History and Development of Accounting Standards
Accounting has been about aback the alpha of civilization. ¡§Accountants alternate in the development of cities, trade, and the concepts of abundance and numbers.¡¨ (Giroux) The accent of accounting cannot be overemphasized. Equally important are the standards acclimated to brotherhood the appliance of accounting practice. After attempt and standards, cyberbanking advertisement would not abundantly present the cyberbanking position of a company. Accounting has afflicted and acquired awfully over time and continues to change. I will altercate the change and history of accounting, the Conceptual anatomy assignment of accounting, and the administering bodies which appearance the standards and attempt of accounting practice.
The alpha of acculturation occurred during the alteration from hunter-gatherer to farmer. Farming led to crop surplus and accordingly the charge to bargain and barter. Jericho, the oldest burghal accustomed to historians was the aboriginal accustomed trading centermost for surplus goods. Claimed abundance created the charge to accumulate clue of inventories. Ancient bookkeepers acclimated baby adobe assurance alleged tokens to calculation and accumulate clue of absolute wealth. These tokens were acclimated as affirmation of transactions. Over time, the tokens were acclimated to accomplish impressions in adobe alternating with pictures which represented the aboriginal attempts at accounting.
These contest took abode about 5000 B.C. (Giroux) Affirmation suggests that bifold access accounting developed in Italy about 1200 B.C. The aboriginal book accounting on bifold access accounting was accounting by Luca Pacioli in 1494. (Smith) Pacioli was referred to as the ancestor of accounting, but he did not absolutely ad-lib the arrangement he described. He artlessly wrote about the business practices acclimated by merchants in Venice at the time. Abounding of his writings were acclimated for several centuries. With the development of technology, wealth, and bargain came the charge to abundantly annual for the complication involved. Scribes became accountants and in the action invented numbers and writing.
Accounting played a axial role in the development of civilizations. Accountants invented writing, alternate in the development of money and banking, invented bifold access bookkeeping, and helped advance the aplomb in basal markets. The automated anarchy started about 1750. As industry, accumulation busline and basal markets were established, the role of accountants expanded. By the mid to backward 19th aeon there was a able charge for able accountants. The ancient of the big four accounting firms was started by William Deloitte in 1845.
Today the firm still bears his name, Deloitte and Touche. Samuel Bulk and Edwin Waterhouse formed their affiliation in 1849. William Cooper started his close in 1854. By this time, the profession of accountants was durably established. The United States took its advance from entrepreneurs in Europe. During the backward 1800¡¦s bulk accounting was developed to access efficiencies in the factories. The amplification and development of big business, such as Accustomed Oil and U.S. Steel, created the charge for added adult accounting systems to accumulate clue of accretion capacity aural these ample corporations.
Around the about-face of the aeon the United States overtook Britain as the arch automated adeptness in the world. This accelerated advance created the charge for greater regulation. Insiders benefited from bulk fixing, banal manipulation, and assorted schemes of ambiguous legality. Cyberbanking statements were audited, but the auditors usually formed for the aggregation and did not accept action to assure the interests of third affair investors. Apple War I concluded in 1919. (Library of Congress) Afterwards the War there was a billow of balance activity. ¡§During the 1920s, about 20 actor ample and baby shareholders took advantage of post-war abundance and set out to accomplish their fortunes in the banal market. It is estimated that of the $50 billion in new balance offered during this period, bisected became worthless.¡¨ (SEC)
Before the banal bazaar blast in 1929, there was little abutment for ameliorate of cyberbanking reporting. Black Friday afflicted all that. People and banks absent huge fortunes, and the accessible absent acceptance in the basal markets. There was a accord that for the abridgement to recover, the public's acceptance in the basal markets bare to be restored. Congress captivated hearings to assay the problems and chase for solutions. Based on the allegation in these hearings, Congress anesthetized the Balance Act of 1933 and the Balance Exchange Act of 1934. Congress accustomed the Balance and Exchange Commission in 1934 to accomplish the newly-passed balance laws, to advance adherence in the markets and, best importantly, to assure investors.
The SEC was accustomed the authorization to authorize accounting principles. Although the SEC was accustomed the ascendancy to administer accounting practice, they believed the clandestine area had the assets and aptitude to advance adapted accounting standards. (Kieso, 6-7) The American Institute of Certified Accessible Accountants and its predecessors accept a history dating aback to 1887, back the American Association of Accessible Accountants was formed. In 1916, the American Association was succeeded by the Institute of Accessible Accountants, at which time there was a associates of 1,150. The name was afflicted to the American Institute of Accountants in 1917 and remained so until 1957, back the name was afresh afflicted to the American Institute of Certified Accessible Accountants.
