Life, like business, is all about give and take. Making sure the give is less that the take is the key to a healthy balance sheet, and is at the core of basic accounting practice. But, how did it all begin and how does Kenny G fit into the picture?
The early days of fraud prevention
The first records of financial transactions emerged during the first dynasty of Babylon (2285 – 2242BC), and in Egypt where failure to remember financial transactions was punishable by fines, mutilation, or death.
A scribe would typically record the details of an agreement on two clay tablets, essentially creating carbon copies and preventing later amendments by either party.
China developed sophisticated mechanisms during the Chao Dynasty (1122 – 256BC) that were only surpassed by the double-entry processes in the 19th century.
Greece’s contribution was primarily the introduction of coined money in about 600BC. The rule-loving Romans chipped in with the concept of a budget at around the same time, but the most famous example of medieval accounting is the Domesday Book, recorded by William the Conqueror upon invading England, which listed all real estate and the taxes owed upon them.
The introduction of journals and ledgers
As the world entered the Renaissance and trade began to increase between Europe and the Middle East, it became increasingly difficult to manage financial records without a formal system of written records.
In his 1494 book The Summa, author Luca Pacioli described the system of double-entry bookkeeping used by Venetian merchants, earning himself the title of “the father of accounting”.
He introduced the concept of journals and ledgers and introduced the words debit and credit from the Latin words debita and credo, which mean owed to the proprietor and owed by the proprietor respectively.
The birth of the CA
The Industrial Revolution forced the need for more advanced systems driven by external shareholders who were not directly involved in the business, but who had a vested interest in the results.
This rising importance of accountants culminated on July 6, 1854, when the Institute of Accountants in Scotland petitioned Queen Victoria for the grant of a Royal Charter recognising the profession. This was the birth of the title Chartered Accountant, or CA.
In modern times, no large business enterprise can succeed or even be recognised without the services of a registered CA, making accountancy one of the most important fields today, and one of the few that allows its members to explore every avenue of business.
For all the rigour these centuries of experience have introduced, mistakes do creep in. Some are malicious and some are genuine, but all point to the fact that any system is only as good as the people that implement it.
Some notable accounting scandals range from overstated results (Enron, 2000), bribery scandals (Lockheed, 1976), excessive bonus payments (Nortel, 2003) and Ponzi schemes (Madoff, 2008).
- Enron used fraudulent accounting practices to overstate profits and minimise debts so as to appear financially healthy. This was especially notable because it called into question the accounting practices of many corporations in the USA, and led to the dissolution of the Arthur Anderson accounting company.
- Lockheed paid $22million in illegal bribes to foreign officials between the 1950s and 1970s. This is notable primarily because the legislation changes made at the time have not prevented similar charges being laid against arms manufacturers globally now.
- Nortel’s erroneous accounting allowed the company to show a fake profit in 2003, and pay out $70million in bonuses to top managers before it had to reverse the mistakes in following years. This shows that despite careful auditing practices, the complexities of modern accounting make false reporting possible.
- One of the most famous fraudulent practices was revealed in 2008, when former NASDAQ chairman Bernard Madoff admitted to running an elaborate Ponzi scheme worth $64.8 billion and which spread across 4,800 clients. He was sentenced to 150 years in prison, which harks back to the more rigorous punishments meted out by the early Egyptians.
Famous accountants (not famous for accounting!)
This may, perhaps, explain why some notable accounting graduates have chosen to gain fame and fortune in more gentle disciplines: Kenny G graduated Magna Cum Laude from the University of Washington before picking up his saxophone full time, and author John Grisham’s first degree was in accounting from Mississippi State.
Belying the notion that accountants have no fun, comedian Bob Newhart started his career as an accountant in downtown Chicago before starting his famous telephone routines.
- License: Creative Commons image source
Tracey Walker isn’t an accountant, but she trusts her accountant implicitly to keep her on the financial straight and narrow. If you want to gain that sort of trust, you can start by doing a course search for MYOB bookkeeping courses on Now Learning, an online education portal in Australia.