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The Advent of Accounting in Business Governance: From Ancient Scribes to Modern
Practitioners
Jenifer Axtell
Murray State University
L. Murphy Smith*
Texas A&M University-Corpus Christi
Wayne Tervo
Murray State University
*Corresponding Author
WORKING PAPER
Author biographical sketches: Jenifer Axtell is an honors program accounting graduate of
Murray State University. Dr. L. Murphy Smith, CPA is a Professor of Accounting Texas A&M
University-Corpus Christi. His academic record includes numerous research articles, books and
monographs, academic conference presentations, research grants, and awards for teaching and
research. He ranks in the top one percent of authors on Social Sciences Research Network
(SSRN.com) by downloaded articles (over 52,000). His work is highly referenced, with over
2,000 citations to his work shown on Google Scholar. His work has been reported in various
news media, including National Public Radio, Fortune, USA Today, and The Wall Street Journal.
Dr. Wayne Tervo is an Associate Professor of Accounting at Murray State University. He has
published articles in leading accounting journals and received awards for teaching and research.
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The Advent of Accounting in Business Governance: From Ancient Scribes to Modern
Practitioners
Abstract
General social theory provides a framework within which accounting and its role in
advancing business and society can be examined, including historical development and
functions. This study examines the advent of accounting in business governance, from ancient
origins to present day, from the scribes of ancient Mesopotamia to the internal control concepts
described by the Apostle Paul in the Bible, from Friar Luca Pacioli’s landmark book published in
Renaissance Italy to the work of modern-day accountants employing the latest technology, to the
expanding role of women in the profession. Throughout history, while standards and
technologies have changed, a fundamental purpose of accounting in business governance
remains constant: to provide a test of stewardship or accountability for those trusted with
financial resources. Findings of this paper will be of interest to business stakeholders and
academic researchers, who will be able more clearly to see the role that accounting played in the
progress and development of business over millennia.
Keywords: Business governance, accounting history, accounting standards, ancient
Mesopotamia, Roman Empire.
JEL classifications: B10, B12, B25, M14, M41.
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The Advent of Accounting in Business Governance: From Ancient Scribes to Modern
Practitioners
Introduction
The modern global economic system interlinks companies that provide goods and
services to billions around the world. Accounting and financial reporting are key elements in the
efficient functioning of individual business firms and of the overall global economy. In the
United States, for example, publicly traded companies are required to file audited financial
reports with the Securities and Exchange Commission (SEC). These reports can be quite
complex, difficult to prepare, and depend on skills and technical competence of accountants who
prepare them. Surprising to most people is that the buying and selling of corporate stocks has
been a part of the U.S. economic system from the country’s earliest days. The New York Stock
Exchange began in 1792, just 16 years after the Declaration of Independence.
Business governance is essential for business excellence. Modern-day accountants,
internal auditors and external auditors play critical roles in the governance function, particularly
in measuring and benchmarking business performance. Accountants are well aware of how
accounting standards are developed by rule-setting bodies such as the Financial Accounting
Standards Board (FASB) and the International Accounting Standards Board (IASB). However,
for many business persons, including accountants, there is scant knowledge of how accounting
developed over the centuries. The accounting field has a rich history with ancient roots and
diverse civilizations. This paper offers a theoretical perspective regarding the formation of the
accounting profession and how it developed from various cultures, including ancient
Mesopotamia, the Roman Empire, Medieval Britain, Renaissance Italy, and Modern Britain.
The accounting field can be understood within the context of general social theory.
Profession formation theory is a type of general social theory that identifies classes of persons as
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members of a profession, based on practices within that profession, and how that profession is
perceived within the overall society. Lemke (2015) observes that a general social theory “usually
identifies the categories of persons [such as accounting professionals] constructed by the
practices of a community, and specifies the relations among these categories in terms of power,
prestige, and specialized function within the community.” Social theory attempts to describe how
such categories were developed historically, how they are maintained, and how they function,
while in a continual state of flux.
Trede et al. (2011) provide a systematic review of prior research concerning the
development of professional identities. Professional formation of accountants includes formal
and informal processes and value systems through which individuals become accountants. In
general, a profession is formed on the basis of (1) a generally accepted body of knowledge, (2) a
widely recognized standard of attainment, and (3) an enforceable code of ethics (cf., Smith &
Bain, 1990; Smith and Thompson, 1985). Table 1 depicts the processes in the formation of the
accounting profession within the context of general social theory and its subset, profession
formation theory.
[Insert Table 1 here]
The advent of the accounting profession can be traced back to the temple scribes of
ancient Mesopotamia, who provided a stewardship function over temple income. Later,
accounting was greatly influenced by the establishment of standards that established how
business transactions would be recorded and reported. As accounting standards developed over
the centuries, standards were affected by increasingly complex business operations, changes in
laws, and advances in technology. The history of accounting is just as important to study as other
facets of the subject. A proper understanding of history can help put modern-day accounting
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practice and its role in business governance into perspective. Table 2 provides a timeline of key
events in the history of accounting and financial reporting.
[Insert Table 2 here]
In the six thousand years between the ancient Mesopotamian scribe and the tech-savvy
accounting practitioners of the 21st century, accounting advanced in a continual fashion. The
simple rules followed by the ancient scribes have become the complex, myriad of accounting
standards of the modern world. Yet, by studying the history of accounting, one can see how little
the fundamental role of accounting has changed. From the earliest times, when accounting was
mostly simple bookkeeping, there was a stewardship role; accounting reports facilitated keeping
individuals accountable for how they managed financial resources belonging to others.
A considerable amount of modern-day accounting research examines the history of
accounting. Gomes, Carnegie, Napier, Parker, and West (2011), expand on discussion from a
panel session that took place at the sixth Accounting History International Conference. The
question asked was whether accounting history matters. The authors make a strong case that the
answer is unequivocally affirmative. In their paper, a number of ideas are offered for advancing
the value and significance of research in accounting history, including the necessity of redressing
ongoing misunderstandings regarding the discipline. Also examined is how accounting historians
can act as change agents.
