Week 1 SS AccountingEvolution

8/19/2019 Week 1 SS AccountingEvolution

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ACCOUNTING INEVOLUTION



Class Objectives

1. Understanding accounting as adeveloping practice

. Investigating t!e responsiveness o"

accounting to c!anges in t!e needs o"societ#

$. Understanding t!e in"anc# and

sop!istication o" pro"essionalaccounting s#ste%



Accounting T!eor#

Environ%ent o" Accounting is bot!co%ple& ' ver# c!allenging

(roduct o" accounting is in"or%ation ) a

po*er"ul and i%portant co%%odit# Absence o" per"ect or true accounting

concepts and standards

Individual *ill not be unani%ous in t!eirreaction to t!e sa%e in"or%ation



Accounting T!eor#

T!e goal o" accounting t!eor# is toprovide a set o" principles andrelations!ips t!at provide an

e&planation "or observed practice andpredict unobserved practices +evelop%ent o" accounting is

i%portant because o" t!e role

accounting pla#s in our econo%icsociet#. ,ole o" accounting is to report !o* an

organi-ation utili-es scarce resources.

A single universall# accepted basicaccounting t!eor# does not e&ist a



Accounting/ Value inIn"or%ation 0ean Coutu Group (0C2 Inc. posted !ig!er3

t!an3e&pected net pro4t in t!e t!ird5uarter on lo*er revenues.

Longueuil6 7ue.3based Coutu reported on T!ursda# net pro4t o" 89.:3%illion or $;cents per s!are6 up "ro%8:9.3%illion or9 cents in t!e #ear3earlier period.

<ee!ttp/==***.t!eglobeand%ail.co%=globe3investor=%ar>ets=stoc>[email protected]

http://www.theglobeandmail.com/globe-investor/markets/stocks/chart/?q=pjc.a-T






Accounting/ T!eor# ' Users

Conditions "or Accounting 12 E&istence o" a need "or in"or%ation "or

decision %a>ing decision use"ulness2 in

"ace o" in"or%ation as#%%etr# 2 +evelop%ent o" %eans6 tools '

tec!ni5ues "or satis"#ing decision %a>ingneeds

As tas>s o" accounting beca%e %oredicult and "ocus s!i"ted to usersBneeds6 a t!eor# beca%e necessar#



Accounting/ (reconditions

12 Literac# 3 abilit# to read ' *rite

2 Ecient Nu%bering s#ste%s 3 placevalue

$2 riting Daterials 3 convenient 'ine&pensive

2 Done# 3 unit o" account=%ediu% o"

e&c!ange



Accounting/ Evolution o"<ociet#

Accounting evolves as societ# evolves reacting tosociet#Fs need "or in"or%ation

Transition "ro% a s#ste% to enable %erc!ants to control!is o*n s#ste% to a s#ste% to provide in"or%ation toinvestors

T!e !istor# o" accounting "ollo*s %ajor !istorical events/ Ancient Civili-ations Diddle Ages ) "eudal s#ste% o*ners!ip ,enaissance (eriod 1$;;31:;;2 3 Ventures Industrial ,evolution 1;;2 ) Large scale %anu"acturing6 capital needs

<toc> Dar>et Cras! 1HH2 ) Audit and GAA( Tec!nolog# ubble ;;;2 ) ,evenue ,ecognition Internet Accessibilit# ;;;2 3 J,L Enron ;;2 ) Corporate Governance6 <(EBs Dar>et Collapse ;;K2 ) inancial Instru%ents ban>ing regulation Global Mar%oni-ation ;112 3 I,<



Accounting/ ,ecord eeping

Need e&isted to record inco%pletetransactions and t!e accu%ulation o" *ealt!

<i%ple records did not su%%ari-e or classi"#

data Ledgers *ere not closed until so%et!ing

event"ul !appened li>e deat! o" a partner Accounts receivable *as one o" t!e earliest

"or%s and re5uire%ents o" accounting ot!erabstract concepts too> longer to evolve



Accounting/ +ouble Entr#oo>>eeping +ouble entr# boo>>eeping is t!e "oundation

"or accounting toda#. +ualit# concept re5uires t!at t*o sides to

eac! transaction be recogni-ed No negative nu%bers to use rot!er Luca (acioliBs treatise on %at!e%atics

contained a section on double entr#boo>>eeping 1H2

T accounts *ere developed to s!o* increaseson one side and decrease on t!e ot!ersubtraction b# oppositionP

<EC soug!t to regulate t!e double entr#s#ste% o" account t!at !ad Qouris!ed.



Accounting/ usiness<tructure

12 or%al usiness Organi-ations

2 (ublic Accountants

$2 Audited inancial <tate%ent,e5uire%ents

2 GAA(



12T!e usiness Organi-ation

Earl# trading operated as ventures (artners!ips e&isted in t!e 1$t! ' 1t!

centuries Corporation establis!ed b# ro#al c!arter up to

t!e 1;;Bs i.e. MC2 0oint stoc> on vo#ages *ere "orerunners o"

corporations 0oint <toc> Co%panies Act o" 1K ' 1K::

per%itted t!e e&istence o" corporations6li%ited liabilit# and trans"erabilit# o" s!ares

