Development history of Accounting nowadays. 2 nd Bachelor student IFF 2 -4 Dimitry Dubrovin Moscow 09/09/12
Accountancy is the process of communicating financial information about a business entity to users such as shareholders and managers. The communication is generally in the form of financial statements that show in money terms the economic resources under the control of management; the art lies in selecting the information that is relevant to the user and is reliable. The principles of accountancy are applied to business entities in three divisions of practical art, named accounting, bookkeeping, and auditing. The American Institute of Certified Public Accountants(AICPA) defines accountancy as "the art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of financial character, and interpreting the results thereof. " Accounting is thousands of years old; the earliest accounting records, which date back more than 7, 000 years, were found in Mesopotamia (Assyrians). The people of that time relied on primitive accounting methods to record the growth of crops and herds. Accounting evolved, improving over the years and advancing as business advanced.
Today, accounting is called "the language of business" because it is the vehicle for reporting financial information about a business entity to many different groups of people. Accounting that concentrates on reporting to people inside the business entity is called mangement accounting and is used to provide information to employees, managers, owner-managers and auditors. Management accounting is concerned primarily with providing a basis for making management or operating decisions. Accounting that provides information to people outside the business entity is called financial accounting and provides information to present and potential shareholders, creditors such as banks or vendors, financial analysts, economists, and government agencies. Because these users have different needs, the presentation of financial accounts is very structured and subject to many more rules than management accounting. The body of rules that governs financial accounting in a given jurisdiction is called Generally Accepted Accounting Principles, or GAAP. Other rules include International Financial Reporting Standarts, or IFRS, or US GAAP.
Theory The basic accounting equation is assets = liabilities + equity. This is the balance sheet. The foundation for the balance sheet begins with the income statement, which is revenues - expenses = net income or net loss. This is followed by the retained earnings statement, which is beginning retained earnings + net income + additional capital(capital contribution) - dividends/drawings = ending retained earnings.
Accounting in the internet era In the IETF RFCs the act of accounting is usually defined as the act of collecting information on resource usage for the purpose of trend analysis, auditing, billing, or cost allocation. For example when a user uses a connectivity service paid with a pay-per-view approach the accounting process is based on a metering of the resource usage by the user (usually time spent with an active connection or the amount of data transferred using that connection). The accounting is hence the recording of this connectivity service consumption for subsequent charging of the service itself.
Accounting scandals The year 2001 witnessed a series of financial information frauds involving Enron Corporation, auditing firm Arthur Andersen, the telecommunications company World. Com, Qwest and Sunbeam, among other well-known corporations. These problems highlighted the need to review the effectiveness of accounting standarts, auditing regulations and corporate governance principles. In some cases, management manipulated the figures shown in financial reports to indicate a better economic performance. In others, tax and regulatory incentives encouraged over-leveraging of companies and decisions to bear extraordinary and unjustified risk. The Enron scandal deeply influenced the development of new regulations to improve the reliability of financial reporting, and increased public awareness about the importance of having accounting standards that show the financial reality of companies and the objectivity and independence of auditing firms. In addition to being the largest bankruptcy reorganization in American history, the Enron scandal undoubtedly is the biggest audit failure. involved a financial scandal of Enron Corporation and their auditors Arthur Andersen, which was revealed in late 2001. The scandal caused the dissolution of Arthur Andersen, which at the time was one of the five largest accounting firms in the world. After a series of revelations involving irregular accounting procedures conducted throughout the 1990 s, Enron filed for Chapter 11 bankruptcy protection in December 2001. One consequence of these events was the passage of Sarbanes-Oxley Act in 2002, as a result of the first admissions of fraudulent behavior made by Enron. The act significantly raises criminal penalties for securities fraud, for destroying, altering or fabricating records in federal investigations or any scheme or attempt to defraud shareholders. Another example of corporate fraud was the case of Australian telecommunications company One-tel. The financial manager, Jodee Rich was subsequently charged with fraud and spent several years in jail after fraudulently stating the companies financial position, to encourage investment by some of Australia's richest people including James Packer and Lachlan Murdoch. When it collapsed in 2001, Onetel lost its shareholders in excess of 920 million dollars.
Up to present The convergence of global capital markets and the emergence of global and regional quality control issues – culminating for the accounting profession in the Asian financial crisis in 1997/1998 as well the Enron Collapse in 2001 - led to a subsequent high-level focus on international and national accounting. The accounting literature has demonstrated a considerable increase in concern for the issues of sustainable development and accounting. Via the exploration of what sustainability accounting may entail, the accounting profession is likely to be involved in re-examining accounting fundamentals in the light of the challenge of sustainable development. Several proposals and significant statistical work as well as a growing body of measurement on accounting for sustainable development is being carried out in many international and national settings. Even supra-national policy bodies like the United Nations and the OECD have sponsored work addressing accounting for sustainability. Up till now environmental accounting is the most evolved form of sustainability accounting and increasingly processed in the academic circle beginning with the work of Robert Hugh Gray in the early 1990 s, and through the release of the Sustainability Accounting Guidelines at the World Summit on Sustainable in 2002. Due to the use of different frameworks and methods much uncertainty remains how this agenda will develop in the future. Certain is that the past economic development and the current human (and hence business) activities are not sustainable and has led to questioning the current mode of development. Recent years have seen an increasing acceptance and even enthusiasm for these new reporting approaches. Also energetic and innovative experimentation by far-sighted organisations have demonstrated that sustainability aspects in accounting and reporting are crucially important, feasible and practicable as well. In this respect, the International Federation of Accountants(IFAC), which objective is to develop the accounting profession and harmonise its standards, include nowadays 167 members bodies in over 127 countries and represents approximately over two million accountants worldwide.
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