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(Redirected from
Accounting)
Accountancy (profession)
or accounting (methodology)
is the measurement, disclosure or provision of assurance about
financial information primarily used by managers, investors, tax
authorities and other decision makers to make resource
allocation decisions. The names come from the use of financial
accounts.
Financial accounting is one branch of accounting and
historically has involved processes by which financial
information about a business is recorded, classified,
summarized, interpreted, and communicated. Accounting is also
widely referred to as the "language of business".
Auditing, a related but separate discipline, has two
sub-disciplines: Internal and External auditing. External
auditing is the process whereby an independent auditor examines
an organization's financial statements and accounting records in
order to express an opinion — that conveys reasonable but not
absolute assurance — as to the truth and fairness of the
statements and the accountant's adherence to
Generally Accepted Accounting Principles (GAAP), or
International Financial Reporting Standards (IFRS), in all
material respects.
Internal auditing is an examination in which management, and
not the external public, is the main beneficiary. It is carried
out usually by auditors employed by the company, but sometimes
by external service providers. The internal auditor's role is
broader, and basically depends on what kind of assurance
management wants. It usually certifies the efficiency and
effectiveness of processes, departments, projects or internal
controls. The Institute of Internal Auditors is generally
accepted as the custodian of Internal Auditing best practice.
At the heart of accounting is the measurement of financial
transactions which are transfers of legal property rights made
under contractual relationships. Non-financial transactions are
specifically excluded due to conservatism and materiality
principles.
Practitioners of accountancy are known as
accountants. There are many professional bodies for
accountants throughout the world. Many allow their members to
use titles indicating their membership. Examples are
Chartered Certified Accountant (ACCA
or FCCA),
Chartered Accountant (FCA, CA or ACA) and
Certified Public Accountant (CPA).
Accountancy attempts to create accurate
financial reports that are useful to managers, regulators,
and other
stakeholders such as
shareholders,
creditors, or owners. The day-to-day record-keeping involved
in this process is known as
bookkeeping.
At the heart of modern financial accounting is the
double-entry bookkeeping system. This system involves making
at least two entries for every transaction: a debit in one
account, and a corresponding credit in another account. The sum
of all debits should always equal the sum of all credits. This
provides an easy way to check for errors. This system was first
used in medieval
Europe, although claims have been made that the system dates
back to
Ancient Greece.
According to critics of
standard accounting practices, it has changed little since.
Accounting reform measures of some kind have been taken in
each generation to attempt to keep
bookkeeping relevant to capital assets or production
capacity. However, these have not changed the basic principles,
which are supposed to be independent of
economics as such. In recent times, the divergence of
accounting from economic principles has resulted in
controversial reforms to make financial reports more indicative
of economic reality.
[edit]
History
Accountancy's infancy dates back to the earliest days of
human
agriculture and
civilization (the
Sumerians in
Mesopotamia), when the need to maintain accurate records of
the quantities and relative values of agricultural products
first arose. Simple accounting is mentioned in the
Christian Bible in the
book of Matthew, in the Parable of the Talents (Matt.
25:19). The
Quran
also mentions simple accounting for trade and credit
arrangements (Quran 2: 282).
Twelfth century writer
Ibn Taymiyyah mentioned in his book
Hisba (verification, calculation), detailed accounting
systems used by the
Muslims as early as in the mid-seventh century. The
accounting practices were influenced by the
Roman and the
Persian civilizations that Muslims interacted with. The most
detailed example of a complex governmental accounting system is
the Divan of
Umar,
the second
Caliph of
Islam
in which all revenues and disbursements were recorded. The Divan
of Umar
has been described in detail by various Islamic historians and
was used by
Muslim rulers with modifications and enhancements until the
fall of the
Ottoman Empire.
[edit]
Luca Pacioli and the birth of modern
accountancy
The first book on accounting was written by a
Croatian merchant
Benedetto Cotrugli, who is also known as Benedikt
Kotruljević, from the city of
Dubrovnik. During his life in
Italy
he met many merchants and decided to write, Della Mercatvra
et del Mercante Perfetto (On Trade and the Perfect
Merchant) in which he elaborated on the principles of
modern,
double-entry book-keeping. He finished his lifework in
1458.
However, his work was not published until
1573,
as a result of which his contributions to the field have been
overlooked by the general public..[citation
needed]
For this reason,
Luca Pacioli (1445 - 1517), also known as Friar Luca dal
Borgo, is credited for the "birth" of accounting. His Summa
de arithmetica, geometrica, proportioni et proportionalita (Venice
1494),
a synthesis of the mathematical knowledge of his time, includes
the first published description of the method of keeping
accounts that Venetian merchants used at that time, known as the
double-entry accounting system. Although Pacioli codified
rather than invented this system, he is widely regarded as the
"Father of Accounting". The system he published included most of
the accounting cycle as we know it today. He described the use
of journals and ledgers, and warned that a person should not go
to sleep at night until the debits equalled the credits! His
ledger had accounts for assets (including receivables and
inventories), liabilities, capital, income, and expenses — the
account categories that are reported on an organization's
balance sheet and
income statement, respectively. He demonstrated year-end
closing entries and proposed that a trial balance be used to
prove a balanced ledger. His treatise also touches on a wide
range of related topics from accounting ethics to cost
accounting.
