THE HISTORY AND

DEVELOPMENT OF
ACCOUNTING
 EVOLUTION OF DOUBLE-ENTRY BOOKKEEPING –
EARLY HISTORY OF ACCOUNTING
•Many attempts have been done to locate the
origin of double-entry bookkeeping. Some
form of bookkeeping can be traced as far back
as to 3000BC.
•the Chaldean-Babylonian, Assyrian and
Sumerian civilizations
(the producers of the first organized
government in the world, some of the oldest
written languages, and the oldest surviving
business records)
•the Egyptian civilizations,
(where scribes formed the “pivots on which the
whole machinery of the treasury and the other
departments turned”)

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 EVOLUTION OF DOUBLE-ENTRY BOOKKEEPING –
EARLY HISTORY OF ACCOUNTING
• the Chinese civilization
(with government accounting playing a key and
sophisticated role during the Chao dynasty :1122-256
BC)
• the Greek civilization
(where Zenon, a manager of the great estate of
Appolonius, introduced in 256 BC an elaborate system
of responsibility accounting)
• the Roman civilization
(with laws requiring taxpayers to prepare statements of
their financial positions, and with civil rights depending
on the level of property declared by the citizens)

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 EVOLUTION OF DOUBLE-ENTRY BOOKKEEPING –
EARLY HISTORY OF ACCOUNTING
• The presence of these forms of bookkeeping in the ancient
world has been attributed to various factors, including:
• the invention of writing,
• the introduction of Arabic numerals and of the decimal system,
• the diffusion of knowledge of algebra,
• the presence of inexpensive writing material,
• the rise of literacy,
• and the existence of a standard medium of exchange.
• Littleton lists 7 preconditions for the emergence of
systematic bookkeeping:
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 THE BIRTH OF DOUBLE ENTRY
ACCOUNTING

Money
Private
Commerce
property

Capital
Arithmetic
investment

Littleton (1968)
identified seven
preconditions
The art of necessary for Credit
writing the emergence transactions
of an orderly
accounting
system

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 EVOLUTION OF DOUBLE-ENTRY BOOKKEEPING –
LUCA PACIOLI’S CONTRIBUTION
• He is generally associated with the
introduction of double-entry bookkeeping.

• In 1494 he published his book (Summa de

Arithmetica Geometrica, Proportioni et
Proportionalita)

• He describe the practices of double entry

system that is debit and credit which is being
used by the Italians.

• Pacioli indicate that ‘all entries must be

double entries… if u make one creditor you
must make someone debtor’

• He also indicate that the purpose of book –

keeping is to give trader without delay
information as to his assets and liabilities.

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 EVOLUTION OF DOUBLE-ENTRY BOOKKEEPING –
LUCA PACIOLI’S CONTRIBUTION
• The successful merchant, declares Pacioli, needs three things: sufficient cash or
credit, good bookkeepers and an accounting system
• Pacioli suggested that not only the name of the buyer and seller should be recorded
but also the description of goods sold (weight, size, measurement, price and term of
payment.
• He also indicate the need of having periodic recording and closing of books.
• Pacioli's System: Memorandum, Journal and Ledger
• The first 16 chapters of "De Computis" describe this basic system of books and
accounts, while the remaining 20 are devoted to specialized accounting issues of
merchants. These include bank deposits and withdrawals, brokered purchases,
drafts, barter transactions, joint venture trading, expense disbursements and
closing and balancing books.

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 EVOLUTION OF DOUBLE-ENTRY
BOOKKEEPING
• 16th century – specific journals for different type of
transactions.
• 16th to 17th centuries – practice of periodic financial
statement and application of double entrysystem were
expanded to other type of organizations.
• 17th century – separate inventory account for different type
of goods and the incorporation of East India Company
where auditing, cost accounting and reliance on concepts of
continuality, periodicity and accruals are needed.
 EVOLUTION OF DOUBLE-ENTRY
BOOKKEEPING
• 18th century – methods of treating fixed assets

evolved (assets are carried forward at original

cost, assets account are closed at the balance sheet

date and revaluation of fixed assets.

• 19th century – depreciation of property, cost

accounting and development of techniques of

accounting for prepayments and accruals.

• 19th – 20th centuries – development of funds

statements

• 20th century – complex issues such as EPF,

accounting for business computations, inflations, 9

long term leases and others..

