Accountancy
Practitioners of accountancy are known as accountants. There are many professional bodies for accountants throughout the world. Many allow their members to use titles indicating their membership or qualification level. Examples are Chartered Certified Accountant ACCA or FCCA, Chartered Accountant FCA, CA or ACA, Management Accountant ACMA, FCMA or AICWA, Certified Public Accountant CPA and Certified General Accountant CGA.
Auditing is a related but separate discipline, with two sub-disciplines internal auditing and external auditing. External auditing is the process whereby an independent auditor examines an organizations financial statements and accounting records in order to express an opinion as to the truth and fairness of the statements and the accountants adherence to Generally Accepted Accounting Principles GAAP, or International Financial Reporting Standards IFRS, in all material respects. Internal auditing aims at providing information for management usage, and is typically carried out by auditors employed by the company, and sometimes by external service providers.Accounting/accountancy attempts to create accurate financial reports that are useful to managers, regulators, and other stakeholders such as shareholders, creditors, or owners. The day-to-day record-keeping involved in this process is known as bookkeeping.
History of accounting
Accountancys infancy dates back to the earliest days of human agriculture and civilization the
Sumerians in Mesopotamia, when the need to maintain accurate records of the quantities and
relative values of agricultural products first arose. Simple accounting is mentioned in the
Christian Bible New Testament in the Book of Matthew, in the Parable of the Talents Matt.
2519. The Islamic Quran also mentions simple accounting for trade and credit arrangements.
Twelfth-century CE Arab writer Ibn Taymiyyah mentioned in his book Hisba literally,
verification or calculation detailed accounting systems used by Muslims as early as in the
mid-seventh century CE. These accounting practices were influenced by the Roman and the
Persian civilizations that Muslims interacted with. The most detailed example Ibn Taymiyyah
provides of a complex governmental accounting system is the Divan of Umar, the second
Caliph of Islam, in which all revenues and disbursements were recorded. The Divan of Umar
has been described in detail by various Islamic historians and was used by Muslim rulers in
the Middle East with modifications and enhancements until the fall of the Ottoman Empire.
Luca Pacioli and the birth of modern accountancy
The first book on accounting was written by a Croatian merchant Benedetto Cotrugli, who is
also known as Benedikt Kotruljević, from the city of Dubrovnik. During his life in Italy he met
many merchants and decided to write Della Mercatura et del Mercante Perfetto On Trade
and the Perfect Merchant in which he elaborated on the principles of the modern double-entry
book-keeping. He finished his lifework in 1458. However, his work was not published until
1573, as a result of which his contributions to the field have been overlooked by the general
public.
For this reason, Luca Pacioli 1445 - 1517, also known as Friar Luca dal Borgo, is credited for
the birth of accounting. His Summa de arithmetica, geometrica, proportioni et proportionalita
Summa on arithmetic, geometry, proportions and proportionality, Venice 1494, a synthesis of
the mathematical knowledge of his time, includes the first published description of the method
of keeping accounts that Venetian merchants used at that time, known as the double-entry
accounting system. Although Pacioli codified rather than invented this system, he is widely
regarded as the Father of Accounting. The system he published included most of the
accounting cycle as we know it today.
He described the use of journals and ledgers, and warned that a person should not go to sleep
at night until the debits equaled the credits! His ledger had accounts for assets including
receivables and inventories, liabilities, capital, income, and expenses — the account categories
that are reported on an organizations balance sheet and income statement, respectively. He
demonstrated year-end closing entries and proposed that a trial balance be used to prove a
balanced ledger. His treatise also touches on a wide range of related topics from accounting
ethics to cost accounting.
Post-Pacioli
The first known book in the English language on accounting was published in London,
England by John Gouge or Gough in 1543. It is described as A Profitable Treatyce called the
Instrument or Boke to learn to know the good order of the kepyng of the famouse reconynge,
called in Latin, Dare and Habere, and, in English, debtor and Creditor.
A short book of instructions was also published in 1588 by John Mellis of Southwark,
England, in which he says, I am but the renuer and reviver of an ancient old copies printed
here in London the 14 of August 1543 collected, published, made, and set forth by one Hugh
Oldcastle, Schoolmaster, who, as reappeared by his treatise, then taught Arithmetics, and this
booke in Saint Ollaves parish in Marko Lane. Mellis refers to the fact that the principle of
accounts he explains which is a simple system of double entry is after the former of Venice.
A book described as The Merchants Mirrour, or directions for the perfect ordering and
keeping of his accounts formed by way of Debitor and Creditor, after the so termed Italian
manner, by Richard Dafforne, accountant, published in 1635, contains many references to
early books on the science of accountancy. In a chapter in this book, headed Opinion of
Book-keepings Antiquity, the author states, on the authority of another writer, that the form of
book-keeping referred to had then been in use in Italy about two hundred years, but that the
same, or one in many parts very like this, was used in the time of Julius Caesar, and in Rome
long before. He gives quotations of Latin book-keeping terms in use in ancient times, and
refers to ex Oratione Ciceronis pro Roscio Comaedo.