Fleischman, Mills, and Tyson (1996) point out that research in accounting history is
increasing as prominent journals worldwide call for authors to integrate history in their studies.
Fleischman, Mills, and Tyson indicate that some accounting researchers may be not inclined to
do so because they do not understand the basics of historical scholarship. In their paper, the
formal theoretical structures of history as a discipline are presented. The authors also
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differentiate between social science and history, and summarize the debate between conventional
and critical accounting historians. They also present possible topics to be researched.
Among the most prolific researchers is British scholar B.S. (Basil Selig) Yamey. Among
Yamey’s works are a description of the British contribution to accounting history (Parker and
Yamey, 1994), a bibliography of bookkeeping and accounts from 1494 to 1650 (Thomson and
Yamey, 1958), a study financial accounting in England 1500-1900 (Yamey, 1962), record
keeping practices across ten millennia (Edwards and Yamey, 1994), and even a book that
discusses art in which accounting books are shown (Yamey, 1989).
Other accounting history research includes work by Hammond and Sikka (1996), who
describe how idealized scientific methods are often used in accounting history research, which
neglect the effect of accounting on the lives of everyday people. The authors recommend use of
oral histories in research, whereby the people who are often marginalized and overlooked by
conventional research can be better understood. A study by Bricker (1988) analyzes how
knowledge is preserved in accounting research by reviewing a sample of 428 published
accounting articles along with their citations, which approach 11,000. The analysis shows that
researchers mostly cite very recent research and largely neglect older research.
Citation analysis was used by Bickman (2011) to examine components of the history of
academic publications on accounting’s past. Her analysis was based on citations found in 546
articles, which were published in the three English-language accounting history journals during
the period 1996 to 2008. The study helps clarify understandings of this body of research, via
investigation of the importance and comparative aspects of this journal network and its research
scholars.
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Accounting history research is global, encompassing East and West. For example,
research by Lu and Aiken (2003) examines Chinese accounting and auditing through millennia.
Historical records indicate that the Ancient Chinese were numerically literate about 4000 BC.
The ancient period of Chinese accounting reached a zenith during the Western Zhou Dynasty of
1100 to 771 BC but then progress slowed in the following centuries when the feudal society
prevailed. Later advances include the intricate government accounting system of the Song
Dynasty (AD 960 to 1279), which was a significant attainment in Chinese accounting and
notable contribution to the world at large.
Accounting in Ancient Mesopotamia
The passage of time can be marked by how accounting records were kept and by whom.
The first event on the timeline (Table 2) concerns ancient Mesopotamia. Starting there 6,000
years ago, clay tablets were used by temple scribes to keep financial records. Accounting in
ancient Mesopotamia has been investigated by various researchers, such as Macve (2015),
Pollock (1999), Garbutt (1984), and Keister (1963, 1965). Macve (2015) examines current fair
value accounting theory, using insights gleaned from the history of accounting, including ancient
Mesopotamian accounting. Pollock (1999) offers a thorough analysis of the precursors of
embryonic state and urban cultures in lowland Mesopotamia during the period 5000 to 2100 BC.
Garbutt (1984) examines evidence on the Dreham archive, the financial institution function of
temples, and aspects of banking, interest, and loans. Keister (1963) presents a summary of
categories of records maintained by ancient Mesopotamians. He laments that “students of
accounting history have been somewhat engrossed with post-Paciolian developments and have
almost completely neglected this period of accounting history” (Keister, 1963, p. 371).
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Keister (1965) examines the importance of the scribe as the ancestor of the modern
accountant. The location of Mesopotamia, between the Tigris and Euphrates Rivers, made it the
perfect location for agricultural development. Following on agricultural successes, other
industries developed such as weaving and carpentry. As cities and businesses expanded, the need
arose for some type of bookkeeping system. The scribe stepped in to fill this role. They were the
accountants of the time and they kept records in cuneiform script on clay tablets. Some of these
archives were so well preserved that they have been discovered whole today.
Scribes served an important role in the Mesopotamian society. They were often the only
people in the community able to read, write, and understand the law. While scribes are often
associated with religious duties, such as keeping track of temple income, they were also called
upon to settle contracts and business accounts, and to write messages for illiterate people.
Numerous scribes were employed by private businesses to carry out these activities. The demand
for their services grew along with the rise of the Sumerian, Akkadian, Babylonian, and Assyrian
societies (Keister, 1965).
Keister (1965) indicates that the education of the scribe was very similar to modern-day
business programs. Prospective scribes learned reading, writing, mathematics, laws, and ethical
principles. After schooling, the prospect entered into a kind of internship within an office. There,
the scribe would spend months transcribing official documents, slowly learning their meanings
and importance. Whenever he was deemed to have a strong understanding of his role and
responsibilities in business, the scribe would leave the office and find employment among the
many temples, palaces, and business firms that had need for them.
While the ancient scribes were the accountants of their day, Carmona and Ezzamel
(2006) point out that there has been very little research on the relationship between accounting
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and religion or religious institutions. These researchers are perplexed by the lack of academic
study on this long-term connection, especially so, given the importance of religious institutions
in the majority of historical and modern-day societies, from both a spiritual and economic
standpoint. In their review of prior research, research with a historical emphasis is examined
first, followed by an examination of research on accounting and modern-day religious
institutions. They conclude that research in this area is at a very early stage and list a number of
research areas that could be investigated by current researchers.
Accounting in the Roman Empire
After Mesopotamia, the second event on the timeline of accounting history occurs in
Ancient Rome. Research by Oldroyd (1995) presents the Roman government’s system of
accounting, specifically during the rule of Augustus, the first emperor. He describes the
usefulness of the keeping of accounts to ensure and protect the interests of citizens and
government officials. Additional information is provided by Brown (1968) regarding
sophisticated accounting principles and systems that were in existence during the Roman Empire
of the first-century A.D. A study by de Ste. Croix (1956) provides additional details regarding
the accounting practices used in that time period.
