The history of accounting is as old as civilization, key to important phases of history, among the most important professions in economics and business, and fascinating. Accountants participated in the development of cities, trade, and the concepts of wealth and numbers. Accountants invented writing, participated in the development of money and banking, invented double entry bookkeeping that fueled the Italian Renaissance, saved many Industrial Revolution inventors and entrepreneurs from bankruptcy, helped develop the confidence in capital markets necessary for western capitalism, and are central to the information revolution that is transforming the global economy.
There are no household names among the accounting innovators; in fact, virtually no names survive before the Italian Renaissance. It took archaeologists to dig up the early history and scholars from many fields to demonstrate the importance of accounting to so many aspects of economics and culture. The role of accountants in the ancient world is coming into clearer focus with new archaeological discoveries and innovative interpretations of the artifacts. It is now evident that writing developed over 5,000 years--by accountants. It is difficult to overestimate the importance of double entry bookkeeping. It was central to the success of Italian merchants, necessary to the birth of the Renaissance. Industrial Revolution firms required accountants to provide the information necessary to avoid bankruptcy and their role developed into a profession. Big business required capital markets that depended on accurate and useful information. This was supplied by what became an accounting profession. Today, a global real-time integrated information system is a reality, suggesting new accounting paradigms. Understanding history is needed to develop the linkages to predict this future.
Accounting fraud and manipulation are summarized in seven chapters. The first chapter introduces the dynamic environment of deceit and illicit acts, and why the major players would be willing to commit heinous acts. The roles of regulation and disclosure are explored, including when and why they are either successful or failures (and often a combination of the two). The next five chapters cover American business, scandals and attempts at reform, in roughly chronological order. Chapter Two covers the broad period before the reforms of the New Deal. Chapter Three looks at the Great Depression in some detail. The Securities and Exchange Commission, other federal regulations and private sector reforms (such as establishing accounting standards) are still of considerable importance today. Chapter Four covers the post-World War II period through the savings and loan crisis of the 1980s, with a focus on the movement from relative honesty in industrial and financial markets to the development of pockets of extreme corruption—perhaps the start of modern accounting and auditing issues. Chapter Five reviews the 1990s and early 21st century, including the rise and collapse of the tech bubble. Particular attention is paid to Enron, perhaps the greatest corporate fraud case in American history. In terms of perverse incentives, corruption through government and financial markets, massive incentives for deceit and reporting of bogus numbers, and violating regulatory and disclosure requirement at every level, Enron had it all. Chapter Six reviews the strange story of the subprime meltdown, creating a financial crisis of epic proportions—out of the safest of credit instruments, the mortgage (accounting was a bit player here). Chapter Seven sums up historical finding and considers key points for predicting future abuse. The major frustration of speculating about the future is the continued existence of perverse incentives within financial markets and global corporations.
Hagley Museum (Du Pont)
Lippincott Library (Wharton)