The first known book in the
English language on accounting was published in
London by John Gouge (or Gough) in
1543.
It is described as A Profitable Treatyce called the
Instrument or Boke to learn to knowe the good order of the
kepyng of the famouse reconynge, called in Latin, Dare and
Habere, and, in English, Debitor and Creditor.
A short book of instructions was also published in 1588 by
John Mellis of
Southwark, in which he says, "I am but the renuer and
reviver of an ancient old copie printed here in London the 14 of
August 1543: collected, published, made, and set forth by one
Hugh Oldcastle, Scholemaster, who, as appeareth by his treatise,
then taught Arithmetics, and this booke in Saint Ollaves parish
in Marko Lane." John Mellis refers to the fact that the
principle of accounts he explains (which is a simple system of
double entry) is "after the forme of Venice".
A book described as The Merchants Mirrour, or directions
for the perfect ordering and keeping of his accounts formed by
way of Debitor and Creditor, after the (so termed) Italian
manner, by Richard Dafforne, accountant, published in 1635,
contains many references to early books on the science of
accountancy. In a chapter in this book, headed "Opinion of
Book-keeping's Antiquity," the author states, on the authority
of another writer, that the form of book-keeping referred to had
then been in use in Italy about two hundred years, "but that the
same, or one in many parts very like this, was used in the time
of Julius Caesar, and in Rome long before." He gives quotations
of Latin book-keeping terms in use in ancient times, and refers
to "ex Oratione Ciceronis pro Roscio Comaedo"; and he adds:
- "That the one side of their booke was used for Debitor,
the other for Creditor, is manifest in a certain place,
Naturalis Historiae Plinii, lib. 2, cap. 7, where hee,
speaking of Fortune, saith thus:
- Huic Omnia Expensa.
- Huic Omnia Feruntur accepta et in tota Ratione
mortalium sola.
- Utramque Paginam facit."
An early Dutch writer appears to have suggested that
double-entry book-keeping was even in existence among the
Greeks, pointing to scientific accountancy having been invented
in remote times .
There were several editions of Richard Dafforne's book - the
second edition in 1636, the third in 1656, and another in 1684.
The book is a very complete treatise on scientific accountancy,
beautifully prepared and containing elaborate explanations. The
numerous editions tend to prove that the science was highly
appreciated in the 17th century. From this time on, there has
been a continuous supply of literature on the subject, many of
the authors styling themselves accountants and teachers of the
art, and thus proving that the professional accountant was then
known and employed.
[edit]
Accountancy qualifications and
regulation
-
The requirements for entry in the profession of accounting
vary from country to country.
Accountants may be
licensed by a variety of organisations, such as the
British qualified accountancy bodies including
Association of Chartered Certified Accountants (ACCA)
and
Institute of Chartered Accountants, and are recognized by
titles such as
Chartered Certified Accountant (ACCA or FCCA) and
Chartered Accountant (UK, Australia, New Zealand,
Canada, India, Pakistan, South Africa),
Certified Public Accountant (Ireland, Japan, US,
Singapore, Hong Kong, the Philippines),
Certified Management Accountant (Canada, U.S.),
Certified General Accountant (Canada), or
Certified Practising Accountant (Australia). Some
Commonwealth countries (Australia and Canada) often recognise
both the certified and chartered accounting bodies. The majority
of "public" accountants in New Zealand and Canada are Chartered
Accountants; however, Certified General Accountants are also
authorized by legislation to practise public accounting and
auditing in all Canadian provinces, except Ontario and Quebec,
as of 2005. There is, however, no legal requirement for an
accountant to be a paid-up member of one of the many Institutes
and other bodies which are effectively a form of professional
trade union. Unlike the
Law Society, which can legally stop a solicitor from
practising, accountancy institutes do not have such authority.
However, auditors are regulated.
[edit]
Accounting scholarship
Refer
Accounting scholarship for professorship.
[edit]
The "Big Four" accountancy firms
The "Big
Four auditors" are the largest
multinational accountancy firms.
These firms are associations of the partnerships in each
country rather than having the classical structure of holding
company and subsidiaries, but each has an international
'umbrella' organization for co-ordination.
