The History of Accounting - Research Paper Example

Table of Contents Introduction……………………………………………………………….2 Emergence of Accounting in Mesopotamia….......................................... 3 Trends in Accounting in Ancient Egypt, Rome, Greece, and China…...4 Middle Ages………………………………………………………………. 5 Accounting in the 19th Century …………………………………………. 6 20th Century Accounting ………………………………………………… 6 21st Century ………………………………………………………………. 7 Future Prospects ………………………………………………………….7 The History of Accounting Introduction The history of accounting closely relates to the growth of commerce and human society. In fact, accounting has been instrumental in development of human society and trade over the past five thousand years. The roots of accounting are traceable to at least 3600BC when records of trading activities between communities in the area of Mesopotamia were kept on clay tablets and stones (Brown, 34, 1968). During those times, the scribes were the bookkeepers as they had writing knowledge. Historians believe that many of the records on stones and clay tablets were done as early as five thousand years ago. Some researchers consider that some of the modern day accounting procedures such as receipts and ledgers were in practice during those periods but in a different way (King, 2006). Some scholars believe that writing originated from early inventory scripts at ancient warehouses more than twenty centuries ago. The idea that numerical calculating systems were in print language, does not surprise many archeologists and historians who continue to acknowledge that the version of human civilization entangles in the history of commerce (King, 2006). The details of the origin of monetary systems and commerce help in providing a historical description of the beginnings and advancement of accountancy, as commerce and accounting ran concurrently ever since their corresponding early development. It is for this reason that scholars often see accounting history as being inseparable from the history of business and finance (History of Accounting). This paper discusses the history of accounting from the early stages of recordings on clay tablets to present day generally accepted accounting principles. The paper highlights the major phases of accounting as well as the contribution of different governments and persons in the advancement of accounting systems. Accounting in Mesopotamia The double entry system of accounting originated in Assyrian, Chaldaean, and Sumerian civilizations at the home of the oldest commerce records. Financial strength of farmers coupled with increasing trading activities led to the expansion of businesses among communities residing in and around Mesopotamian valley. During this period, Babylonian became famous for the language of politics and business that spread to all the areas of Near East. Leaders held most domestic animals and land. They gave extensive importance to record-keeping practices. Accounting records were noted when sellers gave price quotations under authentication of an agreement (Chatfield, 1996). Accounting practices in Mesopotamian valley was similar to modern day accounting. Besides writing transactions, the accounting system put much emphasis on the contracts compiled. There were detailed codes, which parties engaging in an agreement had to adhere to before making any business transactions. During this period, accountants were known as Scribe, and they were highly respected in the society. The scribes worked in private firms, Temples, and Palaces and were accessible at the gates of the city when people were in need of the usual transactions. Agreements were presented to the scribe who then used a small quantity of special clay to prepare the records of financial transactions. Clay was in plenty but papyrus was scarce and expensive (Chatfield, 1996). The scribes molded moist clay into different sizes and shapes before recording the conditions of the contracts. The information recorded was the names of parties in the agreement, money, commodities exchanged, and future obligations for either party. Both parties would then sign their identities and respective seals on the clay tablets. Seals were made of religious symbols, and the name of the owner as well as name and pictures of gods the owner worshipped. Accounting trends in Egypt, Ancient Rome, China, and Greece Accounting procedures involving government transactions in Egypt were similar to practices in Mesopotamia. Papyrus was used to make bookkeeping records instead of clay tablets. General records abided to the needs of store-holders and merchants. Egyptian bookkeepers were in charge of making the extensive records of the stores, checking them by a detailed internal authentication system. The bookkeepers were honest and very accurate in keeping records, as they were aware of the penalties and charges levied on anomalies in record keeping (Fleischman, 35, 2006). Accounting in China put emphasis on assessing the adeptness of government databases and civil servants responsible for administering government programs. Double entry process was introduced in China in the 19th century during the tenure of Chao Dynasty (Fleischman, 38, 2006). In the 5th century, the main role of accountants in Greece was to preserve the real power and control of the business and financial materials of the government. The assembly in Athens enacted financial laws aimed at regulating the receipts and expenses of public funds by enrolling the services of 10 state accountants. The