Introduction:
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enerally accounting is system for recording,
classifying, analyze the financial transactions of a company or an event. As
the civilization came into trade, with this method of record keeping and
accounting techniques also come in. A famous accounting author Marla Matzer
Rose “Earlier people recorded their on clay tablets, as humans formed
governments, accounting became a necessity”.
As accounting history is concern, it has no defined start date.
People said that accounting is started with the arrival of humans. Generally
Accounting is the way for people to record and verify income, expenses and
assets. With such a big role in business economics from a community level to a
global scale, accounting as a profession enjoys a long and noble history.
Evidence of accounting records can be found in the Babylonian Empire in pharaohs' Egypt and in the Code of Hammurabi. Eventually, with the advent of taxation, record keeping became an ardent need for the governments to sustain social orders. The Bible and the Koran also mention some accounting principles, including credit.
5th
century:
In
the fifth century Greece used public accountants to allow its citizenry to
maintain real authority and control over their government's finances. Member of
the Anthens assembly legislated on financial matters and controlled receipt and
expenditure of public monies through the oversight of ten state accountants. In
this century Egyptians were invented the bead-and-wire abacus.
Government as well as banking accounts in ancient Rome involved in traditional records kept by the heads of families, in which daily entry of household receipts and payments were kept in a daybook and monthly postings to a cashbook known as a codex accepti et expensi. It was very important because the entire citizen required submitting their income statement to the government, used for taxation purpose.
7th century:
Accountancy has its roots in buried in the history of
civilization. As the growth of agriculture and trade, people needed a way to
keep record of their goods and of the transactions. In 750 B.C., Mesopotamians
began to use clay tokens to represents their goods, such as animals, tools,
food items or units of grain. This helped owners keep record the of their
property (assets).
Rather
than accounting the heads o f the camel or grains of the wheat, people simply
add or subtract the token as sale occurred. Different shapes were used for
different goods. Later on, the Sumerians began placing these tokens in sealed
clay envelopes. Later on, the Chinese developed the abacus, a tool for counting
and calculating.
10Th centuries:
The
commercially oriented Phoenicians were invented a 22-character phonetic
alphabet, probably for bookkeeping purposes and to prevent themselves from
being cheated by the modern peoples.
Before
Christianity came in China used
accounting as the means of evaluating the efficiency of governmental programs
and the civil servants who ruled and administrate them. A level of
sophistication was achieved during the Chao Dynasty which was not surpassed in
China until after the introduction of double entry processes in the nineteenth
century.
14th century:
In 1400, century , an Italian Benedetto Cotrugli invented the "Double
Entry" and Frater Luca Bartolomes Pacioli invented Pacioli's System of
memorandum, journal and ledger, and wrote many books on accounting. This double
entry accounting became reference text and tools for the next several years.
Gutenberg press wrote historical books on double entry record keeping.
Pacioli was a famous author
who wrote number of book like Summa de Arithmetica, Geometria, Proportioni et
Proportionalita (Everything about Arithmetic, Geometry and Proportion). Pacioli
was ardent desire to get sufficient cash or credit, good bookkepers and an
accounting system. According to him before commencing business, one should
prepare a list of assets and debts. In
the first century after its publication, the Summa was translated into five
languages, and numerous books on double entry bookkeeping mainly in Dutch,
German, English and Italian. The transaction must recorded in
chronological order as they occurred. Initially they recorded in monetary terms
and converted into local currency later on. As the journal is the merchant
private account book. There were no compounded entries. Its ledger was
consisted of three books, first one indicated the money and date with brief
description, debit on the left side and credit on the right side. In ledger
posting there are two diagonal lines are drawn through each
journal entry, one from left to right when the debit is posted and the other
from right to left when the credit is posted. Trail balance was the end of
pacioli accounting cycle.
The innovative Italian of Renaissance
discovered many methods for determining of their profits. Although Arabic
numerals were introduced along ago, but Italian was the first who used in
tracking business accounts. They kept extensive business records, as the use of capital and
credit on a large scale developed.
16th century:
In 1600, the east India Company had
created. By nature it was a trading
company that had shared capital and distribute dividend among the investors.
This urges the need of accounting for the investors. In the start of sixteen century Italian thought that
they had no need for specialized journals, subsidiary ledgers, controlling
accounts, formal audit systems, cost accounting or budgeting. Some omissions,
such as the failure to touch on accruals and deferrals, probably occurred
because Pacioli felt they were too advanced for beginners.
17Th century:
The first
treasury department was created in U.S, including the comptroller and auditors.
According to B.franklin opinion that business people must be trained and facility
in accounts. Franklin was the first accountant who earned from book keeping and later on employed
in postal services. Thomas Jefferson’s was the author of two books on book
keeping.
The
American Revolution indirectly causes growth of accountancy in Britain as
creditors appoint accountants as trustees during an explosion of bankruptcies.
In 1793, more than 20 banking firms in England and Scotland fail, and
accountants step in to settle their affairs.
18Th century:
In 1896, the New York
state declared the license of the certified public accountant.
