A Guide to the History of the Accounting Industry
Estimated Reading Time: 5 minutes
While accounting lectures and classes in college teach you numerous accounting skills and fundamentals—like cash basis accounting—to get you on your way to becoming a professional accountant, you’ve likely never covered the history of accounting in these courses.
It’s always important to understand how your industry came to be, especially because it can put your work and role into perspective and give you an appreciation for the industry and what you do. The saying goes, everyone needs an accountant. But without awareness of how the accounting profession developed into the behemoth that it is today, we can’t truly value the worth of accountants.
So, without further ado, let’s step through the time portal to shed light on the mystery of the history of the accounting industry.
Ancient origins
Mesopotamia and Egypt
From 8000-2000 B.C., the cradle of civilization thrived between the Tigris and Euphrates rivers, which is where we start our accounting journey. Mesopotamia is where the seeds of modern society were spread, including cities, writing, the wheel, and the plow. Accounting takes shape in Mesopotamia through the agricultural elements of society. Agriculture was a major source of growth and business in Ancient Mesopotamia, and those in charge of agriculture needed a system to track their growth and their crops. So, these Mesopotamians made a system of accounting—inscribing records of transactions and financial information into clay tablets—so they’d recognize when crops were in surplus or shortage after harvests each season (Investopedia).
Similarly, in Ancient Egypt, bookkeepers kept comprehensive records of their crops and goods on Abacus paper or papyrus paper in order to have accurate information to exchange and barter for other items and provide for their ever-growing population. Their record system also kept track of the construction of monuments, labor control, and public work projects to maintain an organized society as they continued to expand. However, where their system differs from modern accounting systems is how Egypt dealt with mistakes. Any irregularities found by auditors resulted in a fine, mutilation, or death (Investopedia).
Roman Empire
The Roman Empire—from its founding in 625 BC to its fall in 476 AD— saw an even more detailed record of financial information in the information published in “The Deeds of Divine Augustus.” Named after Emperor Augustus, this document highlights specific details of transactions between individuals, the constructions of buildings (temples), cash and traded goods, taxes, religious offerings, gladiatorial and entertainment spendings. This kind of concentrated attention to detail in financial transactions points to the heightened focus on detail in modern accounting today. Additionally, the accounting information seemingly available to the emperor suggests he likely used the information to plan and make decisions, very similar to the role of accountants today!
Italian discoveries
For a more concrete development in the history of accounting, we travel to Italy during the Italian Renaissance. In 1494, Luca Pacioli—an Italian mathematician—was the first person to describe the system of double-entry bookkeeping in published material. In his influential book “Summa,” he provides a summary of most of the mathematics known and used at the time—including geometry, trigonometry, and algebra.
Within these different mathematics, Pacioli details the system of credits and debits in journals and ledgers—balances sheets—that is foundational to modern accounting systems used today. Historical reports say that Pacioli studied the procedures of Venetian merchants during the Italian Renaissance, and his documentation includes year-end closing dates, double entry accounting system, cost accounting, journals and ledgers, and even accounting ethics. While unoriginal, the ideas and concepts presented in “Summa” were extremely influential over time and collectively, as seen in the accounting field.
The rise of modern accounting
Scotland
Accountants were known as solicitors who offered accounting services as well as legal services. However, in the mid-19th century, the Institute of Accountants in Glasgow, Scotland, petitioned Queen Victoria for a Royal Charter to be able to distinguish the accounting profession from solicitors, and by 1854, members of the Institute were able to label themselves as chartered accountants (Investopedia). For this season, Scotland is considered the birthplace of the modern accounting profession.
Notably, the petition specified the skills necessary to be a professional accountant—including math skills and understanding of general legal principles—skills still important for accountants today. Though an appreciation for math and legality aren’t solely what accounting requires, understanding basic mathematical concepts and accounting laws and legal terms still lie in the basis of accounting today.
Industrial Revolution
As you likely recall from history lessons back in school, Britain—specifically London—was a key growth and financial center during the industrial revolution. The industrial revolution amped up large-scale manufacturing, technological innovations, and high demand, so there was an immediate need for proficient and capable accountants who could keep up with the rapidly advancing and globalizing world and its aggregation of capital and new forms of labor (G2).
As a result, accountants became more integral, important, and refined in their practices, which started the progression of transforming accounting into the more modern profession we recognize today:
In 1887, accounting moved over to the United States, and the first accounting organization was established in New York. Soon after, Certified Public Accountant became a professional license and profession in 1896.
To expand the industry even more, in 1904, Britain saw the formation of the London Association of Accountants, which expanded the profession to reach a broader audience.
With a broader audience looking at the accounting industry globally, by the 1950s, CPAs shifted to provide more management and advisory services in addition to their auditing, accounting, and taxing services.
Modern accounting
However, just because the accounting profession and industry have rapidly grown and developed over the centuries, that does not mean the field is without faults or hasn’t faced bumps in the road. Especially in the 21st century, accountancy has faced numerous large-scale scandals—including the 2001 Enron Scandal, the 2002 WorldCom Scandal, and the Bernie Madoff Scandal of 2008.
These scandals forever modified the accounting industry, especially the Enron scandal, and resulted in a shift in accountability for accountants. For example, the Sarbanes-Oxley Act mandated massive auditing and financial regulations—financial record keeping and reporting—for public companies to protect the public, employees, shareholders, and others from fraud and prevent accounting scandals.
Though these scandals have shed a negative light on the accounting industry, accounting has still grown positively due to the development of accounting software and software integrations—such as Uncat—which have eliminated the need for manual bookkeeping by hand and automated many basic tasks to save accountants time, energy, and money to prioritize advising your clients, analyzing reports, or other tasks.
Additionally, accounting has surged into popularity, especially in light of all of the accounting scandals, because people realize how important finances and financial management are. Every business, company, corporation, government, and even individual must use basic accounting principles in their life, which illustrates how integral accounting is in our everyday lives and how far it has come from its humble beginnings in Mesopotamia. Whether a small, local business or a large corporation—especially with the advent of online shopping and businesses that allow anyone to start a business—people increasingly turn to accounting in the 21st century.
Conclusion
Accounting has always been at the heart of history and the biggest developments—from cities in Mesopotamia to new technological innovations in the Industrial Revolution. But, one might read this post and come to the conclusion that accounting has been important in the past but not as much today. However, this is entirely false.
While you can’t discredit the central role accounting played in the development of civilization and our global history, accounting could be considered even more relevant today because it’s necessary for and a part of nearly anything you do, any transaction or decision you make. Accounting will continue to be a key profession and industry in the future, driving anything from small, daily tasks to the success of the largest companies around the world, and it will only continue to grow with new technologies to improve the efficiency and quality of accounting practices.
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