In the Roman Empire, the designation of “citizen” was important as it allowed holders
many exclusive rights. These included the right to vote, to hold office, to marry, and to enter into
contracts, among others. Citizens were considered much more prestigious than outsiders and the
title was much sought after as the Empire continued to grow. The high value of citizenship is
recorded in a first-century biblical account (Acts 22:25), in which the Apostle Paul appealed to
his Roman citizenship to avoid harsh treatment by a Roman Centurion: “Is it legal for you to flog
a Roman citizen who hasn't even been found guilty?" (Holy Bible, 1996, p. 943). As a result, the
8
Centurion did not flog Paul. Other aspects of Roman citizenship are described in studies by
Adams (2008) and Goodfellow (1935).
To an extent, Roman citizenship rights were dependent on the value of personal property
a citizen declared for taxation purposes. This provided a strong incentive for them to properly
keep their accounts (Oldroyd, 1995). The patriarch of the family kept an adversaria (common
book) of all the household’s income and expenses. Every month, he would post the collected
entries into a larger register called the codex accepti et depensi (Brown, 1968). This created a
tradition of recordkeeping that continued for centuries, even by the ruling class.
Brown (1968) indicates that the initial Roman constitution dictated very few sources of
governmental revenue. Sources were restricted to limited taxes, dues, fines, confiscations, and
wartime gains. As the Republic’s lands increased through long wars, there was a need for more
trained and better paid soldiers. This led to government expenditures increasing faster than
revenues. Leaders were forced to partially, or completely, support the state from their personal
resources.
When Caesar Augustus consolidated his power, he took control of the monetary system,
but only governed it loosely, choosing instead to respond to recommendations of his counselors.
He employed a personal staff of financial advisors to aid him in organizing the system. His
personal a rationibus, or financial secretary, Pallas was given a position of high status in the
government. The codex accepti et depensi and the adversaria made bookkeeping in Rome
similar to modern accounting (Mendlowitz, 2016). Roman bookkeeping facilitated stewardship
of financial resources. During the forty years that Augustus ruled, Rome and its people prospered
in the Pax Romana, or the Roman Peace (Petit, 1967, p. 268). This was a time of fewer military
expansions and related costs (Rich, 1993).
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The Roman Empire spread as far west as Spain, south to Egypt, north to Germany, and
east to Syria. The borders contained large swaths of empty land between major cities. The varied
peoples of the Empire paid taxes that were reported to the Aerarium, the national treasury at
Rome. Due to the large distances and amounts involved, tax officials were required to keep
highly detailed accounts of expenditures and receipts from the publicans, or tax collectors
(Cavanaugh, 2004; Oldroyd, 1995).
Taxes were necessary for Rome as they were for all ancient governments, to pay for the
necessaries of an orderly society, such as for roads to facilitate travel and commerce, for civil
servants to administer judicial matters, and for military defense to protect the nation’s
sovereignty. Over time, many subjugated countries were absorbed into the Roman Empire. One
such subjugated country was ancient Israel, which was part of the Roman Province of Judea.
Judea was governed by a prefect, the most famous being Pontius Pilate, who governed from 26
to 36 AD (Britannica, 2015). In a confrontation with his opponents, Jesus of Nazareth was asked
whether Jewish citizens should pay taxes to the Roman authorities (Mark 12: 13-17). He called
for a Roman denarius, a small silver coin, which is shown in Table 3, to use as an object lesson.
He indicated that a citizen had a moral responsibility to pay taxes:
“…Bring me a denarius and let me look at it.” And they brought one. And he said
to them, “Whose likeness and inscription is this?” They said to him, “Caesar’s.” Jesus
said to them, “Render to Caesar the things that are Caesar’s, and to God the things that
are God’s” (Holy Bible, 1996, p. 856).
[Insert Table 3 here]
The quote above, regarding taxation, is an example of a biblical passage that was a major
influence on Western thought. In that simple object lesson, Jesus makes a point, that continues to
influence citizens regarding their tax compliance (Potter, 2014). In a US-based study titled,
“Religiosity and Tax Avoidance,” Boone, Khurana, and Raman (2012) conclude that firms based
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in more religious U.S. counties are associated with a lower probability of avoiding taxes. In
addition, religiosity is consistently connected to lower tax avoidance by individual taxpayers. A
Google search for the phrase, “Render to Caesar the things that are Caesar’s,” yields 289,000
website listings (12 December 2016). While there has been some debate over the consistency of
transcriptions of biblical passages over the centuries, no one questions that the Bible, such as this
passage about taxation, has greatly affected modern culture, particularly among Western nations.
As far as reliability of the Bible as representative of the time period in which it was
written, modern archeological research has extensively confirmed authenticity (Price, 1996;
Price, 1997; Bruce, 2003; Smith and Smith, 2016). Compared to other ancient writings, the Bible
has far more source manuscripts than any other ancient writing. For comparison, there are only
ten ancient copies of the writings of Julius Caesar, the oldest being written about 1,000 years
after Caesar’s original work. In the case of the Bible’s New Testament, over 5,000 manuscripts
survive, with earliest copies ranging from 200 to 300 years later, and some less than 100 years
later (Slick, 2008). Throughout history, the Bible has been a source of guidance and inspiration.
At his inauguration, President Obama held his hand on two Bibles, one previously owned by
Martin Luther King Jr. and the other by President Abraham Lincoln (Mears, 2013).
Roman tax records were not used in any form of budgeting, but rather to keep checks on
each official retrospectively. Good tax records also served as protection for young government
entrants. The government of the Empire was largely open to those with the skill to climb the
ranks to receive a chosen position, which often came with a certain amount of respect and salary.
Such positions may put a person in direct opposition of a senator’s political plans. Officials could
be tried for embezzlement at the word of a higher officer; consequently, young candidates often
kept detailed accounts of their economic work for personal protection (Oldroyd, 1995).
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Taking appropriate safeguards to protect cash is a well understood accounting internal control,
going back to ancient times, including Roman times. In a biblical story from the first century,
written by the Apostle Paul, the use of the internal control of dual custody of assets is described
in the way a large cash gift is transported from Macedonia to Jerusalem. By employing this
internal control, not only is the money safeguarded but honest people are protected from false
suspicion (2 Corinthians 8: 19-21):
What is more, he was chosen by the churches to accompany us as we carry the
offering, which we administer in order to honor the Lord himself and to show our
eagerness to help. We want to avoid any criticism of the way we administer this liberal
gift. For we are taking pains to do what is right, not only in the eyes of the Lord but also
in the eyes of man (Holy Bible, 1996, p. 979).