In
1880, huge amount of capital was transferred from England to USA. So, British
travelled to USA to audit these investment firms, and large of them stayed
there, continue practice in America. Several American firms trace their origins to one or more of these
visiting Scottish or British chartered accountants
In 1880, a first professional organization of
accounting was establishing in Scotland with corporation of Edinburg Society of
Accountants and Glasgow institute of Accountants. Those people belonged to it,
called chartered accountants. Initially there were 587 members enrolled and
1606 member were soon admitted on the basis of their experience. Now there are
many chartered accountant societies have established all over the world. After
this Members began to use professional designation “FCA” (Fellow chartered
Accountants) and “ACA” (Associate chartered Accountants. According to city
directories in 1887 there were 115 listed in New York, 87 in Philadelphia
and 31 in Chicago. This growth in accounting field also influenced on financial
scandals. As in the mid of 18 century, the rail industry was progressing so
rapidly, so it requires the auditors which independent from the management. Accountant tried to over-capitalization
and stock speculation resulted in financial panics in 1873 and 1893. . William Deloitte opened his firm
in 1845, and a partnerships firm between Samuel Price and Edwin Waterhouse
opened their joint business in 1849. In
1850 there are 264 accountants listed in London’s directory of professional and
in 1799 there were 11.
19Th century:
International Corporations had no any
comparable history in losses from stock speculation. Initially people were
drafted balance sheet mainly in bankers and banker basic mission is to take
care the company liquidity than earning power. In 1920, world was in
sever inventory depression which
caused declines in whole sale prices up to 40 %, this changed the accounting
patterns drastically, Then stock holder became the reliable source for
explosure of financial circumstances rather than the banks. So, accountant given more preference to
income statement than balance sheet. This also moved trend from income taxation
and cost accounting to income and revenue.
The Securities and Exchange Commission needs the auditor’s report to state that
the examination was made according to the accepted accounting standards.
In the 1940s, the
accounting profession increasing continuously gave more focus to actual flow of
monies, rather than simply the sum of working capital changes of different
balance sheet dates. Then recognized accountants started preparing
stockholders’ annual reports. A famous
accountant focused for the use of funds statement on liquidity that tracking
the sources of changes in working capital. In 1920 financial scandals and
corporate failures due to great depression in the world. Here the analysis also
blames accounting. After two year AICPA (American institute of certified public
accountants) bans all the accounting firms from advertising.
As the Industrial Revolution came in the early
nineteenth centuries, accounting developed further and came into as a
profession. The cost accounting became prevalent as business owners and
managers wants to know how they became cost effective. A British Josiah
Wedgewood (owner of pottery factory) was the first who used cost accounting to
eliminate the unnecessary spending. Some of the accounting firms that are still
in operation today were founded in the mid-nineteenth century. In 1930s Accounting industry discovered
the GAAP (Generally Accepted Accounting
Principles), and seeks to formalize consistency, transparency and trust for
accounting industry. A significant development occurred in 199o, in which Five
Big’s accounting firms starts consulting divisions.
1990's big five accounting firms’ start consulting divisions.
The first text book about accounting standards was published in 1967, written
by Professor Gerhard G.
Mueller, who later became an FASB member (1996).Many companies
begin outsourcing their internal auditing to the big accounting firms -
generally the same firm used as auditors.
The first international accounting was formed in 1973 for setting standards. In
2001, It became an independent setter with name, the international accounting
board (IASB).
The IASC (previously
IASB) was established by the AICPA and its sub-parts in 8 other countries. Its
basic purpose formulate and publish, in the public interest, basic standards to
be observed in the presentation of audited accounts and financial statements
and to promote their worldwide acceptance. But till 2002 only a few people
joined the IASC. Many countries lacked their standard setting infrastructure.
In 1980s Globalization and
deregulation caused the companies to
turn away from traditional bank loans toward more complex and riskier forms of
financing.
20th
century:
The modern methods of accounting have discovered many
traditional accounting jobs and techniques obsolete, while creating new jobs in
the field and requiring a different set of skills to manage accounts for
personal as well as for business matters.
Now days the Generally Accepted
Accounting Principles, or GAAP, set forth the standards by which public
accountants must adopt in business matters. Every country has a similar set of
accounting guidelines.
Due to the complex nature of modern economic system,
specialized branches of accounting have developed so far. Along with the
financial accounting, there are also different sub-branches like tax
accounting, management accounting, lean accounting, fund accounting and project
accounting. Professional accountants are required for this because they have
through ad specific understanding of business needs and accountancy. In the
earlier of 21th century, the Enron and WorldCom collapsed due
complex leverage schemes or accounting irregularities. In 2002, the FRAS and
IASB joined hand for the setting of standards. In February 2006, the FASB and the IASB issued a Memorandum
of Understanding (MoU) that described the progress they hoped to achieve toward
convergence by 2008 In 2010, the Securities and Exchange Commission (SEC)
issued a statement in support of convergence and global accounting standards
that also directs the SEC staff to develop and execute a work plan of specific
areas.
At the start of
21 century, the Institute of Chartered Accountants in England and Wales alone
has a membership of over 109,000 worldwide. They are working in different
countries like in Canada, New Zealand, Ireland, Australia, Scotland and South
Africa, and American certified public accountants
References:
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