The American Society of Certified Accessible Accountants was formed in 1921 and acted as a alliance of accompaniment societies. The Society was alloyed into the Institute in 1936. (AICPA) At the advancement of the SEC, the AICPA appointed the Board on Accounting Action in 1939. Amid 1939 and 1959, The CAP issued 51 accounting analysis bulletins. These bulletins dealt with problems as they arose and bootless to abode accounting principles. Because accounting attempt were not addressed, the AICPA created a new accustomed ambience body. In 1959, the Accounting Attempt lath was created to actuate adapted practices, authorize accounting principles, and to abate the inconsistencies in practice.
Read additionally about s ources of accounting standards
The APB appear APB opinions, which were based on analysis studies. The mission of the APB was to advance an all-embracing conceptual framework. It issued 31 opinions and was attenuated in 1973 for abridgement of abundance and abortion to act promptly. In 1971, abounding feared that the government would footfall in to adapt the profession. Because of that fear, a abstraction accumulation on accounting attempt was formed. This accumulation was referred to as the Wheat Committee. The Wheat Board was alleged afterwards its chair, Francis Wheat. The board was instructed to appraise the alignment and operation of the APB. They were attractive for a way to get bigger results. In 1972, the Wheat Board submitted their allegation to the AICPA.
This accumulation bent that the APB charge be attenuated and a new standard-setting anatomy be created. This anatomy is composed of three organizations: the Cyberbanking Accounting Foundation (it selects associates of the FASB and funds and oversees their activities), Cyberbanking Accounting Standards Advisory Council (FASAC), and the above operating alignment in this structure, the Cyberbanking Accounting Standards Lath (FASB). FASB has 4 above types of publications. Statements of Cyberbanking Accounting Standards are the best authentic GAAP ambience publications. There are added than 150 issued to date. Statements of Cyberbanking Accounting Concepts, aboriginal issued in 1978 are a allotment of FASB conceptual framework project. Read about Ball and Brown Study
These seven concepts are not a allotment of GAAP. Interpretations adapt or extend existing standards. There are about 50 interpretations appear to date. Technical Bulletins are the alternating blazon of advertisement and are guidelines on applying standards, interpretations, and opinions. Interpretations usually break some actual specific accounting affair that will not accept a big, abiding affect. Generally accustomed accounting attempt (GAAP) are a accumulating of rules, procedures and conventions that ascertain accustomed accounting practice. GAAP is not accounting in law, although the SEC requires that it be followed in cyberbanking advertisement by about traded companies.
Every day, accountants accomplish judgments about how to almanac business transactions. GAAP are guidelines or, added precisely, a accumulation of objectives and conventions that accept acquired over time to administer how cyberbanking statements are able and presented. The Cyberbanking Accounting Standards Board, the American Institute of Certified Accessible Accountants, and the Balance and Exchange Commission accommodate advice about adequate accounting practices. GAAP has four basal assumptions, four basal principles, and four basal constraints. These are the Statements of Cyberbanking Accounting Concepts.
The aboriginal of the four basal assumptions is the bread-and-butter article assumption, which assumes that the business is a abstracted article because the revenues and costs are kept abroad from claimed items. This applies alike for partnerships and sole proprietorships. The activity affair acceptance assumes that the business will be in operation for a continued time. This validates the methods of asset capitalization, depreciation, and amortization. The budgetary assemblage acceptance assumes a abiding bill is activity to be used. The FASB accepts the US dollar as the budgetary assemblage of record. The aeon acceptance assumes that the business operations can be recorded and afar into altered periods.
This is appropriate for allegory amid present and accomplished performance. FASB additionally created for basal attempt for accessible accounting to follow. The aboriginal of which is the actual bulk principle. This assumption requires companies to annual and address based on accretion costs rather than fair bazaar bulk for best assets and liabilities. The acquirement acceptance assumption requires companies to almanac acquirement back it is accomplished or accessible and earned, not back banknote is received. This way of accounting is alleged accretion base accounting. The third assumption is the analogous principle.
Expenses charge be akin with revenues as continued as it is reasonable to do so. The aftermost assumption is alleged the abounding disclosure principle. The abounding acknowledgment assumption states that any and all advice that affects the abounding compassionate of a company's cyberbanking statements charge be accommodate with the cyberbanking statements. Some items may not affect the balance accounts directly. These would be included in the anatomy of accompanying notes. Examples of such items are outstanding lawsuits, tax disputes, and aggregation takeovers. The aboriginal of the four constraints is the cost-benefit relationship. The cost-benefit accord states that the account of accouterment the cyberbanking advice should additionally be abounding adjoin the bulk of accouterment it.
Materiality, the additional constraint, states that acceptation of an account should be advised back it is reported. Materiality is based on acclimate or not the bulk address will conceivably aftereffect a third parties accommodation based on the advice presented. The industry convenance coercion states that accounting action should chase industry practices. This is important so that companies are easier to compare. Conservatism states that back allotment amid two alien solutions, the bourgeois adjustment should prevail. This is a simple abstraction that basically states that it is bigger to understate than to enlarge cyberbanking information. In 1984 the FASB created the Emerging Issues Task Force, which deals with new and abnormal cyberbanking affairs that accept the abeyant for acceptable accepted practice.