Another biblical story from Roman times concerns accounting reports (Luke 16: 1-13). In
a story, told by Jesus of Nazareth, a dishonest steward, sometimes referred to as a dishonest
manager or dishonest accountant, is called in by a property owner to give the owner a report
regarding the steward’s financial dealings. The steward is faulted for employee theft. The story
ends with the admonition that people who are untrustworthy with small things cannot be trust
with larger matters:
There was a rich man whose manager was accused of wasting his possessions. So
he called him in and asked him, ‘What is this I hear about you? Give an account of your
management, because you cannot be manager any longer.’
… Whoever can be trusted with very little can also be trusted with much, and
whoever is dishonest with very little will also be dishonest with much (Holy Bible, 1996,
pp. 883-884).
Accounting in Medieval Britain
After Caesar Augustus, accounting changed little until the medieval period, when feudal
societies and manorialism evolved from the Late Roman Empire’s villa system. As manorialism
spread throughout Europe, a new form of bookkeeping developed. Research by Chatfield (1968),
Brown (1968), and Kojima (1995) describes the exchequer and manorial accounting systems of
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Medieval Britain. These systems bridge accounting between the ancient and Postclassical eras of
accounting.
Bookkeeping in the medieval period was quite different from that of the Roman Empire.
The role of accounting as a test of stewardship became increasingly important at this time.
According to Chatfield (1968), the feudal society of medieval times is typically shown as a
multilayered pyramid, with individuals at lower levels granted certain rights in exchange for
certain duties. Within the system, many different people had many diverse levels of authority.
This created a need for interlayer communication and principal-agency validation (Chatfield,
1968).
Like earlier civilizations, the English faced problems regulating taxes. William the
Conqueror’s Doomsday Book of 1086 was a census and valuation of the properties of the Crown
from which taxes were levied. The Pipe Roll, also known as the “Great Roll of the Exchequer,”
was a record of the dues to the king and related expenses incurred while collecting them.
Spanning over seven centuries, the Pipe Roll was compiled from Doomsday, reports of sheriffs,
and other treasury administrators (Chatfield, 1968).
To ensure that the tax officials worked in the interests of the government, the Court of the
Exchequer was split into two separate functions that operated as a modern department of state.
Taxes and other revenues were collected by the Lower Exchequer, while the Upper Exchequer
checked the accuracy of the tax collectors’ records and dispensed their receipts of payment. The
process was similar to the separation of authorization and recording duties today. Royalty and
common citizens were separated by land and status, so there were many intermediaries needed to
cross the distances. The sheriff was one such emissary, acting as an agent in civil and military
instances.
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Below the importance of the Crown and above that of the common people sat the
authority of the manor. These were the territories of titled lords and their holdings. These acted
as miniature self-governing units under the lord’s power, who held privileges over those that
lived and worked on his lands. The holdings of the manor could be quite expansive and relied on
intermediaries as well. Lords organized complex levels of managers and supervisors to run the
lands on a day-to-day basis. These stewards, like those of the Roman Empire, kept detailed
accounting records in order to prove they had completed their duties honestly and proficiently.
Accounts were kept for personal protection purposes, since a lord would dismiss managers that
failed in their duties. As a result, a steward often only recorded the receipts pertaining to his
responsibilities and nothing else (Chatfield, 1968).
Accounting entries of the manor were in narratives rather than a columnar or balance type
of report. Entries were very detailed in some instances, such as inventory, while vague in others,
such as total profit. Entries were written to promote the success of the steward; therefore, if
things went wrong, the narrative would be interrupted to detail the revenues that could have been
possibly made if another route was taken. Such accounts were far from unbiased. The treatment
of expenses is notable, as they were recorded by activity but not by type. In an example
accounting entry presented by Chatfield (1968), no distinction was made between the cost of a
purchased horse, a modern-day fixed asset, and the feed it consumed, a modern-day maintenance
expense.
Accounting in Renaissance Italy
During the 1400s accounting began to take on a more modern look. At that time, the
system of Venetian accounting became well-known as a consequence of a book published in
1494 by Luca Pacioli, a Franciscan friar. As a result, Friar Luca became known as the Father of
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Accounting (Smith, 2013). His book, Summa de Aritmetica, Geometria, Proportioni et
Proportionalita was the first on accounting and detailed double-entry bookkeeping. Translations
of the revolutionary text have been made by Brown and Johnson (1963), and by Green (1968),
which offer insight to its importance.
The Summa became a best-seller because it filled the merchants’ need for a systematic
method of bookkeeping. The book was printed using Gutenberg’s moveable-type press which
allowed for quick reprint. The Summa was written in colloquial Italian instead of Latin. These
factors meant that ordinary people could read the Summa. Brown and Johnson (1963) wrote that
Pacioli’s goal in writing his book was to accumulate information on mathematics and
bookkeeping, and then give that knowledge to the Italian people, hoping that they would use it to
improve their lives.
Friar Luca’s book described in detail the style of bookkeeping that was in widespread
usage in Venice. At that time, the city was in a major maritime economic boom that dominated
the Mediterranean region. The Venetian method of accounting addressed the age-old need for
reliable financial records and trustworthy business managers. Since the city had its roots in
maritime trade that extended to locations as far out as Syria, communication between the
traveling traders and the merchants remaining in Venice was critical (Brown and Johnson, 1963).
Business owners needed reliable managers in markets thousands of miles away. This led
to the development of the commission agent, similar to modern-day retail salespersons (Kojima,
1995). Instead of profit sharing as joint-venture partners, agents were paid in percentages of the
revenues that they had a direct hand in earning. Given the vast amounts of letters going in and
out of Venice, merchants were kept well informed of market prices. With this information, they
could evaluate the activities and abilities of their agents.
