History Of Accounting Analysis Essay Example

accountants based their decisions on their own judgments (Chasteen, Flaherty, and O’Connor 10).

It is believed that Accounting originated in Italy during the fourteenth century (8). Luca Pacioli, an Italian monk, is widely recognized as the "father of accounting" (Murphy Smith 2002). He authored the first book titled "Everything about Arithmetic, Geometry and Proportions" (2002), which included a section on accounting. This section eventually became the world's accounting textbook (2002). Nonetheless, it should be noted that Brother Luca was not the actual inventor of accounting.

The book discusses the methods used by Venice merchants, as narrated by Brother Luca in 2002. According to Le Moine in 2004, a successful merchant must have enough cash, an accounting system, and a bookkeeper. The accounting system is based on ledgers and journals, and utilizes double-entry bookkeeping. In this system, debits (or "left") are recorded on the left side and credits on the right in 2004.

According to the entries' accuracy, the bookkeeper will conduct a trial balance by separately totaling debits and credits, resulting in matching sums (2004). Additionally, Brother Luca integrated assets, liabilities, capital, income, and expense accounts into his ledger (2002) when dual-entry bookkeeping was rudimentary. This was due to small partnerships and single proprietorships dominating businesses (10), so accounting solely served internal purposes (10). However, as the nineteenth century commenced, financial accounting expanded since businesses proliferated and capital requirements increased (10).

Business taxation was introduced in 2004, which, during that time, caused turmoil in the accounting industry. Despite companies showing profits, some still experienced bankruptcies. In court cases where accountants provided testimony, it was discovered that their bookkeeping practices adhered to the generally accepted accounting principles (GAAP) in 2004.

According

to the 2004 source, generally accepted accounting principles (GAAP) involve basic principles that accountants typically follow, without strict rules. In other words, "anything goes". GAAP requires financial statements including a balance sheet/statement of financial position and an income statement/income or earnings.

Chasteen, Flaherty and O'Connor (6) discuss the Statement of Cash Flows. In 1930, the American Institute of Accountants (AIA), now known as the American Institute of Certified Public Accountants (AICPA), established the Committee of Accounting Procedure to tackle new accounting challenges and goals (Le Moine 2004). This committee limited financial statement audits to certified public accountants, or CPAs.

In order to monitor audit reports of publicly traded companies, the Securities and Exchange Commission (SEC) was established, as noted by Chasteen, Flaherty and O’Connor (11). Despite not conducting audits themselves, the SEC relies on certified public accountants' reports in compliance with GAAP (11). The committee was replaced by the Accounting Principles Board (APB) in 1959 (13), which was eventually replaced by the Financial Accounting Standards Board or FASB in 1973 (2004).

The emergence of the conceptual framework era was facilitated by the establishment of FASB as an independent standard-setting accounting body separate from AICPA (Le Moine 2004). As a private, non-governmental organization, FASB took on responsibility for the "entire economic community" (Chasteen, Flaherty and O'Connor 15), and became the industry's standard-setting accounting body. FASB has four statements: 1.

The Journal of Accountancy's 1984 article introduced the GAAP, which includes four categories: 1) Statements of Standards, 2) ARB interpretations, 3) Technical Bulletins, and 4) Statements of Financial Accounting Concepts (15).

In 2008, Steven Rubin compared GAAP to a house's floor plan, stating that the fundamentals of financial reporting rely on a

foundation that may collapse if it is not solid. The Government Accounting Standards Board (GASB) "remodelled" the house in 1991 by altering some authority levels and dividing the standards between state and government entities. The revised house now has five floors, with the first floor (Category A) being the most authoritative level of GAAP.

Emory (2008) explains that there are three floors of accounting principles and statements. The first floor, also known as Category A, consists of officially established accounting principles such as FASB Statements of Financial Accounting Standards, FASB Interpretations, AICPA Options and Interpretations, and AICPA Accounting Research Bulletins. Category B, which is located on the second floor, involves analysis of accountants and organizations on accounting issues. This includes FASB Technical Bulletins, AICPA Industry Audit and Accounting Guides, and AICPA Statements of Positions. Finally, the third floor comprises statements from organizations coordinated by FASB deliberating on accounting issues in public forums. The purpose is to either understand and establish accounting principles or explain current accounting philosophy. These statements include FASB Emerging Issues Task Force consensus position and AICAP Practice Bulletins.

According to Emory University (2008), the Fourth Floor (Category D) contains pronouncements that aren't specified in the first three floors. These pronouncements include AICPA Accounting Interpretations, FASB Implementation Guides in Q and A format, uncleared AICPA Statements of Position, Industry Audit and Accounting Guides, and recognized industry practices. The Fifth Floor (Category E) covers pronouncements that aren't discussed in the first four floors and includes FASB Financial Accounting Concepts, AICPA Accounting Principles Board Statements, AICPA Issues Papers, pronouncements of other professional associations or regulatory agencies, AICPA Technical Practice Aids, as well as accounting textbooks, handbooks,

and articles (Emory University 2008).

The Emory University Business Library holds a copy of "Intermediate Accounting 3rd ed." by McGraw-Hill Publishing in the USA, published in 1989. It was referenced in an article titled "Accounting-The House of GAAP" on March 28, 2008.

<http://www.business.library.emory.

can beas "A web address for the business library at Emory University."

On September 7th, 2004, Jack Le Moine and James published a history of accounting on edu>, entitled "History of Accounting".

On March 28th, 2008, the website http://www.lemoineandjames.com/gaap/11history was accessed.

On March 26, 2002, Murphy Smith wrote about L. Luca Pacioli, who is considered to be the Father of Accounting. This article was published by Texas A&M University and can be accessed through their website as of March 28, 2008: <http://www.>

Salmonson, R. <acct.tamu.edu/smith>

F., Roger Hermanson, and James Don Edwards wrote the 3rd edition of A Survey of Basic Accounting, published in Illinois by Richard D.

1981 saw the publication of Irwin, Inc.