (care of net assets) than an attempt to value the firm, and that conservatism (prudence) is a critical information control and governance mechanism. We echo the U.K. Financial Reporting Council's call on standard setters to reintroduce an explicit reference to conservatism (prudence) into the Conceptual Framework for financial reporting.

JEL Classifications: M41; M42; M48; N20.

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