15
Pacioli’s book covered many accounting subjects that remain fundamentally unchanged,
from the treatment of debts to the classification of inventories. This first accounting book
stressed that accounts had “both likes and opposites,” like payable and receivable accounts, and
that merchants should be aware of the “dual aspect” of transactions (Littleton, 1933). Another
topic covered was error correction. Pacioli was of the opinion that no entry was to be left
unwritten or crossed out of the ledger. When an error was discovered, a correcting entry was
made instead of marking out the error.
There were two main ledger books used in Venice: the libro reale vecchio and the libro
reale nuovo. In the vecchio, each facing page acts as a pair: they had the same page number and
the left pager is for the debt of the account while the opposite right was for the credit. Table 4
shows an example of the vecchio.
[Insert Table 4]
The vecchio was phased out over the years and replaced with the nuovo, which had single
pages split vertically, with a debit left and credit right, similar to modern accounting ledgers.
Table 5 shows an example of the nuovo.
[Inert Table 5]
Ledgers were kept by most traders and were reconciled with those kept by the owners.
Accounts were closed to a profit and loss account that, similar to modern practice, was closed to
a capital account. Merchants also used a journal to record entries initially prior to posting to a
ledger. This system was well in place in Venice and its trading partners before Pacioli’s book,
but his book’s clear explanations and the accounting system’s practicality helped spread it to
common usage worldwide.
16
Littleton (1933) observes that, at its core, modern bookkeeping remains very similar to
that of the Venetian style. Often when studying accounting history, people will read about
Pacioli’s Summa and then jump directly to the development of modern-day generally accepted
accounting principles. What caused this revolutionary advancement to occur in Renaissance-era
Italy? There had long been a need for an accounting system that could address the agency
problem of accountability of business managers to business owners. Littleton (1933) outlined
seven key elements that came together perfectly to result in double-entry accounting:
• Writing system—because accounting is the keeping of a written record
• Arithmetic—it necessitates at least simple calculations
• Private property—it deals with property and property rights
• Monetary system—this reduced transactions to one common measure
• Credit-as to mean incomplete transactions—there would be little need to keep records if
all transactions were paid in full immediately
• Commerce—it was large scale trade that created enough need for people to develop such
a system
• Capital—without it, there would be little commerce and no credit
These elements were essential, along with favorable social and economic factors, to give
birth to double-entry accounting. Some of these existed together in history, but they did not align
correctly until Renaissance Italy, where massive amounts of commerce and capital came
together. The crusades played a large role in this convergence. For two hundred years, people
moved between Europe and the Middle East, attempting to capture and recapture Jerusalem.
Italy, in a critical position on the Mediterranean Sea, experienced an influx of both people and
imports from the East. Venice and other coastal cities profited from the traffic. After the
crusades, the soldiers returned to their homes. Many missed the spices and goods of the lands
they had left, and were willing to pay quite a lot for them. This caused an increase in trade
beyond any prior levels (Littleton, 1933).
Accounting in Modern Times
17
Hugo Oldcastle and Jan Ympym Christoffel brought the Pacioli’s accounting book to an
even wider audience in 1543, through English and Dutch reprints. These were largely direct
translations, though Christoffel’s book contained a second section of examples of journals and
entries in use at the time. The book was the first of its kind to detail the use of a trial balance
statement. The French translation of his book, also printed in 1543, was the first of its kind in the
language and spread accounting knowledge even farther (Brown, 1968). These books, however,
were not double-entry bookkeeping’s introduction to Britain. The double-entry system could be
found earlier in that century, as evidenced by a ledger kept by Tomas Howell, a member of the
Worshipful Company of Drapers. The Ledger, started in 1522, was in the libro reale vecchio
style of narrative entries and paired ledger pages (Kojima, 1995).
Twenty years after the Ledger, bookkeeping was gaining modern attributes and
developing swiftly because of changes in the business environment. The Venetian trading
ventures could not accommodate the increased trade of the 17th century and were replaced with
the newly created limited liability corporation. The rapid colonization of newly discovered lands
in the Americas and Africa pushed trade levels higher. High demand for exotic goods, such as
tobacco, maize, and tomatoes, attracted many businessmen to trading ventures, which soon grew
too large for the old business model to manage. As ventures expanded to include several agents
and principals under the same banner, each agent had to keep separate accounts for each
principal for which they traded. These ventures were a natural predecessor of the modern
corporation (Irish, 1947).
The first corporations of Britain could only be created under the Crown’s authority,
through the bestowing of a charter. Perhaps the most well-known chartered company was the
East India Company (EIC), which was created in 1600. The EIC, and the many like it, were
18
trading monopolies backed by the Royal seal of approval. The Crown preferred such
corporations over many different groups of individual trading ventures, for reasons that included
the ease of taxing one collective entity, lower investor risk, and the entity self-policing its
members (Day, 1922). These chartered enterprises offered the benefit of mutual association with
limited liability, which attracted many investors who had lower risk tolerance than investors of
the past (Irish, 1947).
During the 17th century, accounting began to incorporate many concepts similar to
modern-day U.S. GAAP. The going concern assumption, known as the “deathless corporation,”
began in 1613 when the EIC stopped its practice of issuing terminal stock (Irish 1947). When
EIC received a new charter in 1657, the corporation allowed stock transfers without complete
liquidation of the investment. These practices led to the separation of the sources of income,
capital investment versus operating income, and proportional receipts of distributed earnings,
which necessitated the creation of highly detailed financial statements.
The smokestacks and machinery of the Industrial Revolution initiated the growth of the
modern corporation. Large amounts of capital were needed to build manufacturing plants; thus,
large numbers of investors were needed. The reliable return from production and the ability to
more easily comprehend returns were attractive to investors. The investors, that is, stockholders,
could typically see the businesses and factories they had financially backed being built in nearby
cities, which was more appealing than financially backing an unknown trader in a far off land.
Several economic crashes, such as the South Sea Bubble of 1720, caused the UK’s
Parliament to enact strict Companies Acts. Such laws brought accounting principles into national
spotlight. Both the national government and investors wanted extra protection against the
exaggerated financial income that was associated with previous economic troubles.
19
Conservatism in accounting resulted from the increased legal attention to protection of both the
corporation and stockholders (Irish, 1947).
