Accounting Career Background

Even before the introduction of the first coins in about 600 BC, farmers kept track of their livestock and other valuable possessions in order to have an accurate financial record. Having 16 sheep, for example, meant the ability to trade up to 16 sheep for something else of equal value. The farmer needed to know how many sheep to keep to ensure continued offspring, and how many he could trade. This was the first, most basic, type of accounting.

Financial records have been found in the ruins of ancient Greek and Roman towns showing that accountants and bookkeepers were at work balancing the financial records of businesses. Once currency in the form of paper money came into play—about AD 600 in China, but not until the 1600s in Europe—more advanced accounting skills were needed to keep track of where the money went.

In 1494, Luca Pacioli, an Italian mathematician, wrote a treatise on accounting and bookkeeping that established the foundation for modern bookkeeping methods. One of these was the double entry method of bookkeeping, in which each transaction is recorded twice in a financial ledger, once to the debit of one account and once to the credit of another. This method allowed businesses to keep track of the movement of their funds.

Throughout the 15th and 16th centuries, how-to books on bookkeeping were printed in Italy. Since printing presses made reproductions relatively inexpensive, the disbursement of information on the new bookkeeping methods was swift. Presses in major cities in Italy were able to write and print their own manuals on bookkeeping and accounting.

As property investment, taxation, and tax write-offs made running a business more complex, there was a growing need for flexible, comprehensive bookkeeping methods. In the late 18th century, the industrial revolution gave birth to large businesses that were involved in a vast array of production and manufacturing services. The heads of these companies needed accurate financial records to determine the cost and effectiveness of doing business.

The accounting profession in the United States dates back to the 1880s, when English and Scottish investors began buying stock in American companies. Needing experts to keep an eye on their investments, they sent over accountants. Many of these accountants stayed on to establish their own accounting businesses.

Federal legislation, including the introduction of the income tax in 1913 and the excess profits tax in 1917, helped bring about an accounting boom that has made the profession one of the largest in business today.

In order to establish standardization and identification of qualified public accountants, the certified public accountant (CPA) examination was developed in 1917. The Uniform CPA Exam measures professional competence and earning the CPA certificate is evidence of professional qualification. The American Institute of Certified Public Accountants grades and prepares the nationally recognized four-part CPA examination, which is administered by the state boards of accountancy.

Other qualifying tests have also been developed over the years. Some of them include the licensing exams for the Certified Management Accountant (CMA) credential for professionals who work primarily for corporations, Certified Internal Auditor (CIA), and the Certified Information Systems Auditor (CISA). These credentials help to establish an accountant’s expertise and help potential clients to identify the accountant that meets their needs.

Until the 1980s, eight large, conservative, and stable firms known as the Big Eight dominated the industry. Accounting jobs tended to be predictable and dependable. But that changed as accounting firms became “lean and mean,” consolidating and diversifying to become more competitive. Some, like Arthur Andersen, added new services such as management and computer consulting. Others bought out rival companies. The Big Eight was reduced to the Big Six as companies were hit by the recession and the savings and loan crisis.

Accounting firms were blamed as savings and loan institutions went bankrupt and were sued for faulty audits. Facing costly lawsuits while in the midst of a recession, firms began to cut jobs in an effort to lessen costs. Salaries were reduced, training programs cut, and the days of guaranteed employment, promotion, and job security came to an end.

However, the number of large corporations continues to increase as mergers and acquisitions dominate the marketplace, and accounting continues to grow in complexity. Smaller companies are experiencing transitions as well and are outsourcing their accounting work, as well as other back office services, to outside contractors in an effort to cut costs. Accounting now involves more than “bean counting” and more than simply balancing daily financial journals and account ledgers for a business. Accountants must be able to draw pertinent financial data from a variety of sources and analyze complicated transactions, often involving huge sums of money.

New technologies flourished during the 1990s, and much of the work that was done by hand is now computerized. Firms are utilizing new electronic systems for submitting and preparing financial statements, and new ways of tracking costs have been developed. Online services and CD-ROMs now provide a framework for financial planning and allow individuals and small businesses to manage their own accounting and prepare and file their tax returns.

The accounting industry will always face new challenges. Working within the global economy and integrating new technologies such as e-commerce are just a few of the issues that are changing the face of the industry.

In 1998, the Big Six became the Big Five with the merger of two of the industry’s powerhouses. To better compete in the global marketplace, Price Waterhouse and Coopers & Lybrand joined to form PricewaterhouseCoopers. In 2002, the Big Five became the Big Four as a result of Arthur Andersen’s indictment for obstruction of justice for its role in the bankruptcy of Enron Corporation, which defrauded investors and energy consumers on a massive scale. Today, the four largest firms are Deloitte Touche Tohmatsu (now doing business as Deloitte), Ernst & Young, KPMG, and PricewaterhouseCoopers.

In response to this recent financial crisis, the federal government passed the Sarbanes-Oxley Act in 2002. This law requires higher levels of financial accounting and disclosure from all publicly held companies.

Accounting Career Field

Accounting Career Background