introduction of coined money in 600 B.C is an epitome of Greeks contribution to accounting evolution. The banking system, which was lacking in prior societies also developed in ancient Greeks. Accounting books were used in banks to change loaned funds and transfer cash to the bank’s affiliate members in distant cities (Fleischman, 44, 2006). Banking and government accounts in ancient Rome were documented by keeping households’ receipts and payments in daybooks. Monthly postings known as codex et expensi were posted on cashbooks. The Rome government required every household to submit their regular statements in the form of liabilities and assets. These statements were then used for determination of civil rights and for taxation purposes (Fleischman, 2006). The Rome government also introduced a system of checks and balances, which maintained government disbursements and receipts, and all the treasury transactions. Audit staff frequently scrutinized public accounts. Questers’ were legally responsible of submitting their financial statement to new leaders and the senate before leaving office (Fleischman, 2006). Accounting in the middle Ages The dissemination of double-entry recording by Luca Pacioli in the 14th century in Italy is considered the most important event in the history of accounting. The Italians of the 15th century are widely recognized as the forebears of present day accounting practices. Luca describes double entry, and other relevant accounting concepts, in his classic text De Computis et Scripturis whose English version is known as Of Reckonings and Writings (Fleischman, 2006). The basics of bookkeeping procedures in use at present day have marginally evolved since the days of Luca Pacioli. Challenges of ancient record keeping including the control and verification of financial trades are the same as those of modern day accounting. Governments at this period relished more encouragements in keeping accurate records of disbursements and receipts particularly in concern to the tax system (History of Accounting). Early development of Modern Accounting in America and Europe in the 19th Century The present day, official accounting profession traces its roots to Scotland. In 1854, Queen Victoria accepted a royal charter to the Institute of Accountants in Glasgow, leading to the creation of the career of chartered accountant. Currently, Scotland is home to the oldest society of public accountants (King, 2006). In the early 19th century, chartered accountants from Britain and Scotland visited the United States to review British investments in America. Some of the British accountants settled in America, establishing accounting agencies, and influencing the establishment of several American accounting firms (King, 2006). For instance, the British accountants were instrumental in the 1887 formation of the first national accounting society in America. Present day American Institute of Public Accountants was born from The American Association of Public Accountants (Kings, 2006). Development of Current Accounting Standards in the 20th Century In the 20th century, the accounting profession advanced around state need for audits of financial statements. Thereafter, the emphasis in accounting shifted to focus on Federal rations shaped by securities acts approved in rly 1930’s. In the early-1970s, the SEC and Congress stress on more comparable and reliable financial reporting culminated in the establishment of the Financial Accounting Standards Board (FASB). Today, the FASB and the Governmental Accounting Standards Board (GASB) are two of the foremost system of government in charge of instituting generally accepted accounting principles (GAAP) in the America (Fleischman, 2006). Accounting Regulation in Commerce in the 21st Century The government also sets accounting standards outside the industry’s self-regulation through other channels such as legislations like the Sarbanes-Oxley Act of 2002 and agencies like the Securities and Exchange Commission. Additionally, there was legislation of the Dodd-Frank Act after the 2008 recession (Kings, 2006). The act comprises sixteen main reform areas, including the Volcker Rule, which limits banks from investing, sponsoring, or owning private equity funds, hedge funds, or any other registered trading setups that accumulate profits. Future Prospects Visionary Accountants recognize that existing Generally Accepted Accounting Principles (GAAP), are likely to fade away in the near future. The global standards outside the United States are the International Financial Reporting Standards (IFRS). As the world experiences increased expansion of global commerce, efforts are ongoing to come up with reliable accounting principles across national and continental borders through the extensive implementation of IFRS by American accounting and business firms that wish to continue participating in the world economy (Fleischman, 2006). References  Brown, Richard. A History of Accounting and Accountants. New York: A.M. Kelley, 1968. Print. Top of Form Bottom of Form Chatfield, Michael. The History of Accounting: An International Encyclopedia. New York: Garland, 1996. Print. Top of Form Bottom of Form Fleischman, Richard K. Accounting History. Online-Ausg. Ed. London: SAGE, 2006. Print. Top of Form Bottom of Form "History of Accounting." {}. Web. 30 Nov. 2014. . Top of Form Bottom of Form King, Thomas A. More than a Numbers Game: A Brief History of Accounting. Hoboken, N.J.: John Wiley & Sons, 2006. Print. Read More