In the late 19th century, the development of accounting shifted away from Britain and
toward the United States. This was largely because of the business entity view of business that
had begun to form. With the increasingly complex laws and investor pool, corporations were
regarded as separate from their stockholders. Supporting this change was a landmark British
company law case, which occurred in 1896, Salomon v Salomon & Co Ltd. In this case, the
House of Lords rendered a unanimous that strongly upheld the doctrine of corporate personality,
as defined by the Companies Act of 1862, in which creditors of a bankrupt company could not
sue a company's stockholders to personally pay for the company’s unpaid debts (United
Kingdom, 2016).
Some English businessmen negatively viewed the shift from the personality of
proprietorship to the impersonality of the corporation (Irish, 1947). In the U.S., however, there
was not the same tradition of the proprietorship theory of business and the newest form of
corporation was well received. While Britain was affected by its earlier accounting tradition, the
new approach was quickly embraced throughout the U.S. This may be one reason that modern
accounting and the corporate structure became such a strong cornerstone of American life.
The growth of the business entity assumption dramatically changed the presentation of
financial statements. There grew an increased focus on the income statement. As stakeholder
groups grew larger, financial statements changed in form and substance to best serve these
stakeholders. In the UK, the English Act of 1929 required companies to properly classify the
types of assets, liabilities, and expenses they reported. Additional Companies Acts were enacted
in the 1900s, many of which responded retroactively to either socioeconomic downturns or
20
corporate scandals. Many other countries passed similar laws for similar reasons. As laws
continued to be created, the accountant’s duty focused on providing necessary explanations to
management and helping companies implement new regulations (Irish, 1947).
During modern times, there emerged important professional accounting organizations,
such as the Institute of Chartered Accountants of Australia (in 1928) and regulatory bodies such
as the U.S. Securities and Exchange Commission (in 1934). Such groups were formed in many
countries, starting as early as the late 1800s. Coming into the 21st century, accounting continues
to develop. With different laws and traditions in each country, different sets of standards were
created. The U.S. continues to follow its own GAAP, which is different from the International
Financial Accounting Standards (IFRS), now used in over 120 other countries. With the rise of
globalization, the focus of accounting is no longer on just one company in one market, but on an
international level.
The Expanding Role of Women in Modern Accounting
During the modern era, women began playing a key role in the accounting profession. In
the United States, for example, New York State awarded the first Certified Public Accountant
certificate in 1896. Just three years later, in 1899, Christine Ross of New York became the first
woman CPA. More than 100 women were CPAs by the 1930s. According to US Census Bureau
statistics for 1940, in that year, women held 18,265 accounting and auditing positions. In 1950,
women held 55,660 accounting and auditing positions. In 1977, women comprised 28 percent of
all graduating accounting majors (Feucht et al., 2009). In Scotland, one of the nation's first
female chartered accountants, Helen Lowe, departed her training firm to establish her own
accounting practice in 1928. Lowe managed this practice for almost seven decades (Jeacle,
2011).
21
Starting in the 1970s, the role of women in the profession began to dramatically increase,
both in accounting practice and in academia. By the 2010s, women became a majority of
accounting graduates, making up 52.6 percent of bachelor’s degrees, 53.9 percent of master’s
degrees, and 69.2 percent of doctoral degrees (Catalyst, 2013). Women increasingly hold top
management positions in public accounting firms and in corporate accounting. The increasing
role of women in accounting includes the academic field. According to a study of the top 25
accounting programs, women have increased their share of accounting faculty positions, going
from about 20 percent of faculty positions in 1994 to about 32 percent of all faculty positions in
2007, which includes 47 percent of assistant professors (Smith et al., 2013).
In 2014 Olivia Kirtley became the first woman to serve as President of the International
Federation of Accountants (IFAC), the world’s largest professional accounting organization,
representing about 2.5 million accountants in public practice, industry, education, and
government service (AICPA 2014). Previously, Kirtley had been the first woman to serve as
Chair of the American Institute of CPAs, the largest professional accounting organization in the
United States. Kirtley had previously served as President of the Kentucky Society of CPAs
(Craig, 1999). Another woman, Leslie Murphy, became Chair of the American Institute of CPAs
in 2005. Murphy alluded to the profession’s strong support of work-life balance, when she
expressed that her most important achievement was the loving relationship built and sustained
with her husband, children, and grandchildren (Baldiga, 2005). Susan Haas (2002), a woman
accounting professor, reflecting on a 30-year career in practice and academia, made the
following observation:
Would I do it over again? You bet. As a CPA and an accounting professor, I’m a member
of a profession where women were treated as equals before it was the trendy thing to do.
Accounting is fun, it’s challenging, stimulating, and always changing. What more could I want?
22
The increasing role of women in accounting, as well as business in general, has benefited
the accounting field. Prior studies regarding gender differences and gender theory indicates that
men and women frequently bring different outlooks to accounting and business processes,
outlooks that are distinctive but that are both extremely useful (Ariail et al., 2012). According to
Feucht et al. (2009), by obtaining both gender perspectives on accounting and business problems,
the result is a more comprehensive analysis and synergistic outcome. For example, in a study of
auditors, female auditors were found to be less inclined to the practice of low balling
(Neidermeyer et al., 2003). Another study found that male auditors show a greater probability of
responding in an ethical way to a suspicious client activity that indicates inventory manipulation
(Smith and Rogers, 2000). Thus, these studies indicate the benefit of having both gender
perspectives, male and female, on an audit team. One gender may be inherently sensitive to
issues that the other gender overlooks.
Ever-Present Role of Trust in Accounting
From the beginning of accounting to the present day, accountants by necessity must be
among the most trustworthy of people. In addition to technical expertise on a myriad of
accounting and business issues, accountants must have superb moral judgment and personal
integrity, which are hallmarks of the accounting profession (Smith, 2003). The personality
profile of a typical accountant includes a strong sense of right and wrong, devotion to
professional duty, and placing the public’s interest ahead of personal interest (thus, the title
Certified “Public” Accountant). Article I in the ethics code of the American Institute of CPAs
states: “In carrying out their responsibilities as professionals, members should exercise sensitive
professional and moral judgments in all their activities” (AICPA, 2015).
