NOTE: These notes are prepared solely for the students in Acc611 at the State University of Ne wYork at Albany. They can not be used for any other purpose without the permission of Jagdish S. Gangolly.

Controversial Issues

• Link between accounting and church
  • Business aspects of church affairs
  • Revenue aspects
  • Business background of Luca Pacioli.
• Link between accounting and mathematicsu
  • Pacioli was a mathematician
  • So was Arthur Cayley
• Accounting as a product of Rennaissance (14th - 17th centuries)
  • Earliest records of double-entry books (Riniero Fini & Bros. 1296 AD)
• Influence of Eastern cultures

Development of Business Organisations

• Sole Proprietorship (Feudalism/manorial system)
• Fraterna (Feudalism/manorial system)

  Contract between brothers to jointly administer inheritance invested in trade

• Sea-trade (mercantilism)

  "Sea loans" interest-bearing; interest waived in case of total loss (interest as insurance premium)

  In mid-13th century, when marine insurance became available, the Pope declared "sea loans" usurious. Alternative?

• Commenda or collegantia

  Sleeping partner and "travelling" partner (risk shared by both)

• Compagnia (Unlimited liability)
• Limited liability companies

Why did double-entry system develop?

• Hendricksen-van Breda

  No negative numbers, no concept of zero (too naive a theory)

• Littleton-de Roover

  Solution to the agency problem; separation of ownership & control; stewardship reporting

• Bryer hypothesis

  socialisation of capital; need for fair division (equal return on equal capital)

  why accounting existed before agency problem?

  East India Company (Going concern problem)

  1600 - x: accounting for voyages

  x - 1660: Term contracts (ventures)

  1660 - 1857: Company

  1857 - 1947: Colony

TIME-LINE

• 15th Century

  "Terminating stock", Commendas, development of the concept of joint stock

  1545

  English Russia Company (Trade with Russia/Persia)

  1600

  Charter granted to the East India Company

  1657

  Permanent joint stock offered

  1711

  South Sea Company organised, to convert floating state debt to funded debt

  1713

  Queen Anne permits the South Sea Company to indulge in slave trade with South America

  1719

  Bubble Act, banned joint stock companies

  1720

  South Sea Company collapses (South Sea bubble)

  • • allegations of insider trading
    • allegations of bribes paid to the members of parliament and the peers
    • misleading information -- rumours

  1720

  Turner & Co., bankers, hire Mr. Charles Snell, accountant, in their defense

  1825

  Bubble Act repealed

  1837

  Incorporation permitted in Connecticut

  1844

  Companies Act, passed in the UK, unlimited liability

  1854

  Society of Accountants, Edinborough

  1855

  Limited liability companies

  1857

  Similar societies established in London

  1880

  The Institute of Chartered Accountants of England & Wales (ICAEW)

  1887

  AAPA incorporated, Interstate Commerce Commission formed

  1906

  Hepburn Act (ICC to establish uniform accounting for railroads)

  1914

  Creation of the Federal Trade Commission and the Federal Reserve Board

  1916

  • AAPA changes the name to AIA
  • American Association of University Instructors of Accouting(AAUIA) established
  • Col. Montgomery story

  1917

  "Uniform Accounting" issued by the Federal Reserve Board as a Federal Reserve Bulletin

  1926

  NYSE requirement of unaudited annual report

  1929

  • Stock market crash
  • Switching of emphasis from the statement of income to the balance sheet
  • paramountcy of the historical cost principle

  1929

  British Companies Act (disclosure of statement of income)

  1933

  NYSE requirement of certified financial statements. Securities Act

  1934

  • Securities Exchange Act
  • SEC set up
    • Registration requirements (S1)
    • Filing requirements (10-K, 10-Q, 8-K)
    • Regulations S-X, S-K

  1938

  Accounting Series Release 4: "Substantial Authoritative Support"

  1939

  Committee on Accounting Procedure (CAP): issued over the years 51 ARBs. 21 members

  1959

  Accounting Principles Board (APB)

  1962 (Dec)

  APB Opinion 2 . Accounting for Investment Credit. (Deferral Method)

  1963 (Mar)

  Accounting series Release 96 (SEC would accept either method)

  1964 (Mar)

  APB : Deferral method preferable

  1967 (Dec)

  APB Opinion 11 Accounting for Investment credit

  1971

  Revenue Act

  No taxpayer shall be required to use any particular method of accounting for the credit for the purposes of financial reports subject to the jurisdiction of any federal agency or reports made to the federal agency.

  1971

  AICPA:

  • Wheat Study Group (Establishment of Accounting Principles)
  • Trueblood Committee (Objectives of Financial Statements)

  1972

  AcSEC of AICPA: Statements of Position (SOP)

  1973

  FASB set up

Updated by gangolly@cnsunix.albany.edu on February 3, 1997.