Accounting is one of the oldest professions in civilized human history and has been around for centuries. From the plains of ancient Mesopotamia and Sumer to the concrete walls of Italy and Scotland, what started as a system for managing currency spread like a spider web, expanding its horizons and growing in depth. Even as we sit today on the shoulders of giants, accounting continues to grow and evolve before our eyes. The times are changing, and accounting has grown from the one-dimensional seed it used to be into a robust tree, brimming with potential with branches extended in every direction.
With as rich a history as that, brevity would be an injustice to the noble profession. Giving accounting its due, let us spare no expense in uncovering the secrets of accounting today. Let’s explore the origins of accounting, searching for answers to questions about its true nature, evolution, and current state.
While we cannot claim to have a definitive answer, we can surely look back with a fond and curious eye at the evolution of accounting and paint a picture of the profession to the best of our abilities. We leave it to you to make of this picture what you will. Our job is only to present what we know and pass on the knowledge of the past for a brighter future.
Table of Contents
What is Accounting?
The definition of accounting in business is quite straightforward, but before we start diving into a bunch of professional jargon, let’s take a moment to look at it from another angle. The word accounting traces back to Latin roots, originally meaning “to count”. With the passage of time, the term came to be used for the profession of counting, in today’s case, anything of monetary value. The term has also been likened to the word accountability, which most accounting professionals can attest is a significant aspect of the job. So, in a purely non-technical sense, accounting can be defined as the practice of counting anything of monetary value and being accountable and holding others accountable for the fair and accurate representation of this counting.
The definition of accounting in business is relatively less wonderous but nevertheless important, as it is the commonly accepted definition of the word in the context of being a profession. As eloquently put by our experts at EA,
Accounting is often regarded as the language of business. It is a track record of an enterprise’s expenses, investments, assets, and profits or debts.
As a profession, the definition of accounting is a collection of tasks involving data analysis, regular financial record maintenance, financial advisory, and consulting. These tasks include bookkeeping, accounting, internal and external auditing, financial statement analysis, financial planning, budgeting, and cash flow projections, to name a few of the core responsibilities expected of an accounting professional.
The History of the Accounting Profession
The Advent of Accounting in Ancient Mesopotamia
While not much is known about the ancient Mesopotamian and Babylonian civilizations, what we can say definitively is that the concept of currency did in fact exist as early as 650BC, as concluded by the Smithsonian Magazine. Evidence from a research study in the Accounting Historians Notebook suggests that not only was currency a concept in those times but also that scribes, alongside writing, were employed to count the coin. Records in the form of tablets found in the excavated ruins of Mesopotamia and Babylon go so far as to show us that these civilizations also had their own system of bookkeeping and auditing their own records.
The Beginnings of Accounting in the Western World
On the Western front, the earliest origins of accounting are difficult to trace, but going off of the same thread of inquiry as with the East, we find that currency had been recognized and used for commerce in the West in the first millennium AD. From then on, accounting slowly but surely developed, with Greece and later the Roman Empire making great strides in financial management.
Looking at it from the perspective of institutionalized accounting, we find that the oldest surviving bank in history was found in Siena, Tuscany, in 1400 AD. Crafting an exact timeline of the development of accounting as a profession is difficult, partly due to the simple fact that there was no linear development process. Accounting developed worldwide in various forms over time, independent of external influence. In China and India, Greece and Italy, Medieval Europe and Scandinavia, and all across the globe, civilizations, as if by some instinct, came to a similar conclusion in matters of currency and created their own permutations of accounting.
Luca Pacioli, The Father of Modern Accounting
Luca Pacioli, in 1492, became known far and wide as the progenitor of what we now know as accounting. In his book, Summa de Arithmetica, Geometria, Proportioni et Proportionalita, Luca highlighted the Venetian merchants and their definition of accounting in business. In particular, he stressed their double-entry accounting method, which would later be recognized as the foundation on which modern accounting now rests.
Pacioli, it must be noted, is not credited for devising this foundation but instead for being the reason it became known worldwide and would later be adopted as a standard framework for the profession. Were it not for his book circulating these ideas, we cannot be sure that modern accounting would be where it is today. The accounting profession, Nay, the entire world, owes a great debt to Luca Pacioli for his services.
The Establishment of the Accounting Profession in Scotland
While Pacioli certainly brought the word of accounting to the masses, we must not forget the ones who sowed the seeds that would later bloom into the accounting we know and love today. In the middle of the 19th century, the Institute of Accountants in Glasgow, Scotland, wrote a petition to the Queen, demanding that accounting be made its own profession distinct from solicitation, which it was then bunched together with. In 1854, the term Chartered Accountant was first coined by the institute for its members.
Signed by 49 accountants from Glasgow, the petition asserted the longstanding existence of the accounting profession in Scotland as a highly esteemed and distinct field. It emphasized the rapid growth in practitioners and underscored the diverse skills essential for a professional accountant. Beyond mathematical proficiency, the petition pointed out that accountants needed familiarity with general legal principles, as they were frequently called upon by the courts to provide testimony on financial matters, a practice that continues to this day.
The Association of Chartered Certified Accountants (ACCA) is Established in London 1996
The Industrial Revolution, gaining momentum in Britain by the mid-1800s, marked London as the global financial hub. The rise of limited liability companies and the expansion of large-scale manufacturing and logistics created a heightened demand for technically skilled accountants capable of navigating the increasingly intricate landscape of global transactions.
The growing significance of accountants played a pivotal role in elevating accounting to a recognized profession, initially in the UK and subsequently in the US. In 1904, the formation of the London Association of Accountants by eight individuals aimed to broaden access to the profession beyond the limitations of the UK’s older associations. Following various name changes, the London Association of Accountants officially adopted the Association of Chartered Certified Accountants (ACCA) in 1996.
