Accounting History
Congratulations are in order!Today marks the 125th anniversary of the founding of the American Institute of Certified Public Accountants on September 20, 1887. Although the CPA is a relatively young designation, the skills of a CPA are deeply rooted in history.
The following is a brief chronology of accounting throughout the ages:
3000 B.C.E. Ancient Sumerians invented the first written language, Cuneiform, to perform accounting recordkeeping, and enable trade to expand across the ancient world.
1200 B.C.E. The Book of Exodus (38:21) has the first auditor when Moses engaged Ithamar to perform an audit of the contributions for the building of the Tabernacle that will be used in their journey, which lasted 40 years. The Bible may also have recorded the first “management consultant” as Jethro, who advised Moses on how to delegate just before The Ten Commandments were given to the Israelites. Later in time: Daniel, of Bible fame, was thought to be an “accountant” for Nebuchadnezzar and Darius, and Michelangelo painted him with a book (perhaps a bookkeeping record) on the ceiling of the Sistine Chapel.
1000 B.C.E. The commercially oriented Phoenicians invented a 22-character phonetic alphabet, probably for bookkeeping purposes and to prevent themselves from being cheated by the more advanced Egyptians.
650 B.C.E. An Egyptian sarcophagus described the decedent as, among other things, a “comptroller of the scribes.” The rise of commerce and expansion of business activity has expanded the role of the accountant.
500 B.C.E. Egyptians invented the bead-and-wire abacus to ease counting.
423 B.C.E. Aristophanes refers to the incorrect accounts of Pericles in his play The Clouds. Ancient Egyptians and Babylonians instituted auditing systems where everything that went into and came out of storehouses was double-checked.
200 B.C.E. Egyptians inscribed the Rosetta Stone, a key to their language and civilization, which includes the account of a tax revolt and the reaction to it by the Egyptian ruler Ptolemy V. Taxation has become a fuel of Mediterranean civilization, creating the need for the recording of payments.
100 C.E. In Matthew and Luke, reference is made to accountability and auditing, a word which is derived from the Latin audire, to hear. The first audit reports were given orally and in public; thus, to hear.
800 C.E. The term “rationator” (accountant) is used in a deed.
1086 William the Conqueror promulgates the Doomsday Book, which contains records of what is due to the king and his lords in such detail that it defies refutation. William instituted feudalism in Britain after defeating the English King Harold, and the system required more record keeping.
1225 The chief magistrate of Milan renders full accounts of goods carried on ships. Early Italian republics have passed laws requiring that public scribes keep track of merchandise.
1374 Poet Geoffrey Chaucer worked as the comptroller of customs in the port of London. His Canterbury Tales includes a bragging merchant and a reeve whom “no auditor could ever win on.” By the close of the Middle Ages, commerce is so developed that credit transactions have become widespread, and record keeping needed to be more exact.
1492 Rodrigo Sanchez became the first accountant in the New World, being engaged by Queen Isabella to keep track of the “riches” Columbus was expected to encounter.
1494 Italian monk Luca de Pacioli officially introduces “double entry” bookkeeping in his Summa de Arithmetica, a compendium of mathematical knowledge. Pacioli based his work on procedures that had been used in Genoa, Florence, Milan and Venice since about 1350. Double entry bookkeeping made it easier to detect errors and provided a fuller picture of business activity—a balance sheet along with an income statement.
The DaVinci Code by Dan Brown fails to mention that the technique of Leonardo’s Last Supper was inspired by Luca Pacioli who taught his artist friend the art of perspective which was actually a mathematical concept in the last decade of the 15th Century.
1553 James Peele writes what is probably the first original English text on bookkeeping.
1581 The Collegio dei Raxonati becomes the world’s first society of accountants. By 1669, no one was permitted to practice accounting in Venice without being a member of the college.
1600 The East India Company is founded and introduced invested capital and dividend distributions, creating a great need for accountability to investors.
