The history of accounting
Have you ever wondered about how accounting came to be? Discover how one of the most in-demand professions has evolved from the 15th century to present day.
Luca Pacioli and Double-Entry Booking in the 15th Century
Luca Pacioli was a friar in 15th century Italy, and is widely heralded as the ‘Father of Accounting’ after becoming the first person to publish a book on the double-entry system of bookkeeping. This is the practice of recording a business transaction in two parts; debit and credit entries.
He described the double-entry system and other finance-related concepts in his work De Computis et Scripturis. The book went on to be translated into five different languages, spreading through Europe and laying the foundations of modern accounting.
Modern Accounting in the 19th Century
The modern profession of chartered accounting was first developed in Scotland in the year 1854, when Queen Victoria granted a royal charter to the Institute of Accountants in Glasgow.
During the Industrial Revolution, London gained recognition as the financial capital of the world. British chartered accountants went to America to audit their investments, with some of them choosing to stay and set up their own firms. In 1887, the first American professional accounting organisation was created for Certified Public Accountants (CPAs). This became known as the American Institute of Certified Public Accountants (AICPA).
Accounting Standards in the 20th Century
During the 20th century, as accounting developed, guidelines evolved to regulate the profession. In the United States, state requirements for financial statement audits, and securities acts based on federal requirements, were passed in 1933 and 1934. This led to the creation of the Securities and Exchange Commission (SEC).
In the 1970s, Congress and the SEC began to demand more responsible and consistent financial reporting, leading to the creation of the Financial Accounting Standards Board (FASB) in 1973. The FASB and the Governmental Accounting Standards Board (GASB) became the two main bodies responsible for establishing generally accepted accounting principles in the United States.
Accounting Regulation in the 21st Century
Alongside self-regulation, the US government began to impose new federal requirements after a number of public accounting scandals. New laws were passed, such as the Sarbanes-Oxley Act of 2002, which required the SEC to regulate public corporations. This law was designed to protect investors from being misled by fraudulent accounting practices.
In the aftermath of the 2008 recession, the Dodd-Frank Act was signed by Barack Obama in 2010. This was comprised of 16 areas of reform, including the creation of the Volcker Rule, which limited the power of US banks in making speculative investments, and the Financial Stability Oversight Council (FSOC), which monitors risks that could impact financial stability.
Throughout history, accounting has been vital to the survival and growth of the global economy. Today, it is considered to be one of the most reputable professions in the world, and businesses and organisations alike are continually recruiting for the best talent. If you’re considering pursuing a rewarding career in accountancy, why not start training today?