Accountancy (profession) or accounting (methodology) is the measurement, statement or provision of assurance about financial information primarily used by managers, investors, tax authorities and other decision makers to make resource allocation decisions within companies, organizations, and public agencies. The terms derive from the use of financial accounts.

Accounting is the discipline of measuring, communicating and interpreting financial activity. Accounting is also widely referred to as the "language of business".

Financial accounting is one branch of accounting and historically has involved processes by which financial information about a business is recorded, classified, summarised, interpreted, and communicated; for public companies, this information is typically publicly-accessible. By contrast management accounting information is used within an organisation and is typically confidential and accessible only to a small group, mostly decision-makers. Tax Accounting is the accounting needed to comply with jurisdictional tax regulations.

Practitioners of accountancy are known as accountants. There are many professional bodies for accountants throughout the world. Many allow their members to use titles signifying their membership or qualification level. Examples are Chartered Certified Accountant (ACCA or FCCA), Chartered Accountant (FCA, CA or ACA), Management Accountant (ACMA, FCMA or AICWA), Certified Public Accountant (CPA) and Certified General Accountant (CGA or FCGA).

Auditing is a related but separate discipline, with two sub-disciplines: internal auditing and external auditing. External auditing is the process whereby an independent auditor examines an organisation's financial statements and accounting records in order to express an opinion 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 aims at providing information for management usage, and is typically carried out by auditors employed by the company, and sometimes by external service providers.

Accounting/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.

Accounting scholarship is the academic discipline which studies accounting/accountancy.

Modern accounting

Accounting is the process of identifying, measuring and communicating economic information so a user of the information may make informed economic judgments and decisions based on it.

Accounting is the degree of 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.

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, providing a simple way to check for errors. This system was first used in medieval Europe, although claims have been completed that the system dates back to Ancient Rome or 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.

History of accounting

Early 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 (New Testament) in the Book of Matthew, in the Parable of the Talents . The Islamic Quran also mentions simple accounting for trade and credit arrangements ).

Twelfth-century A.D. Arab writer Ibn Taymiyyah mentioned in his book Hisba (literally, "verification" or "calculation") detailed accounting systems used by Muslims as early as in the mid-seventh century A.D. These accounting practices were influenced by the Roman and the Persian civilisations that Muslims interacted with. The most detailed example Ibn Taymiyyah provides 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 in the Middle East with modifications and enrichments until the fall of the Ottoman Empire.

Luca Pacioli and the birth of modern accountancy

Painting of Luca Pacioli, attributed to Jacopo de' Barbari

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 (Summa on arithmetic, geometry, proportions and proportionality, 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 instead of 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 organisation'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.

Post-Pacioli

The first known book in the English language on accounting was published in London, England by John Gouge (or Gough) in 1543. It is described as A Profitable Treatyce called the Instrument or Boke to learn to know the good order of the kepyng of the famouse reconynge, called in Latin, Dare and Habere, and, in English, debtor and Creditor.

A short book of instructions was also published in 1588 by John Mellis of Southwark, England, in which he says, "I am but the renuer and reviver of an ancient old copies printed here in London the 14 of August 1543: collected, published, made, and set forth by one Hugh Oldcastle, Schoolmaster, who, as reappeared by his treatise, then taught Arithmetics, and this booke in Saint Ollaves parish in Marko Lane." Mellis refers to the fact that the principle of accounts he explains (which is a simple system of double entry) is "after the former 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, andthereforeproving that the professional accountant was then known and employed.

Accountancy qualifications and regulation

Main article: Accountant

The expectations for qualification in the profession of accounting vary between different jurisdictions and countries.

Accountants may be certified by a variety of organisations or bodies, such as the Association of Accounting Technicians (AAT), British qualified accountancy bodies including the Chartered Institute of Management Accountants (CIMA), Association of Chartered Certified Accountants (ACCA) and Institute of Chartered Accountants, and are recognised by titles such as Chartered Management Accountant (ACMA or FCMA) Chartered Certified Accountant (ACCA or FCCA) and Chartered Accountant (UK, Australia, New Zealand, Canada, India, Pakistan, South Africa, Ghana), Certified Public Accountant (Ireland, Japan, US, Singapore, Hong Kong, the Philippines), Certified Management Accountant (Canada, U.S.), Certified General Accountant (Canada), or Certified Practicing 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 authorised by legislation to practice 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.

The "Big Four" accountancy firms

The "Big Four auditors" are the largest multinational accountancy firms.

PricewaterhouseCoopers

Ernst & Young

KPMG

Deloitte Touche Tohmatsu

These firms are associations of the partnerships in each country instead of having the classical structure of holding company and subsidiaries, but each has an international 'umbrella' organization for coordination (technically known as a Swiss Verein).

Before the Enron and other accounting scandals in the United States, there were five large firms and were called the Big Five: Arthur Andersen, PricewaterhouseCoopers, KPMG, Deloitte Touche Tohmatsu and Ernst & Young.

On June 15, 2002, Arthur Andersen was convicted of obstruction of justice for shredding documents related to its audit of Enron. Nancy Temple (Andersen Legal Dept.) and David Duncan (Lead Partner for the Enron account) were cited as the responsible managers in this scandal as they had given the order to shred relevant documents. Since the U.S. Securities and Exchange Commission does not allow convicted felons to audit public companies, the firm agreed to surrender its licenses and its right to practice before the SEC on August 31, 2002. A plurality of Arthur Andersen joined KPMG in the US and Deloitte & Touche outside of the US. Historically, there had also been 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 resembleing 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.