 THE DEVELOPMENT OF ACCOUNTING
PRINCIPLES IN THE USA
Accounting theory and principles have been subjected to a
constant reexamination and critical analysis. Four phases of
this process may be identified:

• Management contribution phase (1900-33)

• Institution Contribution Phase (1933-59)
• Professional Contribution Phase (1959 – 73)
• Politicization Phase (1973 – Present)

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 MANAGEMENT CONTRIBUTION
PHASE (1900-33)
• The influence of management in the formulation
of accounting principles arose from the
increasing number of shareholders and the
dominant economic role played by industrial
corporations after 1900.
• The diffusion of stock ownership gave
management complete control over the format
and content of accounting disclosures.
• The intervention of management may be
characterized best by ad hoc solutions to urgent
problems and controversies
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 MANAGEMENT CONTRIBUTION
PHASE (1900-33)

• The consequences of the dependence on management

initiative include:
1. Given the pragmatic character of the solutions adopted,
most accounting techniques lacked theoretical support.
2. The focus was on the determination of taxable income and
the minimization of income taxes.
3. The techniques adopted were motivated by the desire to
smooth earnings.
4. Complex problems were avoided and expedient solutions
were adopted.
5. Different firms adopted different accounting techniques
for the same problem.
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 MANAGEMENT CONTRIBUTION
PHASE (1900-33)
• William Z. Ripley and J.M.B. Hoxley: argued for improvement in standards of financial reporting.
• Adolph A. Berle and Gardiner C. Means: called for the protection of investors.
• The main players of the time:
• American Institute of Accountants (AIA)
• In 1917 established a Board of Examiners to create a uniform CPA examination,
• The New York Stock Exchange
• From 1900 required all corporations applying for listing to agree to publish annual financial
statement.
• Important issues and events :
• Establishing realistic product costs to serve as basis for selling prices and measuring management
efficiency.
• No selling costs, interest charges or administrative expenses are included in the factory overhead
costs.
• The growing effect on accounting theory of taxation of business income.
• The 1918 Act was the first to recognize the role of accounting procedures in the determination of
taxable income, which set the stage for the beginning of a harmonization between tax accounting
and financial accounting.
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INSTITUTION CONTRIBUTION PHASE (1933-
1959)
• Marked the creation and the increasing role of institutions on
the development of accounting principles.
• The creation of the Securities and Exchange Commission
(SEC)
• In 1934 Congress created the SEC to administer various
federal investment laws including the Securities Act of
1933 (regulates the issuance of securities in the interstate
markets) and Securities Act of 1934 (regulates the trading
of securities)
• The SEC’s role in the development of accounting
principles:
• Section 13 (b) of the 1934 Securities Exchange Act provides
the SEC the authority to prescribe accounting ‘guidelines’
or ‘forms’ for reports submitted to it.
• On April 25, 1938, the SEC sent a definitive message that
unless the profession established a standard-setting body,
the SEC would use its mandate and develop accounting 14

principles.
 INSTITUTION CONTRIBUTION PHASE
(1933-1959)
• The approval by the AIA of “broad principles”.
• George O. May, an Englishman, proposed that the AICPA begin a cooperative effort with the stock
exchange committee in developing accounting standards.
• Among other things, the committee proposed the first formal attempt to develop generally
accepted accounting techniques, known as May’s “broad principles”. They include:
• That income accounts should not include unrealized profit, and expenses ordinarily chargeable
against income should not be charged against unrealized profit.
• That capital surplus (additional paid-in capital) should not be charged with amounts
chargeable ordinarily to income.
• That earned surplus (or retained earnings) of a subsidiary company created prior to acquisition
was not part of the consolidated earned surplus of the parent.
• That dividends on treasury stock may not be credited to the company’s income.
• That amounts receivable from officers, employees, and affiliated companies should be shown
separately

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 INSTITUTION CONTRIBUTION PHASE
(1933-1959)
• The new role of the Committee on Accounting Procedures
• In 1938, the Institute decided to empower the Committee
on Accounting Procedure (CAP) to issue pronouncements.
• In 1938 – 1939 alone, CAP issued twelve Accounting
Research Bulletins (ARBs) during that period continued
to do so during the war years.
• 1946 – 1953, issued eighteen ARBs, with a strategy of
eliminating questionable and suspect accounting
practices, and focusing on particular reporting problems.