The Accounting Profession in 2023
Without sparing much blood, sweat, and tears, those in the past left us their legacy in the form of accounting, now a stout tree of a profession. Its branches, ever extending, accounting has come a long way from its humble beginnings as a simple system of counting and accountability. Now, accounting as a profession carries a plethora of different career paths under its umbrella. What was once just simple bookkeeping now involves legality, data science, and administrative and managerial elements, to name a few. With accounting becoming so interdisciplinary and having so many sub-categories for specialization, there is no possible way for us to just leave it at that. So, without further ado, let’s keep chugging along and delve into some of the staple specialized forms of accounting that have risen to prominence recently.
Financial Accounting
Financial accounting essentially deals with recording, organizing, and reporting financial data. Financial data is all of a business’ transactions over a specific timeframe. Typically, financial accounting encompasses all the basic tasks expected of an accounting professional, i.e., bookkeeping, account management, and financial statement compilation.
Most small businesses typically require just these services, so financial accounting professionals have no shortage of career opportunities. While working for accounting firm services has its benefits, we must stress that the freelance accounting industry is currently booming, with many opportunities for remote financial accounting work available. Whichever way you go, financial accounting is the starting point before you begin delving into specializations, and so any accountant can easily lean into a financial accounting role while leveraging their specialization for further opportunities.
Outsourcing is also a goldmine for opportunity, with accounts payable outsourcing services providers consistently finding work.
Management Accounting
On top of financial accounting, management accountants or managerial accounting professionals leverage the financial data compiled by the business for decision-making purposes. The typical process involves generating quarterly or bi-annual reports of the business’s financial data, which is then processed to extract KPIs and other indicators that help upper management make decisions.
Management accounting doesn’t just involve compiling and presenting the data but also making strategic contributions to the decision-making process. Usually, this is the textbook definition of accountancy consulting, where you tap into the accounting professionals’ vast reservoirs of accounting knowledge to aid in your future planning. The job description includes cash flow projections, budgeting, and financial planning.
Management accounting is a favorite among accountants, especially those acting as CFOs for their client businesses. While small businesses with next to no employees may not retain such services, nevertheless, there are tons of businesses still out there that would happily onboard a skilled management accounting. Remember that competition is tough, so you better have some added expertise to help land you a great position.
Cost Accounting
While management accounting is all about consulting and helping with decision-making for the business, cost accounting is about all things cost-related. Cost accounting is intrinsically tied to everything relating to the cost of production of a product or provision of a service. These professionals help you decide product pricing, help in budgeting and planning, and provide all of the cost-related key data needed to make decisions.
Remember that cost accounting is not compliant with the GAAP standard, so you cannot formally offer cost accounting services. However, cost accounting is an informal process that businesses leverage internally to aid decision-making. Because of this, cost accounting is not a specialization so much as it is a bonus skill that boosts your chances of securing good employment opportunities.
Tax Accounting
Financial accountants commonly adhere to a specific set of regulations for disclosing a company’s financial status, whereas tax accountants frequently follow a distinct set of rules. These regulations are determined at the federal, state, or local level, depending on the type of submitted tax return.
Tax accountants must balance adhering to compliance requirements and strategically making decisions to minimize a company’s tax obligations. In overseeing the complete tax process, a tax accountant manages tasks ranging from the strategic development of the organizational chart to operational aspects, compliance, reporting, and the settlement of tax liabilities.
Tax accountants are in high demand almost all the time, with many businesses needing help with their tax compliance and filing. With a specialization in tax accounting, you significantly boost your career prospects and can safely guarantee that you will always have work. Even better if you can be well-versed in tax laws and policy in multiple states.
The Importance and Impact of Professional Accounting in Business
Professional Accounting is the Key to Growth
Without a dedicated accounting professional, businesses will likely be stunted regarding growth. To grow your business, you need to be able to see your financial performance and take measures to increase profitability while reducing costs. All of this sounds difficult on paper but can be next to impossible in reality if you don’t have help. Basic bookkeeping and accounting is enough work to keep you occupied for hours, so if you pile on the workload to do the more advanced stuff like financial analysis, you’ll find that there aren’t enough hours in the day to do everything on your lonesome.
Professional Accounting Builds Trust
Think about it: would you do business with someone you cannot guarantee will keep their word and try to maintain a healthy and lucrative relationship?
This is precisely the air businesses have around them when a professional accountant is not on board. External investors will think the business is too risky to invest in, while potential industry collaborators may also walk away from the hassle that an unoptimized, self-managed accounting function can bring. If you want to thrive and stay in the market, sooner or later, you will need to have a professional accountant who can vouch for you and make sure your reputation remains spotless in the market.
Professional Accounting Keeps You Out of Trouble
Whether it’s Uncle Sam or the customers, professional accounting is the strongest protective measure against any trouble erupting. With proper accounting and reporting in place and timely tax filing and auditing, businesses can avoid many potential headaches. It is immensely risky doing your accounting yourself, with even one clerical error potentially spiraling out of control, and then you do not even have an accounting services firm or professional to damage control.
Conclusion
While we could talk endlessly about the intricacies of the accounting profession, we risk turning an engaging blog into more of a high school textbook. So, with that, our experts will take their leave with this quick and hopefully enjoyable flashback to the accounting profession from inception to the present day. Accounting has come far, and with the advent of AI and so many technological leaps, things are just getting started, and much more is coming on the horizon.
This may be the end for now but never fear. We will be back to drop off some more morsels of accounting history and the career landscape in the future. Or, if you would like hands-on knowledge from a veteran CPA, look no further than EA CEO Haroon Jafree. You can book a free consultation with him today and delve into the accounting world, especially outsourced accounting, for your business.