Before the Enron and other
accounting scandals, there were five large firms and were
called the Big Five. Since
Arthur Andersen's
assurance practice split (after the firm was implicated in
the Enron scandal, however it was found not guilty), with a
plurality joining KPMG in the US and Deloitte & Touche outside
of the US, Arthur Andersen left from the group. Previous to this
there were also groupings referred to as the "Big Six" (Arthur
Andersen, plus Coopers & Lybrand before its merger with Price
Waterhouse) and the "Big Eight" (Ernst and Young prior to their
merger were Ernst& Whinney and Arthur Young and Deloitte &
Touche was formed by the merger of Deloitte, Haskins and Sells
with the firm Touche Ross).
Enron turned out to be only the first of a series of
accounting scandals that enveloped the accounting industry in
2002.
This is likely to have far-reaching consequences for the U.S.
accounting industry. Application of
International Accounting Standards originating in
International Accounting Standards Board headquartered in
London and bearing more resemblance to UK than current
US practices is often advocated by those who note the
relative stability of the UK accounting system (which reformed
itself after scandals in the late 1980s and early 1990s).
Accounting reform of a far more comprehensive sort is
advocated by those who see issues with
capitalism or
economics, and seek ecological or social accountability.
[edit]
Size of market - UK
According to Accountancy Age's 2005 league table, fee income
amongst the Top 50 accounting firms in the UK rose from £6.3bn
to £7.0bn. This followed two successive years in which fee
income had declined, largely a result of the sale by some of the
larger firms of their consultancy arms. As detailed in the next
section, fee income in most business areas - audit, tax,
corporate finance and consultancy - rose in the 2005 survey,
with insolvency and wealth management being the only segments
where revenue fell.
PricewaterhouseCoopers remains the largest firm with fee
income totalling £1,780m followed by Deloitte (£1,350m), KPMG
(£1,066m) and Ernst & Young (£945m). The combined revenue of the
Big Four accounted for £5.0bn, 72% of the fee income of the Top
50, down from 78-79% in the years up to the 2002 survey and the
third year in succession a decline in their share has occurred
(Chart 1). Ernst & Young's fee income is the smallest of the
largest four firms, but still over three times that of the next
largest firm,
Grant Thornton. The amount of fee income tapers off amongst
the mid-tier firms so that in total there were only 25 firms
that each generated more than £15m of revenue in the 2005
survey.
[1]
For more details regarding British qualified accountancy
professionals, please refer to the page of
British qualified accountants.
[edit]
Topics in accounting
See
list of accounting topics for complete listing.
[edit]
Auditing
[edit]
Types of accountancy
[edit]
Accountancy Principles
Accounting principles, rules of conduct and action are
described by various terms such as concepts, conventions,
tenets, assumption, axioms, postulates.
[edit]
Accounting concepts
[edit]
Accounting conventions
[edit]
Use of computers in accountancy
[edit]
Accounting standards
[edit]
Agencies
[edit]
Accounting standard-setting bodies
[edit]
Auditing standards-setting bodies
[edit]
Types of accountancy
The following list is intended to give some idea of the
breadth and scope of the accountancy profession:
[edit]
See also
[edit]
Finding related topics
[edit]
External links
Accounting
from Wikinfo, an
internet encyclopedia
Accounting, accountancy (British
English), is the process of maintaining,
auditing, and processing financial information for
business purposes.
In the
United_States, practising accountants include
Certified Public Accountants (CPAs) and
Certified Management Accountants (CMAs). The
difference between a CPA and a CMA is that a CPA is
licensed by the state of his/her residence to
provide accounting services to the public, ranging
from auditing, tax, litigation support, and other
financial advisory services. A CMA is granted a
certificate from the Institute of Management
Accountant (IMA), provided that the candidate did
pass a rigorous examination of four parts and meet
the practical experience requirement from the IMA. A
CMA mostly provides his/her services directly to
his/her employers rather than the public. A CMA can
also provide his services to the public, but to an
extent much lesser than that of a CPA at ENZO school
of Knowledge.
Accounting allows the creation of accurate
financial reports that are useful to managers,
regulators, and other
stakeholders such as
stockholders or owners. The day-to-day
record-keeping involved in this process is known as
bookkeeping.
At the heart of modern accounting is the
Double-Entry Booking System
This system involves making at least two entries
for every transaction: a debit in one account, and a
corresponding credit in another account. The sum of
all debits should always equal the sum of all
credits. This provides an easy way to check for
errors. This system was first used in medieval
Europe.
According to critics of
standard accounting practices, it has changed
little since.
Accounting reform measures of some kind have
been taken in each generation to attempt to keep
book-keeping relevant to capital assets or
production capacity. However, these have not changed
the basic principles, which are supposed to be
independent of
economics as such.