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 INSTITUTION CONTRIBUTION PHASE
(1933-1959)
• However, the period 1957 to 1959 was marked with an intensive
criticism of the CAP for various reasons, including:
• failure to give adequate hearings to financial executives and
accounting practitioners;
• failure to work on unpopular issues;
• failure to develop a comprehensive statement of basic accounting
principles;
• being in disagreement with the SEC, which was displeased by the
CAP’s preference for the “current operating performance”
conception of income statement and by the failure of CAP to
limit the alternatives available to the management.

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PROFESSIONAL CONTRIBUTION PHASE
(1959 – 1973)
• The AICPA accepted the recommendations to dissolve
CAP and its research department and established in 1959
the Accounting Principles Board (APB) and the
Accounting Research Division with the mission to advance
the written expression of generally accepted accounting
principles.
• Between 1959 and 1973, the APB issued 31 Opinions
dealing with controversial issues.

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 PROFESSIONAL CONTRIBUTION PHASE
(1959 – 1973)
• The American Accounting Association also participated
in the process through several research studies and
attempts to develop an integrated statement of basic
accounting theory.
•  The APB was criticized for:
• limited controversial or ad hoc Opinions (APB 8 on
pension accounting, APB 11 on income tax allocation,
APBs 2 and 4 on investment tax credit);
• failing to solve problems of accounting for business
combinations and goodwill.

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 PROFESSIONAL CONTRIBUTION PHASE
(1959 – 1973)
• The intervention of professional associations and agencies
in the formulation of an accounting theory was spurred on
by efforts to eliminate undesirable techniques and to
codify acceptable techniques.
• The problems associated with the dependence on such
associations and agencies include the following:
• The association and agencies did not rely on any
established theoretical framework.
• The authority of the statements was not clear-cut.
• The existence of alternative treatments allowed flexibility
in the choice of accounting techniques.
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Politicization Phase (1973-present)
• A situation created by the generally accepted view that accounting numbers
affect economic behavior and, consequently, that accounting rules should be
established in the political arena.
• Horngren states:
• The setting of accounting standards is as much a product of political action as flawless
logic or empirical findings.
• Why? Because the setting of standards is a social decision. Standards place
restrictions on behavior; therefore, they must be accepted by the affected parties.

• Acceptance may be forced or voluntary, or some of both. In a democratic

society, getting acceptance is an exceedingly complicated process that requires
skillful marketing in a political arena.

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Politicization Phase (1973-present)
• Since its inception, the FASB has adopted a deductive and a quasi-political
approach to the formulation of accounting principles. This approach can be
seen through:
• its effort to develop a theoretical framework or accounting institution,
• acknowledging the fact that the contribution of various interest groups that have
emerge, is required for the “general” acceptance of new standards.

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Accounting and capitalism
• Definition:an economic and political system in which a country's
trade and industry are controlled by private owners for profit, rather
than by the state.synonyms: free enterprise, private enterprise, the
free market; enterprise culture"the capitalism of emerging nations"
• In the late 18th century, capitalism emerge due to
• the neglectfulness of middleclass officials in executing their duties,
• and the favouring of the merchants and the guilds.

• Basic principle of capitalism:

• Economic initiative should come from individual rather than the
government.
Accounting and capitalism
• Some economic historians claim that the double-entry bookkeeping has been
vital to the development and evolution of capitalism. This link between
accounting and capitalism became known as the Sombart thesis or argument
(1919).

• Double-entry bookkeeping has made it possible (a) for the capitalistic

entrepreneur to plan, conduct and measure the impact of his/her activities,
and (b) for a separation of owners and the business itself, thus allowing the
growth of the corporation.

• Yamey’s disagreement with Sombart

• Yamey (1949) felt that Sombart had exaggerated the contribution of double-
entry bookkeeping to the development of the capitalist economy. His
contentions are as follows:

• Yamey indicates that businessmen in the 16th through 18th centuries did not
use double-entry bookkeeping to keep track of profits and capital, but simply
as a record of transactions. The basis of this argument is that there were
irregular rather than systematic balancing of books.
Accounting and capitalism
• (2) He also argues that (a) double-entry bookkeeping is not necessary for
determining profits and capital, (b) double-entry is only useful for routine
problems, and (c) it is not necessarily useful in helping businessmen select the
best opportunities available to them.
• However, Winjun (1971) provided evidence that contradicts Yamey’s, whereby it
was found that as early as the 16th century, profit and loss determination was an
important facet of double-entry bookkeeping.
• Kam (1986) refuted Yamey’s argument that single entry is sufficient by saying
that double-entry is a better tool to determine profits and capital.
Relevance of accounting history
• Accounting history makes it possible to “better … understand our present and to forecast or control our future.”

