The history of accounting goes back thousands of years, and archeologists have retrieved accounting records from ancient civilizations that offer insight into the origins of the profession. However, modern accounting history begins just a few hundred years ago.
Double-Entry Bookkeeping
Even the most complex of modern-day accounting systems are based on double-entry bookkeeping. The double-entry bookkeeping approach to accounting requires two entries for every transaction that occurs. There are two main categories, debits, and credits, but entries could be classed in several ways such as revenue or liabilities. Double-entry bookkeeping was used throughout the Middle Ages, and in 1494, an Italian named Luca Pacioli wrote about it in a mathematics textbook. Named “the father of accounting,” Pacioli made it possible for others to read about and start to use the system.
The Industrial Revolution
The other big change in the history of accounting that led to the accounting model of today was the industrial revolution of the 19th century. According to Investopedia, the surge in growth of industry at this time required experts in cost accounting, and this resulted in accounting becoming the profession it is today. London was the world financial capital at the time, and in 1880, the Institute of Chartered Accountants in England and Wales was formed. The American Association of Public Accountants formed in 1887 with 31 charter members. In the 1890s, standard accounting tests were given for the first time and the first Certified Public Accountants received licenses.
Rise of the SEC and Accounting Standards
The U.S. Securities and Exchange Commission was created in 1934 in the wake of the Great Depression. Accountants certified the reports filed with the SEC by all companies that were publicly-traded. The AAPA went through several name changes and eventually became the American Institute of Certified Public Accountants in 1957. Until 1973, these organizations set accounting standards. That year, the private nonprofit the Financial Accounting Standards Boardwas createde to take over the job of establishing what is known as Generally Accepted Accounting Principles. There is also a Financial Accounting Foundation that oversees the work of the FASB. The SEC recognizes the FASB as the body that sets accounting standards in the United States.
Accounting Scandals
A few high-profile accounting scandals in the early 21st century significantly changed the world of accounting in the United States. Arthur Andersen, founded in 1913 and known as one of the “Big Five” accounting firms, faced criminal charges as the auditor of the energy company Enron, which committed fraud. It was also revealed that other companies had been poorly audited, and in 2002, the company surrendered its license. These scandals resulted in the creation of the Sarbanes-Oxley Act Of 2002 which brought in a number of changes including more oversight and regulation in accounting. The Public Company Accounting Oversight Board was created to oversee the audits of public companies and to assist in regulation in other areas as well.
Conclusion
In an increasingly globally connected and financially complex world, accounting has become more complex as well, and many predict a surge in the use of artificial intelligence in the future. From double-entry bookkeeping to the complicated regulations of today, the history of accounting in modern times reveals how a fascinating convergence of forces has shaped the industry.
Related Resources:
