Topic 3
The history of accounting:Theoretical Perspectives
Learning Objectives
Appreciate the importance of studying
accounting history
Recognize some of the social forces which have
impacted on the development of accounting;
Discuss whether accounting could also be seen
to have an impact on society.
Appreciate how an awareness of accounting
history aids in understanding the development of
theories of accounting
Why Study History?
Understanding the pattern of past events
may help you understand future changes to
accounting.
Appreciate arguments that accounting has
developed to assist the changing needs of
society (which will continue to change as
time goes by….)
Appreciate arguments that accounting may
have had an impact on society.
Accounting History
Chronological & Social
Developments
Accounting Developments
• Time-scale Area Accounting function
• 5000 BCE Mesopotamia Record keeping – agriculture and trade.
• 3000 BCE Egypt Financial reporting of state revenues,
management of state treasury.
• 1000 BCE Middle East Taxation to support state functions
and China and military forces.
• 300 BCE Greece Public accountability for state officials,
extensive use of private and public
audits.
• 100 CE Rome Stewardship record keeping and
reporting for private and public estates.
• 1100 CE England Stewardship reporting and auditing.
Domesday Audit. Estate accounting.
Accounting Developments (continued)
Time-scale Area Accounting function
1300 CE Europe Financial investment focus with banking
and double entry bookkeeping developed.
1600 CE Europe Financial reporting for guilds, early
companies and international trading
ventures.
1900 CE Europe Cost and management accounting – growth
of USA industrialisation. Accountability
reporting and audit with widespread
private investment.
2000 CE Worldwide Decision-support role for global commerce;
international accounting standards;
computerisation and financial modeling;
tax planning. Supporting discharge of
corporate social responsibility.
Source: Hamilton, Black & Tozer, Accounting: a user/decision perspective, 2005
Accounting Developments –
Examples
• China: In the early years of the Chao
Dynasty (1122-256 BCE) officials were
assigned to maintain and audit records of
transactions and assets. Ten-day reports
were prepared and randomly selected for
audit. (Chatfield, 1974)
• Egypt: The Zenon documents (c.250
BCE) record in detail the financial
management of a large private estate.
(Hain, 1966)
Europe:
During the 15th and 16th centuries CE,
merchant banks were formed by wealthy
families (e.g. Medici and Fuggers) and
they required accounting records to be
maintained by their branches for
management and audit purposes.
(ten Have, 1976)
English East India Company (EIC):
Between 1600 and 1858, EIC operated with a virtual monopoly
on English trade with Asia. As well as its huge trading organisation,
EIC developed political and military powers exceeding those of any
other commercial organisation.
At its most basic, EIC was a great shipping concern that rented
its fleets and owned its cargos of pepper, textiles, coffee and tea.
Initially on a ’venture’ basis, EIC developed management and financial
reporting procedures to support the decisions of a multinational
commercial and political entity.
Information on supply and demand for import and export of
goods, availability of funds, contracting for manufacture, harvesting
and delivery of goods from China, South-East Asia as well as India,
required a process of decision-making communication and control.
Accounting records provided much of the data for this information
system.
(Hejeebu, 2000)
South Sea Bubble:
A joint-stock company was formed in 1710 to
exploit a monopoly on British trade with South
America in exchange for assuming the national
debt. Interest in the stock, fostered by illegal
commercial practices, saw the price of its £100
shares race to over £1000. Thousands of investors
were ruined when the ‘bubble’ burst.
A subsequent audit revealed complicity by directors
and slowed public investment in England for many
years. (Chatfield, 1974)
Early railway developments in UK
Passengers Track (Million Miles)
1825 first passenger line opened
1845 30 m 5,000
1860 150 m 10,000
By 1860 each mile of track cost £54,000.
Construction and running costs were recorded and
loaded onto freight and passenger charges.
Such developments provide early industrial examples
of industrial management accounting.
Summary of later influences
During the later part of the 20th century, the
practice of accounting has responded to many
changes, including:
increasing separation of management & ownership, especially
with the growth of complex groups of limited companies;
growth and sophistication of financial markets & instruments –
encouraging international investment and capital flows;
increasingly flexible processes, including ‘just-in-time’
manufacturing and inventory management systems and the
‘outsourcing’ of manufacturing to many countries;
rapid expansion of international trade & consequent growth in
foreign currency exposures;
growth of multinational companies – with major consequences
for reporting in harmony with the accounting practices of more
than one country; and
development of computerised information systems promoting
e-business.
Legal Changes (UK)
Pre 1844 Royal Charters & Special Acts
1844 Joint Stock Companies Act:
Presentation of balance sheet
Audit – full and fair view of state of affairs
1855 Companies Act – limited liability
1862 Consolidating Act – no audit
e 1900 Companies Act:
Balance sheet disclosures prescribed
Audit restored – independent auditor
1929 Companies Act + profit & loss account
Legal Changes UK (continued)
1948 Consolidating Act
“True & fair view” of state of affairs and profit or loss
Group accounts – consolidation
Foundation of major legislation in Australia and NZ
Subsequent national legislation – e.g.:
Australia – Corporations Act 1989; CLERP Legislation
NZ – Companies Act 1993; Financial Reporting Act 1993
Modern Structural Developments
1970 UK Institutes form Accounting
Standards Steering Committee – IASC
1973 UK – Accounting Standards
Committee
(later Accounting Standards Board, 1990)
1973 Formation of FASB in USA replacing
Accounting Principles Board (APB)
Formation of (IASC) – to develop IAS
• 2001 IASC restructured and formed IASB –
to develop IFRS.
Regulation in Australia
• 1946 ICAA 5 Recommendations on Acc.
Principles
• 1956 ASA (CPA) Recommendations
• 1966 AARF – joint professional body
• 1984 ASRB – statutory body (with AARF)
• 1991 AASB – statutory body with legislative
authority
• jointly with AARF on SAC, Guidance Releases,
Policy Statements
• 1999 FRC government body (under CLERP) –
oversees work of AASB.
• 2003 FRC announces adoption of IFRS from
2005
• 2005 Full adoption of IFRS
Search for Conceptual Base
Individual efforts
Paton (1922); Sprague (1923); Canning (1929); Anders,
Hatfield & Moore (1938); Paton & Littleton (1940); Moonitz
(1961); Sprouse & Moonitz (1962)
Institutional efforts
AAA (1936) Tentative Statement of Principles
APB (1959) Accounting Principles – binding
AAA (1966) Statement of Basic Accounting Theory
APB (1970) #4 Basic Concepts & Principles
Search for Conceptual Base (continued)
Trueblood Report (US) – Objectives
FASB (1974-85) – Conceptual Framework
(US)
ASSC (75) – Corporate Report
AARF (87-95) – Conceptual Framework (AU)
CICA (88-90) – Conceptual Framework (Can)
IASC (88-89) – Conceptual Framework (Int)
ASB (91-99) – Conceptual Framework (UK)
IASB (2003) – Conceptual Framework (IASB)
Accounting History
Theoretical Perspectives
b. Historical perspectives
Historical perspectives
Examples
Social perspective/Socially
Constructed – adapt to needs of
society
Recording social interactions – levies,
religion, trade
Estate stewardship
Banking
Trading ventures
Industialisation
Internationalisation / globalisation
Social responsibility accounting
Regulatory changes after corporate scandals
Historical perspectives (continued)
Socially Constructing perspective –
serving political ends/accounting has an
impact on society…
Sombart’s Thesis – Double entry bookkeeping
led to Capitalism.
DE Bookkeeping allowed for the accurate measurement of profit, and
therefore the more effective pursuit of profit motive.
Marxism – labour v capital emphasis (upper
class vs working class/ rich vs poor)
Environmental damage…
Management accounting – supports internal
hierarchies.
Historical perspectives (continued)
Professional (institutional) perspective –
serving interests of accountants
Formation of professional bodies
Development of theoretical foundations
Conventions, postulates, doctrines
Principles, concepts
Conceptual frameworks
Theoretical perspectives
Prestige, money, egoism, self regulation for
the purpose of preventing government
regulation.
Accounting History
Theoretical Perspectives
c. Approaches to Historical Research
“Old” History
Descriptive – antiquarian v historian
‘Neutral’ / ‘Factual’ – ??
Technical focus – process orientation
‘Natural’ evolution within tracing
causes
Limited ability to guide
developments, looking backwards…
Linked to socially constructed
perspective….
“New” History
Explanatory – rather than descriptive of
observed changes – “Why?” (often the answer
“to benefit certain groups, like the rich)
Opens alternative interpretations of causes,
e.g.:
Economic models
Social / cultural / gender influences
Political / power pressures
Opens alternative views on future roles of
• accounting – opportunities to challenge
‘institutionalised’ objectives & practices
• Linked more to the socially constructing perspective
of accounting history…
Accounting History and
Theory development
1800’s – 1950’s – Accounting Standards were
developed
Need for accounting to be codified
1950’s – 1960’s – Normative theories were
developed.
Perceived need for improvement to accounting practices
1970’s – today – Predominantly positive theories:
Accounting is fine now???
There are also now theories on International Accounting, Social and
Environmental Accounting and Critical Perspectives on Accounting.
Learning Objectives
Appreciate the importance of studying
accounting history
Recognize some of the social forces which have
impacted on the development of accounting;
Discuss whether accounting could also be seen
to have an impact on society.
Appreciate how an awareness of accounting
history aids in understanding the development of
theories of accounting
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