• It is a study of the heritage of accounting and its contribution to accounting pedagogy, policy and practice.

• Recreational – fact finding in thedevelopment of accounting.

• Explanatory – when/why adopted and abandoned a certain practices.

• Problem solving –solution of present day accounting problem.

• Prediction – help predict the future.

• Pedagogy: accounting history can be very helpful to a better understanding and appreciation of the field of
accounting and its evolution as a social science.

• Policy perspective: accounting history is instrumental to a better understanding of the accounting problems
and their institutional contexts as well as the formulation of public policy.

• Accounting practice: accounting history could provide a better assessment of the existing practices by a
comparison with the methods used in the past.
FINANCIAL ACCOUNTING
ENVIRONMENT IN
MALAYSIA

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 DEVELOPMENT OF ACCOUNTING IN
MALAYSIA
• Prior to 1957 – Companies Ordinance (and amendments) of 1940, 1946, 1956.
• 1958 – Malaysian Institute of Certified Public Accountants (MICPA) was formed
(as a company limited by guarantee).
• Regulates the practice of its members who carry the title of CPA.

• 1965 – Establishment of Companies Act, 1965. Companies ordinance were then

repealed. Contain Ninth Schedule (disclosure requirements).
• 1967 – The Malaysian Institute of Accountants (MIA) was established under the
Accountants Act 1967.
• Remained inactive for 20 years to concentrate on the registration of accountants in
Malaysia.

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 DEVELOPMENT OF
ACCOUNTING IN MALAYSIA
• 1968 – MICPA issued first accounting guidance which dealt with specimen
company accounts.
• 1978 – MICPA was admitted as a member of International Accounting
Standards Committee (IASC) and began adopting IAS. Four IASs (IASs 1 – 4)
were adopted in that year alone.
• 1984 – MICPA issued the first Malaysian Accounting Standard (MAS 1) on EPS.
• 1985 – Companies Act 1965 was amended. New Ninth Schedule with more
comprehensive disclosure requirements that includes the preparation of
statement of source and application of funds.

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 DEVELOPMENT OF ACCOUNTING IN
MALAYSIA
• 1987 – Operation of MIA were activated. MIA began to issue accounting
standards.
• 1993 – Securities Commission were established. Public listed companies are
required to show full disclosure requirements as required by SC’s.
• 1997 – Financial Reporting Foundation (FRF) and Malaysian Accounting
Standard Board (MASB) was established under the Financial Reporting Act, 1997.
• 2012- Malaysian financial reporting standards converged to the International
Financial Reporting Standards (IFRS) issued by the IASB. IFRS’s issued by the
IASB are/or simultaneously issued as Malaysian Financial Reporting Standards
(MFRS) often with the same timeline
• April 2016- the Companies Bill 2015 was approved in Parliament introducing new
Companies Act 2016.
• Key feature: requirement for reporting companies to comply with the accounting
standards issued by MASB.
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 THE CURRENT FINANCIAL REPORTING
REGIME
• Financial Reporting Act (FRA) 1997
• TWO Independent bodies were established:
• Financial Reporting Foundation (FRF) – s 4(1) FRA
• To review the performance of the MASB
• To be responsible for all financing arrangements for the operations of MASB
• To perform such other functions as MOF prescribed.
• Malaysian Accounting Standard Board (MASB) – s7(1) FRA
• To issue new accounting standard as approved accounting standard.
• To review, revise or adopt as approved accounting standards, existing accounting standards.
• To issue statements of principles for financial reporting.
• To undertake the development of possible accounting standards.
• To develop a CF for the purpose of evaluating proposed accounting standards.
• To make such changes to the form and content of proposed accounting standards as it considers necessary.
• To perform such other functions as MOF prescribed.

• Act provides the enforcement authority to the standards issued by MASB to be complied by
all listed companies.
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 STATUTORY REGULATIONS ON FINANCIAL
ACCOUNTING AND REPORTING
• The FRA 1997
• Deals with compliance with approved accounting standards of the MASB.

