Origins

Though rudimentary accounting practices were in place for centuries, it wasn’t until 1494 that an author codified and explained a system of formal accounting. In that year, Luca Pacioli, a Franciscan friar, wrote the first manifesto for formal accounting, Summa de Arithmetica, Geometria, Proportioni et Proportionalita. Known as the father of accounting, Pacioli describes double-entry accounting, in which a credit in one person’s account must be reflected by a debit in another person’s account, and explained the interconnected system for capital, income, liability and expenses. He also discussed in this book the ethics of accounting.

19th Century

In the late 19th century, the American Institute of Certified Public Accountants was formed and began providing a formal certification process for accountants. The Ottoman Empire made a drastic shift toward formal accounting, when Sultan Abdlhamid II permitted the Ministry of Finance to introduce modern methods in 1880.

Modern Era (1900-2000s)

After the stock exchange crash in 1929, Congress began actively regulating the industry. The accounting industry responded by releasing a set of ethical guidelines, the Generally Accepted Accounting Principles (GAAP) book. The 1970s saw another wave of reforms, as the Financial Accounting Standards Board was created by the federal government. In October 2001, the Enron scandal virtually brought down Arthur Andersen LLP, a prestigious accounting firm that had a reputation for unimpeachable ethical behavior for over a century. As a result, Congress passed the Sarbanes-Oxley Act of 2002, which raises the penalties for accounting fraud.

Evolution

References

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