An early Dutch writer appears to have suggested that double-entry book-keeping was even in
existence among the Greeks, pointing to scientific accountancy having been invented in remote
times.There were several editions of Richard Daffornes book - the second edition in 1636, the
third in 1656, and another in 1684. The book is a very complete treatise on scientific
accountancy, beautifully prepared and containing elaborate explanations. The numerous
editions tend to prove that the science was highly appreciated in the 17th century. From this
time on, there has been a continuous supply of literature on the subject, many of the authors
styling themselves accountants and teachers of the art, and thus proving that the professional
accountant was then known and employed.
Accountancy qualifications and regulation
The expectations for qualification in the profession of accounting vary between different
jurisdictions and countries.Accountants may be certified by a variety of organizations or
bodies, such as the Association of Accounting Technicians AAT 2, British qualified
accountancy bodies including Association of Chartered Certified Accountants ACCA and
Institute of Chartered Accountants, and are recognized by titles such as Chartered Certified
Accountant ACCA or FCCA and Chartered Accountant UK, Australia, New Zealand,
Canada, India, Pakistan, South Africa, Ghana, Certified Public Accountant Ireland, Japan,
US, Singapore, Hong Kong, the Philippines, Certified Management Accountant Canada, U.S.,
Certified General Accountant Canada, or Certified Practicing Accountant Australia.
Some Commonwealth countries Australia and Canada often recognize both the certified and
chartered accounting bodies. The majority of public accountants in New Zealand and Canada
are Chartered Accountants however, Certified General Accountants are also authorized by
legislation to practice public accounting and auditing in all Canadian provinces, except
Ontario and Quebec, as of 2005. There is, however, no legal requirement for an accountant to
be a paid-up member of one of the many Institutes and other bodies which are effectively a
form of professional trade union. Unlike the Law Society, which can legally stop a solicitor
from practicing, accountancy institutes do not have such authority. However, auditors are
regulated.
The Big Four accountancy firms
The Big Four auditors are the largest multinational accountancy firms are
PricewaterhouseCoopers , KPMG , Deloitte Touche Tohmatsu , Ernst & Young .These firms
are associations of the partnerships in each country rather than having the classical structure
of holding company and subsidiaries, but each has an international umbrella organization for
coordination technically known as a Swiss Verein.Before the Enron and other accounting
scandals in the United States, there were five large firms and were called the Big Five Arthur
Andersen, PricewaterhouseCoopers, KPMG, Deloitte Touche Tohmatsu and Ernst & Young.
On June 15, 2002, Arthur Andersen was convicted of obstruction of justice for shredding
documents related to its audit of Enron. Nancy Temple Andersen Legal Dept. and David
Duncan Lead Partner for the Enron account were cited as the responsible managers in this
scandal as they had given the order to shred relevant documents. Since the U.S. Securities and
Exchange Commission does not allow convicted felons to audit public companies, the firm
agreed to surrender its licenses and its right to practice before the SEC on August 31, 2002. A
plurality of Arthur Andersen joined KPMG in the US and Deloitte & Touche outside of the US.
Historically, there had also been groupings referred to as the Big Six Arthur Andersen, plus
Coopers & Lybrand before its merger with Price Waterhouse and the Big Eight Ernst and
Young prior to their merger were Ernst & Whinney and Arthur Young and Deloitte & Touche
was formed by the merger of Deloitte, Haskins and Sells with the firm Touche Ross.
Enron turned out to be only the first of a series of accounting scandals that enveloped the
accounting industry in 2002.This is likely to have far-reaching consequences for the U.S.
accounting industry. Application of International Accounting Standards originating in
International Accounting Standards Board headquartered in London and bearing more
resemblance to UK than current US practices is often advocated by those who note the relative
stability of the UK accounting system which reformed itself after scandals in the late 1980s
and early 1990s. Accounting reform of a far more comprehensive sort is advocated by those
who see issues with capitalism or economics, and seek ecological or social accountability.
Accounting scholarship
Accounting scholarship is an academic discipline oriented towards the profession of
accounting, usually taught at a business school.Since accounting is a highly technical,
standards oriented profession, both practitioners and academics may claim to be experts.
Accounting directly impacts many other specialties in business and is closely linked with
finance. The theoretical underpinnings of both accounting and finance are derived from
economics.
Requirements for an appointment as a professor vary considerably worldwide. Once
appointed as a professor, the next step is being awarded tenure. At most institutions, this step
is very competitive. Many institutions value academic credentials, professional certifications,
and real world experience.
Accounting has generally been oriented towards practical knowledge as opposed to
theoretical abstractions. Most students are entering the field for immediate practical
knowledge. Adult learner/executive students often expect professors to have practical
experience as an accountant or in commercial organizations. These students expect practical
examples and an MBA case study approach to their education. By contrast, PhD students
prefer research professors who themselves earned a PhD in accounting.