History - 1

History - 2
Why study history of accounting?
 Understanding of the importance of accounting to society throughout history
 Awareness of the essential functions (roles) performed by accounting allows such understanding
 Exploration of historical developments may lead to better predictions of future

History - 3
What is Accounting?
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History - 4
NATURE OF ACCOUNTING
An information system designed to . . .
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Identify
Collect
Measure
Process
Communicate economic data to interested parties to assist decision-making.

History - 5
Accounting Environment
Accounting information helps decision makers evaluate economic opportunities for gain and the related inherent risks of providing capital to a particular venture.
“Resource Allocation”

History - 6
“Economic activity is carried on by human beings interacting with their environment. This type of interaction of human effort (labor) and natural resources takes place through the medium of entities which are used as organizing units for the purpose of producing goods and services. In this process the existing resources must be allocated by some means among the available alternatives.
To make these allocations properly, predictions as to the outcome of the available alternatives are essential.
Results of the past and estimates of the future are used to form these predictions. These results, estimates and predictions are couched in part in quantitative terms so that comparisons and evaluations can be facilitated.
Accounting is one form of quantitative expression that is widely used.”
Maurice Moonitz, The Basic Postulates of Accounting, Accounting
Research Study No. 1. AICPA, 1961.

History - 7
Where do we begin?
 Where does the history of accounting begin?
“Writing was not invented to write books but to keep books” 1
1 Hoffer, Eric, The Temper of Our Times, Harper & Row, 1966.

Kam’s History
 Ancient civilizations
 Accounting in Antiquity
– Egypt
– Babylonia
– Greece
– Rome
 Middle ages (Feudal System)
 Double-entry bookkeeping
– Luca Pacioli
 Accounting & Capitalism
 Managerial Cost Accounting
 Professional Accounting Societies
History - 8

History - 9
Functions of Accounting
 Recording & Wealth Measurement
 Managerial control & Income Measurement
 Protection of equities (stakeholders)
 Modern analysis & interpretation
 Achievement of broad social objectives

History - 10
FUNCTIONS OF ACCOUNTING
Significant Events
 RECORDING & WEALTH MEASUREMENT
– Writing and numerical systems
– “Capturing” the information
– Feudal system
– “Traveling merchants”
• Relatively simple business structures
– Single entry accounting = “lists of things”

FUNCTIONS OF ACCOUNTING
Significant Events
 MANAGERIAL CONTROL & INCOME
MEASUREMENT
– Crusades open new commerce
– Greater complexity and continuity of business
• Information is necessary to operate the business
• Early cost accounting
– Town economies
– Magna Carta/Renaissance/Age of exploration
– Evolution of double-entry accounting
• Pacioli’s “Summa”
• Periodic income determination
History - 11

DOUBLE-ENTRY ACCOUNTING
Implications
History - 12
 Identification of the “economic entity”
 Explanation of changes in resources
 Representation of “capital flow”
– Capital to Profit to Capital
 Quantifies capital and wealth
 Restricts observations
– Monetary measurement
– Reliability
 Systemized organization of business activities
 Standardization of business terminology

FUNCTIONS OF ACCOUNTING
Significant Events
 PROTECTION OF EQUITIES
– Industry revolution/Factory system
– National economies
– Need for significant capital
– Rise of the corporation
• Separation of owners and managers
• Stock exchanges
• Taxing authorities
 Larger scale (often based on income)
• Anti-trust regulators
– Need for audited financial statements
History - 13

FUNCTIONS OF ACCOUNTING
History - 14
Significant Events
 MODERN ANALYSIS & INTERPRETATION
– World Wars I & II
– International economies
– Demand for greater economic analysis and improved resource allocation
– “Scientific management”
– Sophisticated management accounting
• Standard costing & variance analysis
• Relevant analysis
• Capital budgeting
• Quantitative techniques (Least squares, regression,
ROI, Cash flow projections,etc.)

FUNCTIONS OF ACCOUNTING
Significant Events
History - 15
 ACHIEVEMENT OF SOCIAL OBJECTIVES
– Social legislation
• New Deal, Civil Rights, Great Society, Welfare, etc.)
• Government involvement
• Not-for-Profit organizations
– Computer technology
– Space age
– Demands for corporate social responsibility
• Environmental
• Employee rights
• Health concerns
– Increasing regard for business ethics
– New regulations on business and financial markets (SOX)

History - 16
Is Accounting a “Social Force?”
Does it shape the world around it, or is the reverse true?

History - 17
“Accounting of itself cannot be the vehicle of social and political change although knowledge and understanding of the financial data which accounting can produce may well be vitally important both to those who wish a change and those who wish to resist it; but accounting as a discipline cannot take sides although those who use it may well do so.”
Flint, D., “Research on the Social and Political Aspects of Accounting, Unpublished note.

History - 18
“The interdependency of accounting and its environment results in change being brought about by a process of mutual adaption.
Environmental demands lead to changes in accounting practice and changes in accounting practice lead to changes in environmental demands and expectations.”
Gilling, D.M., “Accounting and Social Change,” International Journal of Accounting,
Spring 1976.

History - 19
Evolution of the Knowledge Professional
Elliott & Jacobson
 Economic paradigms
– Hunting and gathering
– Agriculture
– Industry
– The Information economy
 Information professional
– Shaman
– Scribe
– Accountant
– Information professional

History - 20
Power of Information
“In this society, knowledge is the primary resource for individuals and for the economy overall. Land, labor, and capital – the economist’s traditional factors of production – do not disappear, but they become secondary.”
Drucker, Peter F., “The New Society of Organizations,”
Harvard Business Review, September-October 1992