ACT1101 LECTURE NOTES#001

1st semester 2020-2021 August 18, 2020

A Brief History of Accounting

 
The history of accounting or accountancy is thousands
of years old and can be traced to ancient civilizations.

The early development of accounting dates back to ancient Mesopotamia, and is closely related to
developments in writing, counting and money and early auditing systems by the ancient Egyptians
and Babylonians. By the time of the Emperor Augustus, the Roman government had access to detailed
financial information.

In India Chanakya wrote a manuscript similar to a financial management book, during the period of
the Mauryan Empire. His book "Arthashasthra" contains few detailed aspects of maintaining books of
accounts for a Sovereign State.

The Italian Luca Pacioli, recognized as The Father of accounting and bookkeeping was the first person
to publish a work on double-entry bookkeeping, and introduced the field in Italy.

The modern profession of the chartered accountant originated in Scotland in the nineteenth century.
Accountants often belonged to the same associations as solicitors, who often offered accounting
services to their clients. Early modern accounting had similarities to today's forensic accounting.
Accounting began to transition into an organized profession in the nineteenth century, with local
professional bodies in England merging to form the Institute of Chartered Accountants in England and
Wales in 1880.

Early development of accounting”

 
Accounting records dating back more than 7,000 years have been found in Mesopotamia, and
documents from ancient Mesopotamia show lists of expenditures, and goods received and traded.
The development of accounting, along with that of money and numbers, may be related to the
taxation and trading activities of temples:

The early development of accounting was closely related to developments in writing, counting, and
money. In particular, there is evidence that a key step in the development of counting—the transition
from concrete to abstract counting—was related to the early development of accounting and money
and took place in Mesopotamia

Other early accounting records were also found in the ruins of ancient Babylon, Assyria and Sumeria,
which date back more than 7,000 years. The people of that time relied on primitive accounting
methods to record the growth of crops and herds. Because there was a natural season to farming and
herding, it was easy to count and determine if a surplus had been gained after the crops had been
harvested or the young animals weaned.

„Expansion of the role of the accountant”

 
Between the 4th millennium BC and the 3rd millennium BC, the ruling leaders and priests in ancient
Iran had people oversee financial matters. In Godin Tepe (‫ )گدین تپه‬and Tepe Yahya (‫)تپه يحيی‬, cylindrical
tokens that were used for bookkeeping on clay scripts were found in buildings that had large rooms
for storage of crops. In Godin Tepe's findings, the scripts only contained tables with figures, while in
Tepe Yahya's findings, the scripts also contained graphical representations. The invention of a form of
bookkeeping using clay tokens represented a huge cognitive leap for mankind.

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1st semester 2020-2021 August 18, 2020

During the 1st millennium BC, the expansion of commerce and business expanded the role of the
accountant. The Phoenicians invented a phonetic alphabet "probably for bookkeeping purposes", and
there is evidence that an individual in ancient Egypt held the title "comptroller of the scribes". There
is also evidence for an early form of accounting in the Old Testament; for example the Book of Exodus
describes Moses engaging Ithamar to account for the materials that had been contributed towards
the building of the tabernacle.

By about the 4th century BC, the ancient Egyptians and Babylonians had auditing systems for checking
movement in and out of storehouses, including oral "audit reports", resulting in the term "auditor"
(from audire, to hear in Latin). By the 2nd century BC, the importance of taxation had created a need
for the recording of payments, and the Rosetta Stone also includes a description of a tax revolt

How humans invented this thing called accounting

(A brief history)
Source:ACCA https://yourfuture.accaglobal.com/global/en/blog/how-humans-invented-
accounting.html

Everyone needs an accountant, or so the saying goes. But why would that be? Accounting’s history
can be traced back thousands of years to the cradle of civilisation in Mesopotamia and is said to
have developed alongside writing, counting and money. The early Egyptians and Babylonians
created auditing systems, while the Romans collated detailed financial information.
Some of the first accountants were employed around 300 BC in Iran, where tokens and bookkeeping
scripts were discovered. Around the first millennium the Phoenicians invented an alphabetic system
for bookkeeping, while the ancient Egyptians may have even assigned someone the role of
comptroller.
Italian roots
But the father of modern accounting is Italian Luca Pacioli, who in 1494 first described the system of
double-entry bookkeeping used by Venetian merchants in his Summa de Arithmetica, Geometria,
Proportioni et Proportionalita. While he was not the inventor of accounting, Pacioli was the first to
describe the system of debits and credits in journals and ledgers that is still the basis of today's
accounting systems.
With the onset of the industrial revolution in 1760, there was a proliferation of companies and the
need for more advanced accounting systems. The development of corporations also created larger
groups of investors, and more complex structures of ownership, all requiring accounting systems to
adapt.
Scotland modernises accounting
The modern profession also has its roots in Scotland in the mid-1800s when the Institute of
Accountants in Glasgow petitioned Queen Victoria for a Royal Charter, so accountants could
distinguish themselves from solicitors, as for a long time accountants had belonged to associations of
solicitors, which would offer accounting in addition to a firm’s legal services. In 1854 the institute
adopted ‘chartered accountant’ for its members, a term and demarcation that still carries legal weight
globally today.
The petition was signed by 49 Glaswegian accountants, and it argued that the accounting profession
had long existed in Scotland as a distinct profession of great respectability and that the small number
of practitioners had been rapidly increasing. The petition further highlighted the varied skills required
to be a professional accountant – in addition to mathematical skills, an accountant needed to be
acquainted with general legal principles, as they were often employed by the courts to give evidence
on financial matters – as they still are today.
Industrial revolution
By the mid-1800s, the industrial revolution in Britain was well underway and London was the financial
centre of the world. With the growth of the limited liability company and large-scale manufacturing

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and logistics, demand surged for more technically proficient accountants capable of handling the
growingly complex world of global transactions.
The increasing importance of accountants helped to transform accounting into a profession, first in
the UK and then in the US. In 1904 eight people formed the London Association of Accountants to
open the profession to a wider audience of people than was available through the UK’s older
associations. After several name changes the London Association of Accountants adopted the name
the Association of Chartered Certified Accountants (ACCA) in 1996.
Importance of ethics
It’s not all been plain-sailing for the accountancy profession. The 21st century has seen some dubious
actions by accountants causing large-scale scandals. The Enron scandals in 2001 shook the accounting
industry, for example. Arthur Andersen, one of the world’s largest accounting firms at the time, went
out of business. Subsequently, under the newly introduced Sarbanes-Oxley Act, accountants now face
harsher restrictions on their consulting engagements. Yet ironically, since Enron and the financial
crisis in 2008, accountants have been greatly in demand, as corporate regulations have increased and
more expertise is required to fulfil reporting requirements.