HISTORY AND DEVELOPMENT OF THE ACCOUNTING PROFESSION

According to Kenneth Most, LUCA PACIOLI is considered the father of Accounting because his famous book
‘Method of Venice’ had been a model of a textbook for long two hundred years.
Luca Pacioli - Modern accounting is traced to the work of an Italian monk, whose most famous hooks “The
Summa de arithnictica, geometria, proportion! et proportionalita” publication in A.I).
1494 described the double-entry system - fundamental structure for contemporary accounting systems in all
types of entities. When double-entry accounting is used, the balance sheet identifies both the resources
controlled by the entity and those parties who have claims to those assets.

history of Accounting can chronologically be classified into 4 stages

1. Emergent stage (from a primitive age to 1494 AD)

Start if human civilization. Accounting practice started when the exchange of goods or services, was felt
necessary.
chronological stages of the history of human civilization.
Stone Age
They kept accounts of their collected fruits, hunted animals and lent goods to others by marking ticks on the
trees, on the walls of the caves of mountains and stones, or making holes or symbols as per their need.
Primitive stage
beginning of the social life of human beings
kept their accounting marking ticks on the walls and making rope-knots.
Barter stage
barter system
Prof. Littleton - from the feeling of the necessity of keeping systematic records in terms of money of personal
increased properties arising out of agriculture the accounting system emerged.
Currency stage
At this stage agriculture, industry and trade and commerce flourished.
Glautior and under down, in the age of feudalism, a supervisory accounting system was in practice.
the concept of debit and credit came into being from that time.
double-entry system was introduced centering Rome –link between Asia and Europe in consideration of
geographical advantages.
According to Kenneth Most, Luca Pacioli is considered the father of Accounting because his famous book
‘Method of Venice’ had been a model of a textbook for long two hundred years.
main principles and methods of double entry system in detail in his first book “Summa de Arithmetica
Geometria, Proportionate Proportionality”.
This book is divided into five chapters.
1. Arithmetic and Algebra,
2. The application of Arithmetic and Algebra in trade and commerce,
3. Accounting,
4. Money and Barter System, and
5. Theoretical and Applied Geometry.

2. Preanalytic stage (1495 – 1799)

3rd chapter of the famous book of Loca Pacioli i.e. accounting was reprinted in 1504 wherein he discussed and
explained the rules of determining debit and credit and preparation of journal, ledger and trial balance.
Accounting chapter is termed as – “Particulars de Computes at Scriphris” i.e. a comprehensive description
regarding accounts recording. This chapter is mainly divided into two parts;
 1st part regarding inventory and the
 2nd one regarding disposition.
Accounting mainly depends on economic and social development.

The changes and development that took place in the accounting method
Enrichment of dual aspect concept of double entry system
During this period all heads of accounts irrespective of person, institution and materials have been considered
as a personal account and the concept that the receiver of benefits is a debtor and the giver of benefit is a
creditor was established.
Introduction of going concern concept
With the expansion of trade and commerce the going concern concept in place of short-term concept was
introduced in many countries of the world and in the light of this concept revenue and capital nature of
accounts were identified.
Introduction of the periodic concept
business concerns will continue for an indefinite period. But the investor cannot wait for an indefinite period.
So the necessity of preparing periodic statements of accounts was felt. As a result, the concept of periodic
accounting was introduced.
Introduction of money measurement concept
Accounting becomes very much logical if money is considered media of measurement. The names of assets
and liabilities are not at all enough to express the financial position of a concern until and unless these are
expressed in terms of money. That is why the money measurement concept was introduced.
Publication of explanatory books on the accounting method
Some distinguished professors of European countries enriched accounting concepts to a great extent by
writing books after Luca Pacioli. Among them, Simon Stevin and Arthur Cayley-professors of Mathematics of
Cambridge University are famous for their book – “The Principles of Double Entry Book Keeping.”

Publication of Critical Articles

During this period some mentionable critical articles strengthened the base of Accounting. It is known from
Edward Peargallo’s writings that many thinkers of that time were interested in writing about the accounting
system that was used by business concerns.
The scope of Accounting expanded to* a great extent with the publication of critical articles and the research
work on it. This research work was considered the birthplace of accounting development.
3. Development i.e. analytic stage (1800-1950)
Development or Explanatory Period (1800 – 1950)
About one hundred and fifty years ranging from 1800 to 1950 is regarded as a Development or Explanatory
Period.
As a result of the industrial revolution and appearance of the Joint Stock company, The necessity of the
accounting analysis process was felt to find out the solutions to these problems and complexities.
These research and analysis processes have played a vital role to help Accounting to a further step of
advancement.
During this period many writers of different European countries formulated basic theories which made the
accounting system of the then period very much logical.

