Special Supplement

History of accounting and its importance in everyday life

Published : 09 Nov 2020 06:55 PM | Updated : 10 Nov 2020 11:45 AM

The origin of the word “accounting” comes from the old French word “acont,” which referred to the calculation of money being paid. By the passage of the time, the mathematical calculations of accounting were adopted by almost in every culture. But it was the Renaissance era that introduced one of the fundamental principles of accounting i.e. double-entry book keeping – within the pages of a math book. 

Luca Pacioli, a Franciscan friar, mathematician, writer and friend of Leonardo DaVinci, wrote about the ways merchants in Venice kept track of their business transactions. The bookkeeping system was one of five topics covered in his book, “Everything About Arithmetic, Geometry and Proportions,” published in 1494. Pacioli’s book was widely distributed and translated into several languages and may have been the only textbook until the 16th century.

The double-entry accounting systems involve keeping a record of money that flows in and out. Each transaction is listed in two columns in a ledger representing two separate accounts, debit and credit. As one account offsets the other, the totals in both should be equal. Interestingly, Pacioli did not invent the method, nor was he the first person to record how Venetians conducted business. The credit goes to Benedikt Kotruljević, of Dubrovnik, now part of Croatia, who wrote about the double-entry bookkeeping method more than 30 years before Pacioli.  Kotruljević described the method in a 1458 manuscript, noted in an essay. However, Pacioli deserves the credit for describing other accounting terms and concepts still used today, like, journal, ledgers, receivables, inventories, closing entries, trial balance etc.

The Industrial Revolution spurred the growth of the accounting profession, as large corporations needed to find ways to operate efficiently. It wasn’t until the 19th century that professional organizations for chartered accountants were formed, first in Scotland, followed by the American Association of Public Accountants, which later became the American Institute of Certified Public Accountants (AICPA). 

Generally Accepted Accounting Principles (GAAP) – professional standards for reporting financial information – came about after the 1929 stock market crash and the great depression. The Financial Accounting Foundation, established in 1972, is the independent organization responsible for administrating the Financial Accounting Standards Board (FASB) and the Governmental Accounting Standards Board (GASB), the standard-setting Boards with oversight of GAAP that now determines how financial statements are prepared so that they provide information that is useful and accountable.

In 1967, Accountants International Study Group was created, the predecessor to the IASB. In 1973, International Accounting Standards Committee (ASC) was formed with volunteers who meet three times a year. Afterwards, in 2000, International Accounting Standards Committee (IASC) was restructured into the International Accounting Standards Board (IASB). It issued International Financial Reporting Standards (IFRS) that sit alongside or replace IASs. In, 2002 European Union announced plans to adopt IFRS for all EU companies beginning in 2005. In this year (2005), European Union companies went “live” with IFRS. After one year, in 2006, China adopts accounting standards broadly in line with IFRS. IASB and FASB laid out detailed plans to converge IFRS and US GAAP. Two years later, Canada, India Japan and Korea agreed on plans to adopt or converge accounting standards with IFRS in 2007. Presently, IFRS are set by the International Accounting Standards Board, an independent body of the IFRS Foundation, which provide updates, insights and guidance on the standards.

An effective accounting system can help move a company forward and contribute to its goals, the technology is only part of the equation and accountants need to make sure their skills can keep up with the digital transformation in the business world under the Era of globalization.

Accounting Day is all about promoting the accounting profession. It seeks to give people the opportunity to network among their colleagues and aims to provide the opportunity to continue education for those interested in the industry. It is also a great day to celebrate the role of an accountant. After all, no matter whether you run your own business or you are a sole trader, it is likely that you have required the services of an accountant at some point or that you will need their services in the future. From filing tax returns to ensuring business accounts are up-to-date; accounts play a critical role in the financial security of companies all over the world. The role of accountants now-a-days become very critical as the financial statements overseeing bodies are mostly regulated by the professional accountants.

Of course, Accounting Day is not only about those who are already in the profession, but it is also a day that is important for anyone who is looking to get involved in the accounting industry or intent to take as profession, but it is also a day that is important for anyone who is looking to get involved in the accounting industry. There are a lot of great opportunities in this industry, and there is always going to be the need for accountants, so this is certainly a good sector to get involved in. Some of the skills that are required in order to become an accountant include: proficiency in IT, interpersonal and communication skills, teamworking ability, ability to manage deadlines and organizational skills, business interest and acumen, adequate knowledge national and international regulations, ability to reflect on your own work, as well as the broader consequences of financial decisions, integrity and self-motivation. Happy International Accounting Day 2020!

Abul Bashir Khan is the Chief Financial Officer of SMC Enterprise Limited. He is a fellow member of Institute of Cost & Management Accountants of Bangladesh (ICMAB), He can be reached: [email protected]