Dr Richard Willis provides a several thousand-year history lesson of the profession, from origin to modern-day
THE ORIGINS of the accountancy profession offer some interesting insights into the work of accountants today.
The landmarks in their history and those leading to what has shaped the profession in modern times can be understood by looking at ancient civilisations, the contribution of Luca Pacioli in the 15th century, the part played by industrialisation, and the introduction of the modern professional associations.
Modern research shows that the use of accounting techniques was around in ancient civilisations. Substantial evidence indicates that inventory such as gold, silver and grain was recorded on tablets.
These did not have the sophistication of modern accounting methods and they often consisted merely of lists of expenses, assets, and payments. Such records emerge from collections of clay artefacts dating from Egypt and Mesopotamia. They go back as early as 3,300 BC when the work of governments called for the listing of basic accounting information.
Accounting records around more than 7,000 years ago have been discovered after archaeological excavations focusing on the ruins of ancient Assyria, Babylon and Sumeria. Crude ledgers detailed on papyrus or stones allowed tradesmen and business entrepreneurs to keep track of purchases and sales and to calculate surpluses or losses from farming, trading and other commercial enterprises.
Ancient Iranians, and more recently the Phoenicians and Romans, laid down the fundamentals of accounting practice and have all featured in historical research on early advances on which modern accountancy is based.
It was Emperor Augustus (63 BC to AD 14) who kept valuations of his buildings, religious sacrifices and expenditure on theatrical plays and who used rudimentary management accounting techniques.
There was also a need for audit and regulation to check the actions of Roman leaders who engaged in fraud. The famous Roman general, Mark Anthony, celebrated for his role following the assassination of Julius Caesar, was known for being corrupt in the use of public funds and renowned for recklessly spending money in what has been labelled ‘shady dealings’.
It was, however, not really until the early part of the thirteenth century that accounting took on the modern form that we know today, for there is evidence of documents prepared around 1210 in Renaissance Italy that give traces of a double entry book-keeping.
Merchants made calculations involving credits and debits, and capital expenditure in readiness of audits of interest to investors, managers and businessmen. Accountants then were motivated by what they saw as significant moral and religious influences. Divine intervention and belief in tallies of ‘life’ and ‘death’ and keeping a balanced account of one’s conduct induced merchants to maintain accounting figures on a daily basis.
Pacioli’s seminal influence
Against this background, a key player was Luca Pacioli who in 1494 – in Summa de Arithmeticὰ, Geometria, Proportioni et Proportionalita – wrote a treatise on bookkeeping and subsequently went on to write about double-entry accounting.
Pacioli referred then to this innovative method of keeping accounts and following his study of the financial practices of Venetian merchants, he became known as ‘the father of accounting’. In the 15th century, he experienced the workings of a monetary economy making use of ‘debit ‘and ‘credit’ in daily transactions.
As a numbercruncher, Pacioli also published mathematical puzzles and his bookkeeping went on to be recognised as the standard text for accounting practice. He enabled entrepreneurs to apply a system of accounts which was later to provide the bedrock of modern accountancy.
The extent of Pacioli’s contribution cannot be emphasised enough, and he did so much in terms of putting accountancy on the map with his use of formal ledgers in the preparation of accounts.
Shrouded in religious sentiment, Pacioli was as much concerned with the management tools of commerce as he was with the virtues of man and his relationship with God. The introduction of joint-stock companies took Pacioli’s formula a step forward in the 1600s, as the demand for a reliable set of accounts called for financial expedience in the presentation and recording of accounts, backed by regular audits carried out by independent and external auditors.
The expansion of business at the time of Britain’s Industrial Revolution was a further milestone in economic history underlining the importance of some of the methods initiated by Pacioli. The manufacture of textile products, for example, in an effort to gauge profit and loss within financial markets, acted as a further incentive. Irregularity and fraud among railway companies in the 1800s acted as an additional motive to regulate business activity.
But such regulatory cases were not typical of how the profession evolved within the nineteenth century. It was in Scotland that professional inroads were made, often with solicitors providing accounting services to businessmen wishing to ensure that their books were in order.
The emergence of the limited liability company led to a growing demand for corporate accounts and in 1854 around 50 Glasgow accountants petitioned Queen Victoria for a Royal Charter.
In 1880, a number of professional bodies merged into the Institute of Chartered Accountants in England and Wales. At the outset, 600 registered for membership and a system of examinations was introduced. International trade, engineering works such as the construction of roads, bridges and railways, and the manufacture of textiles were accompanied by a desire for financial regulation and audit.
In the meanwhile, the US established the American Institute of Certified Public Accountants. So by the late nineteenth century, the accountancy profession took on a modern form resembling the work of accountants today.
In the late 20th century, a greater reliance on computer technology took place and globally there are now a vast number of professional accounting associations.
Greater international dependency has resulted in the establishment of key corporate players, such as the Big Four, in a world where economic growth and failure have drawn upon the accountant to give financial expertise and acumen to gather, analyse and communicate data to clients.
Dr Richard Willis is a prolific writer of articles and books. He is presently a visiting research fellow at the University of Adelaide
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