An archetype of an affair that would be addressed is accounting for Internet based companies. It acts added like a botheration clarify for the FASB and deals with short-term, bound resolvable issues, abrogation long-term, added common problems for the FASB. During the 1990¡¦s there was a advanced ambit of accounting scandals, which had not been credible in the past. It became axiomatic that change was bare in the auditing profession. Auditors were actuality afflicted by administration at ample corporations. SEC administrator Harvey L. Pitt fabricated the afterward account in a columnist account on January 17, 2002: The accomplished seven months accept activated the animation and resiliency of our country, our markets, and the advance public's confidence.
With the contest of September 11th, the defalcation of Enron and, aloof aftermost week, the allegation of Arthur Andersen, we accept witnessed how analytical our appropriately vaunted basal markets are to the strength, aegis and spirit of our Country and our economy. All Americans accept felt, and abide to feel, the after-effects of these events. In acknowledgment to the abrupt and accelerated bankruptcies of ample companies such as the Enron Corporation and WorldCom, Inc., apropos about the candor and believability of cyberbanking disclosures, and the capability of adjustment and blank of the accounting profession, the Sarbanes-Oxley Act of 2002 was allowable into law on July 30, 2002. (Sarbanes)
The law is alleged afterwards sponsors Senator Paul Sarbanes (D-MD) and Representative Michael G. Oxley (R-OH). It was accustomed by the House by a vote of 423-3. The Senate voted absolutely in favor (99-0). (Wikipedia) The foundation for this ameliorate was the conception of the Accessible Aggregation Accounting Blank Lath to baby-sit the audits of accessible companies. The PCAOB was accustomed ample ascendancy to adapt the auditing profession. The PCAOB has the ascendancy to appoint civilian penalties, and accessible abiding abolishment of a firm¡¦s adeptness to analysis accessible companies.
The abeyant appulse of antidotal accomplishments was acclaimed by above SEC Chief Accountant Lynn Turner, who told Balance Law Daily (August 27, 2004) that ¡§the PCAOB has to use these inspections to drive changes in the rules and, absolutely frankly, get boxy on enforcement.¡¨ Attractive aerial and low for any ¡§hot tip,¡¨ the PCAOB has alike accustomed online and blast systems for bearding tips and complaints. (Farrell) Over time, the accent of the PCAOB will alone increase.
In October 2004, William McDonough (PCAOB Chairman) declared that added issuer restatements should be accepted as the aftereffect of the 2004 inspections. The PCAOB is accepted to abound to over 300 abounding time advisers and 7 bounded offices beyond the country. (Farrell) The PCAOB will acceptable aggrandize its role, its responsibility, and its adherence to accomplish its mission to accommodate authentic and complete advice to the advance public.
The accounting profession has developed and afflicted awfully based on the cyberbanking needs of the time. Accounting started with actual basal account methods application bean arrangement in clay, and has acquired into a actual circuitous aggregate of rules and regulations. The approaching of the profession is abiding to see abounding added changes as the needs of investors and administration change. What becomes credible is that the approaching of accounting is abnormally bright. Afterwards all, so continued as there are transactions, there will be the charge for accountants to analyze, appraise and acclaim alternatives.
A case can be fabricated that the acumen the US is an all-embracing baton is the actuality that we accept such a well-developed arrangement of accounting. As such, all-around investors can attending at cyberbanking statements with a aplomb that encourages added investment. We can booty pride in alive that one of our best important exports has been our arrangement of cyberbanking reporting. No third apple country can aspire to bread-and-butter success after all-embracing accurate accounting standards artlessly because no broker is acceptable to accident basal on a adventure which cannot be quantified.
That is conceivably the greatest distinct botheration that alike countries as ample as Russia and China charge resolve. After accounting, chargeless action cannot exist. As globalization continues, the role of the accountant takes on accretion accent in creating bread-and-butter opportunities for every addressee of the world.
?«American Institute of Certified Accessible Accountants, Summary of AICPA Operations, August 21, 2005, ; http://www.aicpa.org/dues/summary.htm; ?«Farrell, James J. and Shadab, Houman B., The Focus of Approaching PCAOB Auditor Inspections, June 2005, ?«Giroux, Gary, A Short History of Accounting ; Business, ?«Kieso, Donald E., Weygandt, Jerry J., Warfield, Terry D., Intermediate Accounting 11th ed., Hoboken, N.J., 2004 ?«Library of Congress, America¡¦s adventure from America¡¦s Library, ?«Sarbanes, Paul S., PCAOB Selection Process, December 19, 2002, General Accounting Office Report, ?«Securities and Exchange Commission,
?«Smith, Murphy L., Luca Pacioli: The Ancestor of Accounting, March 26, 2002, ; http://acct.tamu.edu/smith/ethics/pacioli.htm; ?«Solomons, David, Making Accounting Policy, New York; Oxford University, 1986 ?«Wikipedia, Sarbanes-Oxley Act, September 1, 2005,
Order a unique copy of this paper