F. S. Hendriksen classified the events- of the period from 1800-1930 into seven categories which influenced
the establishment and development of accounting system-e.g.

1) Textbook publication on Accounting and development of newer methods of teaching accounting,

limitations and imperfections were removed and at the same time, the teaching methods of accounting were
improved.
2) Impact of the industrial revolution,
industrial revolution brought a farsighted change in the economic structure of the European countries. As a
result of the industrial revolution, factory production started in the place of a cottage industry.
concept of depreciation and cost-accounting came into force because the business concerns became long
term.
Father of Scientific Management F. W. Taylor emphasized efficiency increase in the field of production.
3) Influence of railroad invention and growth,
Most of the capital was collected from general people and it became necessary to inform the people of the
investment of this capital in fixed and current assets.
For this reason, the balance sheet was presented in two parts;
 Capital Account, and
 General Balance Sheet.
This new system of Accounting is called a double accounts system. This system is used in the large type of
social welfare organizations like Electricity, Gas, WASA, Railway,
4) Government regulation of business,
Due to the promulgation of government regulations regarding business concerns, sound accounting system
was introduced.
5) Taxation on business,
The tax imposition system started right after the imposition of government control systems over business
concerns. The tax assessment system influenced keeping accounts, charging depreciation on fixed assets and
inventory valuation.
6) Formation of the joint-stock company and large corporation, and
After promulgation of the British Company Act 1844, the joint-stock companies and large corporations
through mergers and amalgamation of business concerns came into being.
These business concerns were compelled to prepare annual statements to exhibit a true and fair financial
position to the public owners who invested a huge amount of capital.
Thereby the system of paying dividends was introduced.
7) Influence of economic theory.
In the nineteenth century, the influence of various economic theories reflected in Accounting. Economists
were interested in cost determination and allocation – problems.
Economic theories and writings of economists helped in forming a specific opinion regarding cost-
determination, assets valuation, and income determination, etc.
Besides Hendricksen’s above mentioned seven elements the following influencing events also played some
important role in the development of the accounting process;
 Environmental factors
In the first half of twentieth-century socio-economic conditions and legal aspects of various countries
influenced greatly the structure, nature of business concerns and development of accounting methods.
The concepts and principles of accounting were influenced to a great extent by these conditions.
 Formation of different professional institutes
Uniformity in accounting principles and public audit of accounts were felt necessary to verify financial
information of a company as the management and owners tense got separate entities in the limited company.
As a result, the accountants of different countries formed associations among themselves to maintain
uniformity and relevance in keeping accounts so that various reliable information could be provided to
directors, shareholders, loan givers, investors and so on and these associations were recognized by the
countries concerned as per law of the land.
In 1854 the Accountants Association of Edinburgh and Glasgow were recognized as Royal Charter. In 1867
Accountants Association of Aberdeen Eberdin attained the Royal charter. In 1880 registered associations of
Liverpool, London and Manchester formed together with a registered Association.
The Institute of Charted Accountants of England and Wales. In 1877 the American Association of Public
Accountants was formed.
Through gradual changes, the American Institute of Certified Public Accountants (AICPA) was formed in 1957.
In 1919 the Institute of Cost and Works Accountants of England and Wales was formed.
This institute played a vital role in writing and teaching cost accounting methods and making relations
between financial accounting and cost accounting. Within a few decades, many other accounting institutes
emerged.
Mainly remarkable progress in accounting principles was marked after 1930. The American Institute of
Certified Public Accountants published an accounting principle in 1936 and the American Accounting
Association (AAA) published a statement of another accounting principle of same nature in 1940.
A committee on accounting procedure being approved by AICPA was going on publishing research-books for
the development of accounting principles.
Though some types of keeping accounts and audits of accounts were found from the early ancient stage,
before the promulgation of Companies Act – 1913 no professional associations were in view.
These-professional institutes helped in the development of accounting thoughts and practices, e.g. to examine
and to verify following accounting concepts and principles and to carry out research application methods and
inform member countries of the world of this association the results of these research works.