23
The foundations of moral values are often traced to religious roots, so it is no surprise to
find in top-level accounting research that religiosity has been shown to have a positive effect on
accounting-related matters such as reducing fraudulent financial reporting (McGuire et al.,
2012) and tax compliance (Boone et al., 2013). Research has shown that accounting professors
are the most religious faculty group among the largest 20 academic fields, as measured by
bachelor degrees awarded, with 63.0 percent of accounting professors indicating that they have
no doubt that God exists, compared to 35.7 percent of all professors (Gross and Simmons, 2009).
Table 6 shows the level of religiosity of professors.
[Insert Table 6 here]
From a trust standpoint, accountants are one of the most highly regarded professions by
the public. A Gallup Poll listed accountants as the eighth most trusted profession in the U.S.,
with nursing at the top and lobbyists at the bottom. Accountants scored high/very ratings from 38
percent of the public and average ratings from 51 percent of the public; only 8 percent gave low
ratings (CPA Trendlines, 2008). An Australian survey showed a similar high ranking for
accountants in that country (Kimmorley, 2015). Table 7 shows the U.S. and Australian rankings.
[Insert Table 7 here]
In the current day, critical contributions are made to business and society by accountants
working in governmental and not-for-profit organizations, by external auditors in public
accounting firms, and by management accountants and internal auditors working for industry
firms. The work of modern-day accountants involves a diverse range of activities, such as
auditing (Tervo et al., 2013, Warren and Smith, 2006, Wiggins and Smith, 1987), measuring
corporate financial health (Martin, Smith and Smith, 2016), complying with tax laws (Lassila
and Smith 2012, Smith, Smith and Gruben 2011, Lassila et al., 2010), enhancing corporate
24
reputation (Smith et al., 2014, Smith et al., 2010), facilitating ethical behavior (Linnhoff, Martin,
Smith and Smith, 2014, Smith 2003, Kerr and Smith, 1995), preventing earnings management
(Rodriguez et al., 2015), new technologies (Hunter and Smith, 2009, Kratchman et al., 2008,
Smith, 2008;), protecting the environment (Blazovich et al., 2013, Ashcroft and Smith, 2008),
employee salaries (Blazovich et al., 2014), developments in accounting standards (Grossman et
al., 2013, Reineking et al., 2013, Smith, 2012, Sagafi-nejad et al., 2010), impact of culture (Johns
et al., 2003), security concerns and criminal activity (Mulig et al., 2014, Stambaugh et al., 2012,
Smith, Smith and Smith, 2011), facilitating employee work-life balance (Linnhoff, Smith, and
Smith, 2015, Linnhoff, Smith and Smith, 2014), and stopping human trafficking in corporate
supply chains (Martin and Smith, 2015, Linnhoff et al., 2014; Smith, Martin and Smith, 2014).
Conclusions
Developments in the field of accounting can be framed within the context of social theory
and within the subset of profession formation theory. The formation of the accounting profession
includes both formal and informal processes, and value systems that guide the process of a
person becoming an accountant. All professions, including accounting, have three basic
components: (1) a generally accepted body of knowledge, (2) a widely recognized standard of
attainment, and (3) an enforceable code of ethics. These three components developed over time
and remain in a state of change, as accounting standards evolve to meet the needs of the modern
marketplace.
The advent of accounting is an intriguing part of the history of the world. The origin of
accounting can be traced back to the beginning of human civilization. From the scribes of ancient
Mesopotamia to the internal control concepts described by the Apostle Paul in the Bible, from
the Friar Pacioli’s landmark book published in Renaissance Italy to the work of modern-day
25
accountants employing the latest technology, accounting remains a work in process. The
activities of accountants play vital roles in business governance, including corporate financial
reporting, internal auditing, public accounting, and in the governmental and not-for-profit area of
practice.
Understanding the history of accounting is important as it reveals the important
contributions that the field has made to the development of business and civilization. As
accounting developed, the efficiency and effectiveness of business operations improved, thus
facilitating the development and growth of national economies. A fundamental purpose of
accounting has remained constant throughout history: to serve as a test of stewardship or
accountability of those trusted with financial resources. While standards and technologies have
changed over the centuries, this core business governance role of accounting has stayed the
same.
Limitations and Future Research
This paper is limited by the historical events presented. There are other events in world
history that have had significant effects on business and the practice of accounting; these could
be examined in future studies. The study is also limited by its focus on the core business
governance role of accounting, that is, its test of stewardship or accountability of business
managers; future studies could examine other aspects of accounting such as its role in financial
planning and tax compliance.
26
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34
Table 1
Formation of Accounting as a Profession within the Framework of General Social Theory
and its Subset, Profession Formation Theory
Professional
Practices:
Formal
Informal
Profession Basic
Components:
Body of
knowledge*
Standard of
attainment**
Enforceable
code of
ethics***
Accounting Profession
Formation:
Power
Prestige
Specialized functions
Perceptions of Society
Notes:
*Such as International Financial Reporting Standards or US Generally Accepted Accounting
Principles.
**Such as Chartered Accountant or Certified Public Accountant.
***Such as the International Code of Ethics for Professional Accountants of the International
Federation of Accountants.
35
Table 2
Timeline of Key Events Regarding Accounting and Financial Reporting
4000 BC Archeological findings in lower Mesopotamia show that scribes accounted for
temple income on clay tablets.
27 BC In Ancient Rome, an account-keeper, also called dispensator or procurator, is
employed to maintain stewardship of financial matters.
33 AD Jesus of Nazareth affirms a citizen’s duty to pay taxes: “Render to Caesar the
things that are Caesar’s, and to God the things that are God’s.”
60 The Bible describes internal control procedures such as the use of accounting
reports to monitor a steward's performance (Jesus’s parable of the ‘unjust
steward’) and dual custody of assets (Apostle Paul’s handling financial gift).
1086 William the Conqueror’s Doomsday Book is compiled, providing detailed
information about England and Wales from which taxes were levied.