Trans"erabilit# o" s!ares led to t!e <toc>Dar>et 1$ London 1H NR<E2

Need "or in"or%ation about s!ares investors



2 (ublic Accountants

ab#lonian scribes *ere used to %a>e records o"contracts and receipts

Colu%bus *as acco%panied b# an auditorappointed b# t!e <panis! court to 4gure t!e costo" gold and spices !e *ould accu%ulateP

an>ruptcies and li5uidations *ere c!ie" "or%s o"*or>

Edinburg! <ociet# o" Accountants 1K:2 Institute o" Accountants and Adjusters o" Canada

1KH2

Institute o" C!artered Accountants o" Ontario 1KK$2



$2 Audited inancial<tate%ents In %edieval ti%es evaluation o"

reasonableness *as done b# ab#lonianscribes

1K 0oint <toc> Co%panies Act re5uired

audits but subse5uentl# droppedre5uire%ent

Auditing done on a voluntar# basis <ecurities Act o" 1H$ "ocused on

protection o" investors and re5uiredaudited 4nancial state%ents <EC establis!ed 1H$ "ollo*ing stoc>

%ar>et cras!

Ma%pered b# lac> o" accounting principles ;1; International GAA< introduced



$a2AuditorsB ,eport 1H1:

e !ave audited t!e boo>s and accountso" t!e #ear ended +ece%ber $16 1H1:6and *e certi"# t!at6 in our opinion6 t!e

above balance s!eet correctl# sets "ort!its position as at t!e ter%ination o" t!e#ear and t!at t!e acco%pan#ing pro4tand loss account is correct.



$b2 AuditorsB ,eport 1H$$

e !ave %ade an e&a%ination o" t!e balance s!eeto" t!e AC Corporation as at +ece%ber $16 1H$$ ando" t!e state%ent o" inco%e and surplus "or t!e #ear1H$$. In connection t!ere*it!6 *e e&a%ined or testedaccounting records o" t!e co%pan# and ot!ersupporting evidence and obtained in"or%ation ande&planations "ro% ocers and e%plo#ees o" t!eco%pan# *e also %ade a revie* o" t!e accounting%et!ods and o" t!e operating and inco%e account "ort!e #ear6 but *e did not %a>e a detailed audit o" t!e

transaction. In our opinion6 based on suc!e&a%ination6 t!e acco%pan#ing balance s!eet andrelated state%ent o" inco%e and surplus "airl#present6 in accordance *it! accepted principles o"accounting consistentl# %aintained b# t!e co%pan#during t!e #ear under revie*6 its position at

+ece%ber $16 1H$$ and t!e results o" its operations



2 GAA( ollo*ing stoc> %ar>et cras! <ecurities Act 1H$2 *as

establis!ed giving <EC po*er to %a>e standards <tandard creation delegated to pro"essionals b# <EC in

U< No t!eoretical basis o" c!oosing a%ong t!e various

alternatives and no aut!oritative voice 1H9K CICA Mandboo> beca%e aut!orit# 1H: CCA re5uired ad!erence to it ;11 CICA adopts I,< International inancial ,eporting

<tandards2 ;11 CICA adopts A<(E ;11 (ublic Accountabilit# GAA(



a2 GAA(/ Earl# ;t! Centur# <tandards

alance s!eet is t!e %ost i%portant4nancial report

alance s!eet is basicall# a state%ent o"

asset values and liabilities Cost is satis"actor# basis o" valuation o"

assets i.e.. *it! depreciation2

Contributing to t!e Great +epression *asappraisal o" assets

(atton and LittletonBs 1H;2 lit!ograp!%ade a case "or !istorical cost base

Inco%e ta& and !istorical cost base o"



b2 GAA(/ <tandards Evolve Earl# 1H;;s

Various principles applied inconsistentl#

Accounting pro"ession and accountantslac>ed aut!orit#

Danage%ent "avored "reedo% inreporting

No *ell de4ned t!eor# or standards on

*!ic! to base opinions



c2 GAA(/ <tandards Evolve(ost 1HH

No consensus on a conceptual "ra%e*or> Establis!%ent o" accounting standard

co%%ittees Lac> o" support "or standards6 internall#

and e&ternall# elie" t!at standards could not be

i%posed <EC 1H$K2 per%its pro"ession to lead

*a# in "or%ulation o" accountingprinciples

Lac> o" accounting principles



d2 GAA(/ <tandards Evolve 1H;Bs

(ro"ession re5uired disclosure o" departure"ro% its standards

<EC regarded accounting practices asaut!oritative

Accounting standard bodies issue signi4canta%ount o" standards and principles

,e"erence to CICA Mandboo> in CCA %adeessentiall# status o" la*

EIC 1HK2 "or%ed to deal *it! issues on ati%el# basis

Tec!nolog# bubble ;;;2 revised revenuerecognition

Enron ;;2 rein"orced consolidation o"



e2 GAA(/ International<tandards E%ergence o" global %ar>etplace U< standard setting process is

predo%inant in Canada6 U and Australia

albeit *orld*ide2 U< standards are %ore restrictive International Accounting <tandards

Co%%ittee IA<C2 ) !ar%oni-ation International standards adopted "or ;11

in Canada



"2 GAA(/ Centur# o"C!ange 1. Intense regulation 5uite distinct "ro% t!e

previous centuries . +o%ination o" t!e 4eld b# public

accountants as opposed to %anagerialaccountants

$. Increasing pressure to %ove to a uni"or%accounting s#ste%

. Accounting <tandards I,<6A<(E2 :. Increased ,egulation e.g. <OJ6 N( ;12 9. Auditor Litigation e.g. Enron6 Livent2 . Tec!nolog# ) J,L internet

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Week 1 SS AccountingEvolution