Accounting - A Skill as Old as Time
Accounting... it's why Writing was Invented
Counting Cattle
The origin of accounting can be traced all the way back to the beginning of civilization as we know it. Early Sumerian Cuneiform Script (as that depicted above) is commonly believed to have developed as a means of representing commodities.
"Writing began as a consequence of the burgeoning needs of accounting. Around the 4th millennium BC, the complexity of trade and administration outgrew the power of memory, and writing became a more dependable method of recording and presenting transactions in a permanent form (Robinson, 2003, p. 36)"
In essence, accounting was created as a means to manage livestock numbers and values. Simple accounting is mentioned in the New Testament - the Book of Matthew, in the Parable of the Talents. The Islamic Quran also mentions simple accounting for trade and credit arrangements
The Early Middle Ages
Detailing a System
Twelfth-century A.D. 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 A.D. 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.
But it was only in the 15th Century that a Venician monk began to document the system on which much of modern accounting system is based.
The Birth of Modern Accounting
Luca Pacioli
One of the key features of today's accounting system is what is usually described as "double-entry" accounting. The earliest publication of the methods used in this form of accounting was, believe it or not, codified in a book written by a Venician monk and mathematician called Luca Pacioli, the man who is usually regarded as the "Father of Accounting". The book, Summa de arithmetica, gepmetria, proportionalita, was published in Venice all the way back in 1494. It included a large part of the system that is used by accountants today. Pacioli described the used of journals and ledgers, he described accounts for assets, liabilities, capital, income and expenditure. He also described the financial statements still in use today, i.e. the Balance Sheet and the Income Statement/Profit and Loss Account. In addition he proposed the use of the trial balance, and touched on issues such as ethics in accounting and cost (management) accounting.
Most ominously - Pacioli had a serious warning to all accountants - Do not go to bed at night until the debits equal the credits - something that us accountants understand just as much today as Merchants in Venice did in the 1400's.
Amazingly these systems have stood the test of time as can be seen from the video below which dates from 1945 (10 mins).
Once again the described system, although it is American and from 1945, is remarkably similar to both that described by Pacioli in 1494, and to that we use here in Ireland today. There is far more in the rules and practice of accounting that bind practitioners than anything that separates us. That is why the student and practitioner of accounting continue to find that the qualification of Professional Accountant is one of the most portable skills and qualifications in the world.
Modern Accounting and Auditing
Developing with Business
As the size and sophistication of the business has grown there has been a corresponding growth in the size and sophistication of accounting systems. Accordingly this has resulted in a parallel need for increased sophistication in the knowledge and skill of the accountant, including the need for specialisation. The "Registered Auditor" is probably the best known specialist in Accounting. In most of the world some companies are required to engage Auditors whose role is to undertake an independent evaluation of the financial statements produced by the company. The most important function of that audit is to provide assurance to the shareholders of the company that the financial statements reflect the underlying financial position of the Company. In Ireland the auditor issues an opinion based on her work stating whether or not she believes that the financial statements are a "true and fair" representation of the underlying financial position of the Company.
In Ireland the Auditing and Accounting professions are subject to regulation by the Irish Auditing and Accounting Supervisory Authority (IAASA). One of the key roles IAASA undertakes is the approval of Recognised Accounting Bodies in Ireland. Recognised Accounting Bodies are professional accounting bodies which have been given dispensation to issue Audit Practice Certificates to its members. Only holders of Audit Practice Certificates are entitled to conduct audits under the Companies Acts. Any person who undertakes an audit while not in possession of an Audit Practice Certificate will in all likelihood be prosecuted by the Office of the Director of Corporate enforcement.