A History of ACCOUNTANCY
By Edward Mendlowitz
Accounting is perhaps one of the most innovative professions. Although the CPA is a relatively young designation, the skills of a CPA are deeply rooted in history.
3000 B.C. to 2500 B.C.
Ancient Sumerians invent the world’s first written language. Cuneiform eases record-keeping requirements for Sumerian cities expanding trade. Across the ancient world, rulers tax their people to finance public works, making records necessary to account for transactions.
The commercially oriented Phoenicians invent a 22-character phonetic alphabet, probably for bookkeeping purposes and to prevent themselves from being cheated by the more advanced Egyptians.
An Egyptian sarcophagus describes the decedent as, among other things, a “comptroller of the scribes.” The rise of commerce and expansion of business activity has expanded the role of the accountant. The Old Testament may have recorded the first “management consultant” as Jethro advises Moses on delegating authority. The “Book of Exodus” (38:21) also has the first auditor with Moses engaging Ithamar to do an audit of the riches contributed for the building of the Tabernacle to be used in the 40-year journey.
Egyptians invent the bead-and-wire abacus.
Aristophanes refers to the incorrect accounts of Pericles in his play The Clouds in 423 B.C. Ancient Egyptians and Babylonians have instituted auditing systems where everything that went into and came out of storehouses was double-checked. Such “audit reports” were given orally, thus the later term “auditor,” derived from the Latin audire, to hear.
Egyptians inscribe the Rosetta Stone, a key to their language and civilization, which includes the account of a tax revolt and the reaction to it by the Egyptian ruler Ptolemy V. Taxation has become a fuel of Mediterranean civilization, creating the need for scribes to record payments.
The term “rationator” (accountant) is used in a deed.
William the Conqueror promulgates the Doomsday Book, which contains records of what is due to the king and his lords in such detail that it defies refutation. William instituted feudalism in Britain after defeating the English King Harold, and the system required more record keeping.
The chief magistrate of Milan renders full accounts of goods carried on ships. Early Italian republics have passed laws requiring that public scribes keep track of merchandise.
Poet Geoffrey Chaucer works as the comptroller of customs in the port of London. Chaucer’s Canterbury Tales includes a bragging merchant and a reeve whom “no auditor could ever win on.” By the close of the Middle Ages, commerce is so developed that credit transactions have become widespread, and record keeping (and record keepers) need to be more exact.
Rodrigo Sanchez becomes the first accountant in the New World, being engaged by Queen Isabella to keep track of the “riches” Columbus was expected to encounter.
Italian monk Luca de Pacioli officially introduces “double entry” bookkeeping in his Summa de Arithmetica, a compendium of mathematical knowledge. Pacioli bases his work on procedures that have generally been used in Genoa, Florence, Milan and Venice since about 1350. Double–entry bookkeeping made it easier for them to detect errors and provided a fuller picture of business activity—a balance sheet along with an income statement.
James Peele writes what is probably the first original English text on bookkeeping.
The Collegio dei Raxonati becomes the world’s first society of accountants. By 1669, no one will be permitted to practice in Venice without being a member of the college.
The East India Company is founded. The trading company introduces invested capital and dividend distributions, creating a great need for accountability to investors.
Johnannes Dyckman is engaged as bookkeeper for New Amsterdam under Gov. Peter Stuyvesant. Dyckman will be replaced one year later because of improperly rendered accounts. The accounting business has already started to grow in America.
1775 to 1783
The American Revolution indirectly causes growth of accountancy in Britain as creditors appoint accountants as trustees during an explosion of bankruptcies. In 1793, more than 20 banking firms in England and Scotland fail, and accountants step in to settle their affairs.
The U.S. government creates the Treasury Department, including a comptroller and auditor. Benjamin Franklin urges businesspeople to have training and facility in “accompts.” Franklin earned money as a young man keeping books of account, and used those skills later to create the postal service. Thomas Jefferson’s two bookkeeping texts are among the first books in the Library of Congress.
1841 to 1850
Expanding railroad empires employ accountants as auditors independent of management.
There are 264 “accomptants” listed in London’s directory of professionals. In 1799, there were only 11; in 1840, there were 107.
Scotland formally recognizes the profession under the designation of “chartered accountants.”
England formally recognizes the chartered accountant.
The first accounting organization in the United States is established.
New York state officially recognizes the profession under the license of certified public accountant.
The New York State Society of Certified Public Accountants is organized on January 28. Other states rapidly follow. Charles Waldo Haskins is elected the first president of the NYSSCPA. Haskins already was the first president of the Board of State Examiners of Public Accountants in 1896. In 1900, he becomes the first dean of the New York University School of Commerce, Accounts and Finance.
1895 to 1905
The New York, Ontario and Western Railway Company becomes the first railroad in the United States to issue audited financial statements. United States Steel is the first major industrial corporation to issue an audited report. Equitable Life Assurance Society becomes the first insurance company to have an independent audit. The floodgates were opened for certified public accountants. Meanwhile, major universities like the University of Chicago and Dartmouth establish accounting courses, though business colleges have been organized to teach bookkeeping and accounting skills since the mid-19th century.
The enactment of the income tax laws establishes accountants as the premier profession in this arena. At the same time, CPA management expertise catapults the profession as top consultants in boardrooms and on factory floors.
The Ultramares case establishes the principle that auditors have liability to third parties relying on the auditor’s report. The American Institute of CPAs eliminates the word “certify” from the report and replaces it with “examined” to emphasize the report was an opinion, not a guarantee.
The Academy of Motion Picture Arts and Sciences chooses Price Waterhouse to oversee the voting for the Oscar awards in 1933, in response to the widely held belief that the awards were rigged. The Academy publicizes the engagement to create public confidence in the Oscar.
A firm records fictitious receivables and nonexistent inventory in warehouses, leading to an auditing standard requiring the observance of physical inventory and the direct confirmation of accounts receivable. It also leads to the reporting consistency requirement and tests of the internal control.
The Securities and Exchange Commission requires the auditor’s report to state that the examination was made in accordance with generally accepted accounting standards.
The Continental Vending Case establishes that the auditor must disclose improper activities of the client or the client’s officers when such activities are known to the auditor and may reasonably affect the audited financial statements; and that compliance with GAAP is not a conclusive defense against criminal liability.
Public awareness of generally accepted accounting standards leads to the formation of the independent Financial Accounting Standards Board.
2001 to Present
Enron, WorldCom and a slew of financial reporting scandals lead to the demise of Arthur Andersen and the creation of the Sarbanes-Oxley Act and the Public Company Accounting Oversight Board. New York legislators consider bills to update the state’s accountancy laws.
Edward Mendlowitz is a managing partner with Mendlowitz Weitsen LLP CPAs in East Brunswick, N.J., and is a former chair of the Society’s History Committee and current member of the Estate Planning Committee.
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