4. Modem age (1951- onward)

Modern Period
The period of the gradual development of the accounting system after 1950 to date has been termed as a
modem period.
After the 2nd world war production system changed to a great extent due to the remarkable advancement
of science and technology. Immense advancement was made in industry and commerce and these influenced
the economic and social life tremendously. Traditional accounting systems could only supply information to
the owners and directors for taking decisions on day-to-day activities. Under the changed circumstances this
traditional system of accounting failed to meet the demands of various interested parties of the society.
Various classes of people of the society became interested parties of business organizations directly or
indirectly with the change of nature, size, and number of business concerns. For this reason, attempts were
made to update the accounting system criticizing the existing traditional system of accounting.
An attempt in bringing uniformity in the meaning of accounts
National and international professional organizations together introduced some accounting principles which
are known as Generally Accepted Accounting Principles (GAAP) to make the accounting principles equally
meaningful to processors and users of accounting information.
The financial statements of an organization are to be prepared following the accounting principles so that
this exhibit a true and fair picture of the organization.
In this regard cost concept, money measurement concept, going concern concept and periodic concept, etc.
are to be followed obviously by accounting principles.

Accounting Standards
Accounting Standards are formulated on the national and international levels.
The Financial Accounting Standard Board of U.S.A. and Accounting Standard Committee of the U.K. are the
authorities in formulating accounting standards of the respective countries.
These types of accounting standard committees or organizations are also functioning in other countries of the
world.
The International Accounting Standard Committee has been formed to coordinate activities between
different accounting standard organizations of different countries of the world. This committee has
formulated forty-one accounting standards so far and its efforts are in progress. For example, IAS is related to
the disclosure of accounting policies and ISA-II regarding valuation and presentation of inventories in the
context of historical cost system, etc.

The evolution of various branches of accounting

Because of economic, social and technological changes different branches of Accounting have emerged.

Mechanized Accounting and Auditing

A Mechanized Accounting system has been introduced as a result of technological advancement. The
computer has made it possible and easier in keeping and processing a huge number of accounting data in a
small CPU. It has reduced to a great extent the complexities and labor in keeping accounts. Mechanized
auditing is used following the nature of accounts as it is used in accounting.
Tax Accounting
The lion share of the money spent on the welfare of the people of the country by the government comes
through tax imposition. There are accounting systems for income tax, sales ta£, VAT, property tax, etc.
These systems of accounting are important for both taxpayers and receivers.
Inflation Accounting
The inflation that started after the 2nd World War has nowadays become intense.
Statements of accounts prepared based on historical cost do not exhibit the true and fair results and
financial position of a concern in the pretext of money inflation. Inflation accounting has been evolved to
remove this problem. Various accounting systems have been introduced in many countries across the globe
through research to face the situation caused by monetary inflation.
Of them the following are notable;
a) Current Cost Accounting
b) Current Purchasing Power Accounting.
c) Real Replacement Cost Accounting.
d) Current Perpetual Accounting.

Human resources accounting

Human resource is an important component like other components of production. Since it cannot be
measured in terms of money the true picture of an organization is not reflected in the statements of accounts.
In the present social context considering the importance of human resources, the accountants have taken
initiatives for maintaining accounts of human resources.
The American Accounting Association has formed a human resources accounting committee to find out
devices for application to make statements of accounts more reliable, acceptable and informative. This
committee has defined human resources accounting as; “Human Resources Accounting is the process of
identifying and measuring data about human resources and communicating, this information to interested
parties”.
Government Accounting
Collecting, measuring the information regarding activities concerned, revenue and expenditure of government
sectors and sending them to users making them usable are known as government accounting. The
government, government employees, and general masses are benefited by government accounting.
Social or National accounting
National accounting is as useful as government accounting. National accounting verifies the economic
structure and financial activities collectively.
In the present day world, national accounting plays an important role in the field of economic development
of the country as a whole.
Responsibility Accounting
Budgetary control and standard accounting can measure whether the employees of an organization are
discharging their responsibility properly or not; responsibility accounting has emerged to determine the
responsibilities of responsible persons.
In fine it is marked that tendencies have been developed among the professional accountants to form well
thought and planned accounting organizations.
It is natural that the accountants will be enthusiastic to develop new ideas and concepts and will keep pace
with new economic, scientific and social situations as accounting is nothing but a dynamic applied subject.