History
The art of accounting on a scientific principle
must certainly have been understood in Italy before
1495, when
Luca Pacioli (1445 - 1517), also known as Friar
Luca dal Borgo, published at
Venice his treatise on book-keeping.
The first known
English book on the science was published in
London by John Gouge or Gough in
1543. It is described as A Profitable Treatyce
called the Instrument or Boke to learn to knowe the
good order of the kepyng of the famouse reconynge,
called in Latin, Dare and Habere, and, in Englyshe,
Debitor and Creditor.
A short book of instruction was also published in
1588 by
John Mellis of
Southwark, in which he says, "I am but the
renuer and reviver ofbig an auncient old copie
printed here in London the 14 of August 1543:
collected, published, made, and set forth by one
Hugh Oldcastle, Scholemaster, who, as appeareth by
his treatise, then taught Arithmetike, and this
booke in Saint Ollaves parish in Marko Lane." John
Melfis refers to the fact that the principle of
accounts he explains (which is a simple system of
double entry) is "after the forme of Venice".
The very interesting and able book described as
The Merchants Mirrour, or directions for the perfect
ordering and keeping af his accounts formed by way
of Debitor and Creditor, after the (so termed)
Italian manner, by Richard Dafforne, accountant,
published in
1635, contains many references to early books on
the science of accountancy. In a chapter in this
book, headed "Opinion of Book-keeping's Antiquity,"
the author states, on the authority of another
writer, that the form of book-keeping referred to
had then been in use in Italy about two hundred
years, "but that the same, or one in many parts very
like this, was used in the time of Julius Caesar,
and in Rome long before." He gives quotations of
Latin book-keeping terms in use in ancient times,
and refers to "ex Oratione Ciceronis pro Roscio
Comaedo"; and he adds: "That the one side of their
booke was used for Debitor, the other for Creditor,
is manifest in a certaine place, Naturalis
Historiae Plinii, lib. 2, cap. 7, where hee,
speaking of Fortune, saith thus:
- Huic Omnia Expensa.
- Huic Omnia Feruntur accepta et in tota
Ratione mortalium sola
- Utramque Paginam facit."
An early Dutch writer appears to have suggested
that
double-entry book-keeping was even in existence
among the Greeks, pointing to scientific accounting
having been invented in remote times.
There were several editions of Richard Dafforne's
book printed---the second edition having been
published in
1636, the third in
1656, and another was issued in
1684. The book is a very complete treatise on
scientific accountancy, it was beautifully prepared
and contains elaborate explanations; the numerous
editions tend to prove that the science was highly
appreciated in the
17th century. From this time there has been a
continuous supply of literature on the subject, many
of the authors styling themselves accountants and
teachers of the art, and thus proving that the
professional accountant was then known and employed.
Very early in the
18th century, the services of an accountant
practising in the city of London were made use of in
the course of an investigation into the transactions
of a director of the
South Sea Company, who had been dealing in the
company's stock. During this investigation the
accountant appears to have examined the books of at
least two firms of merchants. His report is
described Observations made upon examining the books
of Sawbridge and Company, by Charles Snell, Writing
Master and Accountant in Foster Lane, London. The
United States owes the concept of the Certified
Public Accountant designation to England which had
coined the Chartered Accountant designation in the
19th century.
The "Big Four" accountancy firms
The "Big
Four auditors" are the largest multinational
accounting firms.
Big 4 accounting firms have their origination
traced back to Europe. PricewaterhouseCoopers and
Deloitte & Touche were formed in England. Enrst &
Young was founded by a Scottish accountant. KPMG is
a merger product of two big Belgian and Dutch
(Netherlands) firms. However, due to the dominant
size of the United States's economy, the offices of
the Big 4 accountancy firms based in the United
States have always generated more revenue than the
rest of the Big 4 accoutancy firm's offices in the
world combined.
Before the
Enron and other scandals, there were five large
firms and were called the Big Five. Since
Arthur Andersen's
assurance practice split, with most joining
Deloitte & Touche, Arthur Andersen left from the
group.
Enron has turned out to be only the first of a
series of
accounting scandals of 2002 have enveloped the
accounting industry in
2002.
This is likely to have far-reaching consequences
for the U.S. accounting industry. Application of
International Accounting Standards originating
in
International Accounting Standards Board
headquartered in
London and bearing more resemblance to UK than
current
US practices is often advocated by those who
note the relative stability of the U.K. accounting
system (which reformed itself after scandals in the
late
1980s and early
1990s).
Accounting reform of a far more comprehensive
sort is advocated by those who see issues with
capitalism or
economics, and seek ecological or social
accountability.
Topics in accounting
See
list of accounting topics for complete listing.
Auditing
Types of accounting
Use of computers in accounting
Accounting standards
Agencies
Accounting Standard Setting Bodies
See also
External links
References
