View: Origins and Historical Perspectives of Accounting

Perhaps the concept of accounting has been around in the world in one form or another for centuries. When a barter system existed in the trading system the system of recording goods and services transactions must have been started.

From the books of history, we read that Philosopher and economist Chanakya wrote “Arthashastra” in India during the Mauryan Empire around the second century B.C. The book contained advice and details on how to maintain record books for accounts.

Italian monk Luca Pacioli is known as “the father of accounting”. He published a textbook called “Summa de Arithmetica, Geometria, Proportioni et Proportionalita” in 1494. Until the late 1400s, this information was arranged in a narrative style with all the numbers in a single column whether an amount was paid or owed. This is “single-entry” bookkeeping.  Luca Pacioli His book showed the benefits of a double-entry system for bookkeeping. The idea was to list an entity’s resources separately from any claims on those resources by other entities. This meant the beginning of a double-entry bookkeeping system. Double-entry bookkeeping requires dual account entries. An opposite entry must be made into one account for every entry in another account.

Modern Accounting and Bookkeeping traces its first known practices to the industrious, skilled, and highly organised ancient Egyptians. The ancient Egyptians and Babylonians developed a complex system of financial record keeping as early as 3000 BC. They used a variety of methods, including papyrus, bone, and clay tablets. They also used pictures, words, and numbers to track agricultural production, ceremonies, religious events, and labour. By the 4th century BC, the Egyptians and Babylonians had auditing systems to check the movement of goods in and out of storehouses.

The first written records date back a little more than 5,000 years in Egypt and ancient Sumer. The earliest Sumerian records were made using reeds cut at an angle to make wedge-shaped (cuneiform) marks on clay, which was then baked hard. Many of these clay tablets survive today, and scholars can still read them.

German Archaeologist Dr. Gunter Dreyer’s team discovered while excavating the 5,300-year-old tomb of King Scorpion I in Abydos unearthed bags of oil and linen bearing individual bone tokens inscribed with detailed numerical markings. Upon further examination, it became clear that the labels recorded inventory owners, amounts, and suppliers and would be cross-checked against a master ‘spreadsheet’ to avoid mistakes. It is also believed these bags of goods were collected as taxes. It is now widely recognised that these ‘receipts’ and ‘ledgers’ constitute the ancient origin of the complex bookkeeping systems that would inevitably develop into the sophisticated accounting methods we are familiar with today.

Not Just the Egyptians, other ancient cultures also used accountancy methods, including scribes in Mesopotamia who cut records of transactions on clay tablets. The Mesopotamians are thought to have originated accounting around 10,000 years ago. Their accounting practices laid the foundation for modern accounting practices. Mesopotamians used clay tablets to record transactions, track inventory, and keep tax records. They used reed styluses to press into the clay or wax. Each tablet represented a specific transaction or inventory of goods.

Evolution of modern-day accounting:

During 1760-1840, when the Industrial Revolution in Europe transformed economies, the accounting system evolved from simple record-keeping methods to sophisticated accounting practices. This period saw the rise of early financial reporting frameworks and paved the way for standardized accounting practices as business people sought to measure profitability, monitor expenses, and attract investment. Along with progress in industralisation the newly emerged joint stock companies are required to report financial performance to investors, creditors, and stakeholders. The need for capital investment further emphasized the importance of accurate and reliable financial information. Accounting has continually adapted to meet the demands of an ever-changing world by embracing innovation and staying abreast of evolving standards.

Establishment of accounting standards:

In the early 20^th century, with the growth of global trade and multinational corporations, the need for standardized accounting practices across borders became apparent. National accounting bodies began developing principles and frameworks tailored to their respective jurisdictions. These efforts aimed to promote consistency, comparability, and reliability in financial reporting, enhancing investor confidence and facilitating economic growth.

National accounting bodies like the American Institute of Accountants (now AICPA) and the Institute of Chartered Accountants in England and Wales, played pivotal roles in establishing accounting standards to install greater consistency and transparency in financial reporting. These initiatives led to the development of Generally Accepted Accounting Principles (GAAP) and laid the groundwork for future international harmonization. The International Accounting Standards Committee (IASC) was established in London in June 1973 by professional accountancy bodies from several countries, including Australia, Canada, France, Germany, Japan, Mexico, the Netherlands, the United Kingdom, and the United States.

In June 2003, the International Financial Reporting Standards (IFRS) were introduced. The earlier International Accounting Standards (IAS) were previously used by international publicly traded companies and were replaced with the introduction of IFRS. Indian Accounting Standards (Ind-AS) were first implemented in India on April 1, 2015, as an option for companies to adopt voluntarily. They became mandatory for certain companies on April 1, 2016.

Present-day technological advancement:

The days of manual bookkeeping and ledgers are long gone as emerging technologies in accounting include AI-driven automation, blockchain for secure transactions, cloud-based accounting software, data analytics, and robotic process automation for streamlining repetitive tasks. These emerging technologies have revolutionized traditional accounting practices. Automation allows accountants to eliminate tedious tasks; AI and machine learning are shaping how we process data and use it. Using technology properly removes the risk of human error and helps streamline operations.

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