1200s The development and spread of manorial accounting, the proffer system, and
tallies throughout England, Scotland, and Ireland.
1455 Johann Gutenberg invents the movable type printing press.
1494 Friar Luca Pacioli authors first book on double-entry accounting.
1600 East India Company, early joint-stock corporation, established with royal charter
by Queen Elizabeth I.
1629 Appointment of auditors to examine the accounts of Massachusetts Bay colony.
1792 New York stock exchange established.
1853 Institute of Accountants is established in Edinburgh, Scotland, UK.
1883 First US college accounting course offered at the University of Pennsylvania.
1896 New York is first US state to pass CPA legislation.
1899 First woman CPA, Christine Ross of New York.
1928 Helen Lowe, Chartered Accountant, starts her own accounting practice in
Scotland.
1930s US securities acts of 1933 and 1934 require filing and public disclosure of audited
financial statements to the SEC.
1946 The first electronic computer, ENIAC, is constructed at the University of
Pennsylvania.
1969 ARPANET, the forerunner of the Internet, established with four nodes: UCLA,
Stanford, UC-Santa Barbara, and University of Utah.
1973 International Accounting Standards Committee established, forerunner of the
International Accounting Standards Board (IASB).
1980s Widespread use of microcomputers, particularly for word processing and
spreadsheet applications.
1991 Sir Tim Berners-Lee, working at CERN in Geneva, develops the World Wide
Web in a relatively innocuous newsgroup, "alt.hypertext." Later, people refer to
the Internet itself as the Web. The impact on e-commerce is profound.
36
Table 2: Timeline – Continued
1995 The Bottom Line is Betrayal authored by K.T. Smith, L.M. Smith, and D.L.
Crumbley: the first business educational novel combining accounting,
international trade, global marketing, and emerging technologies (7th edition
published in 2014).
1998 Olivia F. Kirtley becomes first woman Chair of the American Institute of CPAs
(AICPA).
2002 Sarbanes-Oxley Act signed into law by President George W. Bush, contains
provisions regarding corporate governance, auditing, and financial reporting of
public companies, including provisions designed to prevent and punish corporate
accounting fraud and corruption.
2005 European Union requires use of International Financial Reporting Standards
(IFRS) by publicly traded companies in the EU.
2007 US Securities and Exchange Commission accepts IFRS for financial reporting by
non-US companies listed in the US stock market (no Form 20-F reconciliation to
USA GAAP) if those companies use IFRS in their home country.
2009 The implementation of the Codification of U.S. GAAP.
2014 Olivia F. Kirtley becomes first woman President of the International Federation of
Accountants (IFAC).
2016 International Financial Reporting Standards accepted or required in over 120
countries.
37
Table 3
Roman Denarius
Note: Augustus (born Gaius Octavius), 23 September 63 BC – 19 August 14 AD, was the first
Emperor of the Roman Empire, ruling from 27 BC until his death in 14 AD. The silver denarius
depicts Augustus on the obverse and his adopted sons, Caius and Lucius, with shields, on the
reverse.
38
Table 4
The Libro Reale Vecchio
_____
Source: Kojima (1995).
39
Table 5
The Libro Reale Nuovo
_____
Source: Brown (1968)
40
Table 6
Religiosity of United States University Professors in the Largest 20 Academic Fields
Academic Field
Know God
really exists and
have no doubts
about it
Atheist
Other*
Accounting
63.0
7.4
29.6
Elementary Ed
56.8
0.0
43.2
Finance
48.6
8.6
42.8
Marketing
46.5
20.9
32.6
Art
45.0
10.0
45.0
Criminal Justice
44.4
9.3
46.3
Nursing
44.4
1.9
53.7
Economics
44.2
23.3
32.5
Management Information
40.0
2.9
57.1
Electrical Engineering
38.1
2.4
59.5
Computer Science
37.5
21.9
40.6
Business
30.6
2.8
66.6
Sociology
28.6
17.9
53.5
History
28.3
9.4
62.3
Communication
26.7
11.1
62.2
English
22.2
13.0
64.8
Biology
21.6
27.5
50.9
Political Science
20.8
22.9
56.3
Mechanical Engineering
17.7
44.1
38.2
Psychology
13.0
50.0
37.0
Average
35.7
15.4
48.9
__________
*Note: Other answers include believe but have doubts, believe in God sometimes, believe in
higher power, agnostic, and no answer.
Source: Taylor, Steven. 2012. Religiosity of the American Professoriate. Outside the Beltway,
Posted 25 February 2012. Retrieved on 2 October 2015 from:
http://www.outsidethebeltway.com/religiosity-of-the-american-professoriate/.
41
Table 7
Ranking of Professions on Honesty and Ethics
Rank
in
U.S.
Profession
Very high or
high (%) in
U.S.*
Very high or
high (%) in
Australia**
1
Nursing
84
92
2
Pharmacists
70
84
3
High school teachers/
School teachers
65
78
4
Medical doctors
64
84
5
Clergy
56
39
6
Policemen
56
69
7
Funeral directors
47
-
8
Accountants
38
45
9
Journalists
25
18
10
Bankers
23
34
11
Building contractors
22
-
12
Lawyers
18
31
13
Real estate agents
17
9
14
Labor union leaders
16
14
15
Business executives
12
18
16
Members of
Congress/Parliament
12
14
17
Stockbrokers
12
12
18
Advertising
practitioners
10
5
19
Car salesmen
7
4
20
Telemarketers
5
-
21
Lobbyists
5
-
Average
32
38
__________
*Source: CPA Trendlines. 2008. Gallup: Accountants ‘Top-Rated’ for Honesty, Ethics. CPA
Trendlines. Posted 26 November 2008. Retrieved on 2 October 2015 from
http://cpatrendlines.com/2008/11/26/gallup-accountants-top-rated-for-honesty-ethics/.
**Source: Kimmorley, Sarah. 2015. Ranked: Australia's 20 Most Trusted Professions. Business
Insider. Posted 11 May 2015. Retrieved on 4 October 2015 from:
http://www.businessinsider.com.au/ranked-australias-20-most-trusted-professions-2015-5.