1651 Johnannes Dyckman is engaged as bookkeeper for New Amsterdam under Gov. Peter Stuyvesant. Dyckman was replaced one year later because of improperly rendered accounts. The accounting business has already started to grow in America.
1775 to 1783 The American Revolution indirectly caused growth of accountancy in Britain as creditors appointed accountants as trustees during an explosion of bankruptcies. In 1793, more than 20 banking firms in England and Scotland failed, and accountants stepped in to settle their affairs.
1789 The U.S. government creates the Treasury Department, including a comptroller and auditor with Oliver Wolcott II, the first auditor. Benjamin Franklin urges businesspeople to have training and facility in “accompts.” Franklin earned money as a young man keeping books of account, and used those skills later to create the postal service, and oversee his profit participation in two dozen printing partnerships he started throughout the Colonies. Thomas Jefferson’s two bookkeeping texts are among the first books in the Library of Congress.
1841 to 1850 Expanding railroad empires employed accountants as auditors independent of management.
1850 There were 264 “accomptants” listed in London’s directory of professionals. In 1799, there were only 11; in 1840, there were 107.
1854 Scotland formally recognizes the profession under the designation of “chartered accountants.”
1880 England formally recognizes the chartered accountant.
1887 The first accounting organization in the United States is established. The American Institute of Accountants was the forerunner of the AICPA.
1896 New York State officially recognizes the profession and issues the first certified public accountant license.
1895 to 1905 The New York, Ontario and Western Railway Company became the first railroad in the United States to issue audited financial statements. United States Steel is the first major industrial corporation to issue an audited report. Equitable Life Assurance Society became the first insurance company to have an independent audit. The floodgates were opened for certified public accountants. Meanwhile, major universities like New York University, University of Chicago and Dartmouth established accounting courses, though business colleges have been organized to teach bookkeeping and accounting skills since the mid-19th century.
1913 The enactment of the income tax laws established accountants as the premier profession in this arena. At the same time, CPA management expertise catapulted the profession to be top consultants in boardrooms and on factory floors.
1931 The Ultramares case established the principle that auditors have liability to third parties relying on the auditor’s report. The AICPA eliminates the word “certify” from the report and replaced it with “examined” to emphasize the report was an opinion, not a guarantee.
1933 The Academy of Motion Picture Arts and Sciences chose Price Waterhouse to oversee the voting for the Oscar awards in 1933, in response to the widely held belief that the awards were rigged. The Academy publicized the engagement to create public confidence in the Oscar.
Also in 1933, the Securities Act created new roles, responsibilities and additional services for accountants.
1938 A business recorded fictitious receivables and nonexistent inventory in warehouses, leading to an auditing standard requiring the observance of physical inventory and the direct confirmation of accounts receivable. It also led to the consistency requirement and tests of the internal control.
1941 The Securities and Exchange Commission requires the auditor’s report to state that the examination was made in accordance with generally accepted accounting standards.
1968 A case established that the auditor must disclose improper activities of the client or the client’s officers when such activities are known to the auditor and may reasonably affect the audited financial statements; and that compliance with GAAP is not a conclusive defense against criminal liability.
1973 Public awareness of generally accepted accounting standards led to the formation of the independent Financial Accounting Standards Board.
2002 Enron, WorldCom and a slew of financial reporting scandals led to the demise of Arthur Andersen and the creation of the Sarbanes-Oxley Act and the Public Company Accounting Oversight Board.
2008 The financial markets meltdown in late 2008 and early 2009 with many banks rendered insolvent had CPAs in the middle of the crises with the Fair Value GAAP rules requiring banks to write down their loan assets to what might be their realizable value.
2012 American accounting rules are being isolated in view of the Global onslaught adopting uniform International Financial Reporting Standards (IFRS). The market is still out on this.
Portions of the above appeared in The Trusted Professional © 2003 NYSSCPA
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