Bodies and organizations

Accounting standard-setting bodies

International

International Accounting Standards Board

United States

Financial Accounting Standards Board (FASB)

AICPA Accounting Principles Board (APB)

AICPA Committee on Accounting Procedure

American Institute of Certified Public Accountants (AICPA)

U.S. Securities and Exchange Commission

Governmental Accounting Standards Board (GASB)

Federal Accounting Standards Advisory Board (FASAB)

Germany: Accounting Standards Committee of Germany (ASCG, in German: DRSC)

Australia

Institute of Chartered Accountants in Australia

Canada

Accounting Standards Board "AcSB"

Ghana

Institute of Chartered Accountants of Ghana

Hong Kong (see Accountancy in Hong Kong)

Hong Kong Institute of Certified Public Accountants (HKICPA)

India

Institute of Chartered Accountants of India

Malaysia

Malaysian Accounting Standards Board

Malaysian Institute of Accountants

Nigeria

Institute of Chartered Accountants of Nigeria (ICAN)

New Zealand

Accounting Standards Review Board

New Zealand Institute of Chartered Accountants

Ireland

Institute of Chartered Accountants in Ireland

South Africa

South African Institute of Chartered Accountants (SAICA)

United Kingdom

Accounting Standards Board

Iran

Accounting Standards Board

Professional organizations

American Institute of Certified Public Accountants (AICPA)

Association of Accounting Technicians (AAT)

Association of Chartered Certified Accountants (ACCA)

Association of National Accountants of Nigeria (ANAN)

Canadian Institute of Chartered Accountants (CICA)

Certified General Accountants Association of Canada (CGA)

Guild of Industrial,Commercial and Institutional Accountants, Canada (ICIA)

Chartered Institute of Cost & Management Accountants (CICMA)

Chartered Institute of Management Accountants (CIMA)

Chartered Institute of Public Finance and Accountancy (CIPFA)

CPA Australia

German CPA Society (GCPAS)

Hong Kong Institute of Certified Public Accountants

Institute of Chartered Accountants in Australia

Institute of Chartered Accountants in England and Wales (ICAEW)

Institute of Chartered Accountants in Ireland (ICAI)

Institute of Chartered Accountants of India

Institute of Chartered Accountants of Nigeria (ICAN)

Institute of Chartered Accountants of Pakistan (ICAP)

Institute of Chartered Accountants of Scotland (ICAS)

Institute of Cost & Management Accountants of Pakistan (ICMAP)

International Federation of Accountants

Malaysian Institute of Accountants

New Zealand Institute of Chartered Accountants

Ordre des Experts Comptables de Tunisie

Philippine Institute of Certified Public Accountants

South African Institute of Chartered Accountants (SAICA)

Government agencies

Government agencies enforce the securities laws. Public companies must file financial reports with these government agencies.

United States

U.S. Securities and Exchange Commission (SEC) (for public companies)

Federal Reserve (for banks)

Germany

German Federal Financial Supervisory Authority (BaFin)

India

Reserve Bank of India (for banks)

Securities & Exchange Board of India (SEBI)(for public companies)

Oversight boards (regulators for the accounting industry)

Oversight boards are new, private-sector non-profit organizations that were set up after the Enron scandal to oversee the auditors of public companies.

United States

Public Company Accounting Oversight Board - public companies

Germany

German Auditor Oversight Commission (AOC, in German: APAK)

Auditing standards-setting bodies

International

International Auditing and Assurance Standards Board

United States

Public Company Accounting Oversight Board - public companies

American Institute of Certified Public Accountants - general

Government Accountability Office - recipients of federal grants

Information Systems Audit and Control Association (ISACA) (Information System Auditing Guideline)

Germany

German Institute of Certified Public Accountants (IDW)

Australia

AUASB - Auditing & Assurance Standards Board

Hong Kong (see Accountancy in Hong Kong)

Hong Kong Institute of Certified Public Accountants (HKICPA) (formerly known as Hong Kong Society of Accountants (HKSA))

South Africa

Public Accountants and Auditors Board - public companies

United Kingdom

Auditing Practices Board

India

Auditing & Assurance Standards Board

Pakistan

Institute of Chartered Accountants of Pakistan

Topics in accounting

See list of accounting topics for complete listing.

Standards

International Financial Reporting Standards (IFRS), formerly known as International Accounting Standards (IAS)

United States typically accepted accounting principles

German HGB Accounting Standard

United Kingdom typically accepted accounting principles

Hong Kong Hong Kong Financial Reporting Standards

Auditing

Assurance services

Audit

Information technology audit

Internal audit

Accountancy methods and fields

Lean accounting

Cost accounting

Cash-basis and accrual-basis accounting

Financial accountancy

Fund Accounting

Internal and external accountancy

Management accounting

Project accounting

Positive accounting

Environmental accounting

Tax accounting

Accounting Principles

Accounting principles, rules of conduct and action are described by various terms such as concepts, conventions, tenets, assumptions, axioms and postulates.

Accounting concepts

Entity concept

Dual aspect concept

Going concern concept

Accounting period concept

Money measurement concept

Historical Cost concept

Periodic matching of cost and revenue concept

Verifiable objective evidence concept

Realisation concept

Accounting methods (includes a discussion on the concept of accruals)

Understandability

Relevance

Reliability

Comparability

Accrual

Accounting conventions

Convention of disclosure

Convention of materiality

Convention of consistency

Convention of conservatism

Tools for accounting

Desktop software

Online accounting sites

Types of accountancy

The following list is intended to give some idea of the breadth and scope of the accountancy profession:

lean accounting

auditing

bookkeeping

chartered accountant

cost accounting

management accounting

financial accounting

forensic accounting

taxation advice

public accountancy

internal accountancy

external accountancy