• The Companies Act 2016 (approved in April 2016)

• Compliance with approved accounting standards
• True and fair value over ride
• Compliance with other laws or authorities
• Conflicts between the Act and approved accounting standards
• Accounting and other records to be kept
• System of internal control
• Accounting periods of companies within the same group
• Director’s responsibility to prepare financial statements

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 STATUTORY REGULATIONS ON FINANCIAL
ACCOUNTING AND REPORTING
• The Companies Act 2016
• General requirements for FS
• Subsidiaries to be included in Consolidated FS
• Duty to lodge FS and reports with the Registrar
• Relief from requirements as to form and contents of FS and director's report
• The no par value regime (significant feature of CA 2016)

• The Income Tax Act

• Mainly concerned with ascertaining of chargeable income and tax payable

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REGULATION BY SECURITIES COMISSION
• Established under Securities Commission Act 1993.
• Main function: development of the capital market in Malaysia through the
regulation and enforcement-securities industry.
• Due diligence and professional responsibilities of corporate advisors, directors
and management of public company.
• Statutory power: compliance with its regulation and compliance with approved
accounting standards.
• Capital Market and Services Act 2007: requires company submit to SC
(a) a copy of its audited annual accounts
(b) interim and periodic financial report

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REGULATION BY THE AUDIT OVERSIGHT
BOARD
• Established under Part 111A of SC Act 1993.
• The mission is to assist SC in overseeing the auditors of public interest entities
and to protect the interest of investors by promoting confidence in the quality
and reliability of audited FS of public interest entities.
• Requires all auditors of public interest entities to be registered.
• Has statutory power to conduct inspections and monitor programmes on
registered auditors to assess the extent of their compliance with recognized
auditing and ethical standards, including compliance with accounting standards.
• Empowered by SC Act to sanction any registered auditors for failure to comply
with any provisions.

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 REGULATION BY BURSA MALAYSIA
• A private sector body (self-regulatory body), incorporated under s15 of the CMSA
2007 to regulate companies listed on its Exchange.
• Does not have legal power to enforce compliance but has power to delist, suspend
or publicly reprimand errant listed companies for any non-compliance with its
regulations.
• It has the power to delist, suspend or publicly reprimand companies which did not
adhere to its regulations.
• Companies listed on Bursa Malaysia must comply with the KLSE Listing
Requirements.
• Provisions relating to financial accounting and reporting on:
• Submission of Reports
• Interim Reporting Requirements

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 REGULATION BY BANK NEGARA
MALAYSIA
• Issued 2 sets of guidelines on Financial Reporting practices of
financial institutions established under the Banking and Financial
Institutions Act 1989:
• BNM/GP3: Classification on Non-Performing Loans and
Provision for Substandard, Bad and Doubtful Debts; and
• Introduced in 1985 with objective to streamline the method of
income recognition and loan loss provisioning
• BNM/GP8: Guidelines on Financial Reporting for Licensed
Institutions
• Introduced in Dec 1988 with objective to standardize the
format of financial reports for banks and finance companies.

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ACCOUNTING STANDARD IN MALAYSIA
• Before new financial reporting regime:
• Professional accountancy bodies: MASB and MIA, regulate only no statutory power
therefore, depends on professional sanction for deterrent
• The Approved Accounting Standards
• International Accounting Standards (IASs) adopted for operations in Malaysia
• Malaysian Accounting Standards (MAS)

• Under the new financial reporting regime:

• Due process before 2004
• A policy of harmonization: MASB Standard developed from the work of IASC
• MASB also issued technical pronouncement
• Due process after 2003
• Convergence: align standard with those of the IASB
• 2006: single set separated into two
• Financial Reporting Standards (FRS)
• Private Entity Reporting Standards (PERS)

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ACCOUNTING STANDARD IN MALAYSIA

• Private Entity Reporting Standards (PERS)

• Feb 2006, MASB announced that private entities need not comply with
FRSs, they were allowed to choose to apply PERS (accounting standard for
private entity).
• Private entity is a company incorporated under CA 1965 that:
• Is not required to prepare any FS under any law administered by SC or
BNM.
• Is not a subsidiary or associate or jointly controlled by an entity which is
required to prepare any FS under any law administered by SC or BNM.
• Thus, private entities shall comply with either:
• PERS in their entirety; or
• MFRS in their entirety

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Auditors Annual
Reports BNM

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