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Accountancy

2007 Schools Wikipedia Selection. Related subjects: Business

   Accountancy ( profession) or accounting ( methodology) is the
   measurement, disclosure or provision of assurance about financial
   information that helps managers, investors, tax authorities and other
   decision makers make resource allocation decisions. Financial
   accounting is one branch of accounting and historically has involved
   processes by which financial information about a business is recorded,
   classified, summarized, interpreted, and communicated.

   Auditing, a related but separate discipline, has two sub-disciplines:
   Internal and External auditing. External auditing is the process
   whereby an independent auditor examines an organization's financial
   statements and accounting records in order to express an opinion — that
   conveys reasonable but not absolute assurance — as to the truth and
   fairness of the statements and the accountant's adherence to Generally
   Accepted Accounting Principles (GAAP), in all material respects.

   Internal auditing is an examination in which management, and not the
   external public, is the main beneficiary. It is carried out usually by
   auditors employed by the company, but sometimes by external service
   providers. The internal auditor's role is broader, and basically
   depends on what kind of assurance management wants. It usually
   certifies the efficiency and effectiveness of processes, departments,
   projects or internal controls. The Institute of Internal Auditors is
   generally accepted as the custodian of Internal Auditing best practice.

   At the heart of accounting is the 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.

   Practitioners of accountancy are known as accountants. There are many
   professional bodies for accountants throughout the world. Many allow
   their members to use titles indicating their membership. Examples are
   Chartered Certified Accountant ( ACCA or FCCA), Chartered Accountant
   (FCA, CA or ACA) and Certified Public Accountant (CPA).

   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.

   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. This provides an easy way to check for errors.
   This system was first used in medieval Europe, although claims have
   been made that the system dates back to Ancient 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

   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 in the book of Matthew, in the Parable of the
   Talents (Matt. 25:19). The Quran also mentions simple accounting for
   trade and credit arrangements (Quran 2: 282).

   Twelveth century writer Ibn Taymiyyah mentioned in his book Hisba
   (verification, calculation), detailed accounting systems used by the
   Muslims as early as in the mid-seventh century. The accounting
   practices were influenced by the Roman and the Persian civilizations
   that Muslims interacted with. The most detailed example 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 with mofidications and
   enhancements until the fall of the Ottoman Empire.

Luca Pacioli and the birth of modern accountancy

   The first book on accounting was written by a Croatian merchant
   Benedetto Cotrugli, who is also known as Benedikt Kotruljević, from the
   city of Dubrovnik. During his life in Italy he met many merchants and
   decide to write, Della Mercatvra et del Mercante Perfetto (On Trade and
   the Perfect Merchant) in which he elaborated on the principles of
   modern, double-entry book-keeping. He finished his lifework in 1458.
   However, his work was not published until 1573, as a result of which
   his contributions to the field have been overlooked by the general
   public.

   For this reason, 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 ( 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 rather than 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 organization'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.

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

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

Accountancy qualifications and regulation

   The requirements for entry in the profession of accounting vary from
   country to country.

   Accountants may be licensed by a variety of organisations, such as the
   British qualified accountancy bodies including Association of Chartered
   Certified Accountants ( ACCA) and Institute of Chartered Accountants,
   and are recognized by titles such as Chartered Certified Accountant
   (ACCA or FCCA) and Chartered Accountant (UK, Australia, New Zealand,
   Canada, India, Pakistan, South Africa), Certified Public Accountant
   (Ireland, Japan, US, Singapore, Hong Kong, the Philippines), Certified
   Management Accountant (Canada, U.S.), Certified General Accountant
   (Canada), or Certified Practising 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 authorized by
   legislation to practise 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. Unlike the Law Society, which can legally
   stop a solicitor from practising, accountancy institutes do not have
   such authority. However, auditors are regulated.

The "Big Four" accountancy firms

   The " Big Four auditors" are the largest multinational accountancy
   firms.
     * PricewaterhouseCoopers
     * Deloitte Touche Tohmatsu
     * Ernst & Young
     * KPMG

   These firms are associations of the partnerships in each country rather
   than having the classical structure of holding company and
   subsidiaries, but each has an international 'umbrella' organization for
   co-ordination.

   Before the Enron and other accounting scandals, there were five large
   firms and were called the Big Five. Since Arthur Andersen's assurance
   practice split (after the firm was found guilty in the Enron scandal),
   with a plurality joining KPMG in the US and Deloitte & Touche outside
   of the US, Arthur Andersen left from the group. Previous to this there
   were also 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 bearing 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.

Size of market - UK

   According to Accountancy Age's 2005 league table, fee income amongst
   the Top 50 accounting firms in the UK rose from £6.3bn to £7.0bn. This
   followed two successive years in which fee income had declined, largely
   a result of the sale by some of the larger firms of their consultancy
   arms. As detailed in the next section, fee income in most business
   areas - audit, tax, corporate finance and consultancy - rose in the
   2005 survey, with insolvency and wealth management being the only
   segments where revenue fell.

   PricewaterhouseCoopers remains the largest firm with fee income
   totalling £1,780m followed by Deloitte (£1,350m), KPMG (£1,066m) and
   Ernst & Young (£945m). The combined revenue of the Big Four accounted
   for £5.0bn, 72% of the fee income of the Top 50, down from 78-79% in
   the years up to the 2002 survey and the third year in succession a
   decline in their share has occurred (Chart 1). Ernst & Young's fee
   income is the smallest of the largest four firms, but still over three
   times that of the next largest firm, Grant Thornton. The amount of fee
   income tapers off amongst the mid-tier firms so that in total there
   were only 25 firms that each generated more than £15m of revenue in the
   2005 survey.

   For more details regarding British qualified accountancy professionals,
   please refer to the page of British qualified accountants.

   Retrieved from " http://en.wikipedia.org/wiki/Accountancy"
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   with only minor checks and changes (see www.wikipedia.org for details
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