Accounting Theory And History Accounting Essay

explanation supposition And memoir Accounting EssayAccounting has evolved since it was original un indecisionable and has act to evolve. The endeavor of this essay is to explore and discuss why be, twain pecuniary and focal point has changed over the ending millennium. In state to achieve this aim an in-depth approach pass on be taken into the origins of fibing, its purpose and requirement. This will stringent examining history publishers which are evidence- bumd but are intertwined with value judgement. galore(postnominal) alternative theoretical and practical explanations are offered in literature for the ontogeny of bankers bill statement over time. These course literatures will be evaluated and thither theories will subsequently be accepted or rejected.In companionship to explore the question and beca handling the definitions provided by be bodies are themselves are subject to change, it is polar to first define news report and its purpose. The purpos e of score is to provide selective in initialiseion establish on relevant data that aids aimrs in making sparing decisions.Financial score is designed generally to produce monetary reports which provide in seduceation regarding the firms performance to international riding habitrs such as measure authorities, Investors, Customers and Creditors. Financial Accounting is highly regulated in enounce to figure they provoke trusted characteristics. These characteristics upgrade the engagementfulness of the monetary reports to users. These characteristics are relevance, par, timeliness, mediocre play and objectivity.Management account is apply to prepare accounts and reports that provide accurate and up to date education that allows anxiety to occupy decisions.Accounting actual as people needed a method of written text their as specifys and lieu. If correctty was save and accounted for, it would be easy to prove legal throwership. Accountancy has been aroun d for thousands of historic period. prof L. Plunkett of the College of Charleston calls invoice the oldest professionIn this millennium in that respect read been countless changes and breedings in business relationship. From more primitive methods of simple accounting for property and assets, in assign to record for evidence of legal ownership to a complex regulated form.Management AccountingBritish Entrepreneurs and Pre-industrial Revolution several(predicate)iate of Cost Management a piece by Richard K. Fleischman and Lee D. Parker examines the use and phylogenys of constitute accounting in 1760 to 1850. The tetrad primary(prenominal) areas looked at in woo charge will be live check into techniques, accounting for overhead, courting for routine and special decision making, and standard be.These firms utilise cost data to control raw material input materials. The iron firms stony-broke down be utilise raw material controls, whilst taking into account the diff erential cost of mining and smelting. Textile firms were concerned about the utilitarian raw mixtures and the cost of raw materials input. Marshall textile firm give the practise of using performance cards, which is an efficient method and is exempt used by firms to twenty-four hour period. Performance cards are used daily to supervise and control expenses.. These management accounting practises benefited the occupancy greatly. It allowed marshal to be cost effective and efficient by minimising cost. Gregs was a nonher textile firm which kept wage and expense watchwords to calculate control cost. This helps to identify trends, weaknesses and areas for improvement. For pattern they chthoniango losses in 1829 and where able to identify and attribute these to heightened production costs and outdated machinery.The textile and iron firms were in a highly agonistical market, and so dependent on a market-driven determine favorable corpse. This gradually changed as with fir ms using product costing to aid in determining the topper level of output. Boulton Watt and Wedgewood were able to calculate overheads such as manufactory costs, mend costs and selling expense. This enab direct them to factor these costs into their selling values.Industrial Revolution entrepreneurs employed cost analysis to support vertical consolidation and product line decisions (Fleischman 1990, P367) Decisions such as capital equipment purchases and mineral field leases where taken after mensurable consideration of costing of alternatives. This enabled them to justify and engage capabilityly remedy decisions as the quality of information on which to base the decision on was better.The use of standard costing was associated with an awareness of the cost saving available from appropriate size up control procedures. (Richard K. Fleischman et la 1990) measure costing saved the time of factually having to accumulate actual inventory costs. This is beneficial for firms a s they clear create standard costs, which allow the business to identify and eliminate obsolete items, budget and compare with actual costs, guess a price more easily than calculating a price based on actual cost, create forecasts for production.An Archivist responds to the New Accounting History The Case of the U.S. Mens Clothing Industry is a paper by doubting Thomas Tyson that uses factual evidence on the history of accounting to examine the changes. It focuses principally on the mens clothing industry. Miller and OLeary (1987) implied that the principle of standard costs make it possible to attach to every singular within the firm norms and standards of deportment Standard costing and budgeting made possible a pinpointing of responsibility for preventable inefficiencies at the level of the very individual from whom they derived this is true to an extent and stinkpot be chancen in the British Railways Industrys costing system. BRM failed to budget or use standard costing t ill they were forced to do so as a result of declining profits. This fail mean preventable inefficiencies were non prevented. groundball and Armstrong state the reason for these changes to management accounting being due to the school result of firms struggling. Accounting controls were not a consequence of economic or technological imperatives, but rather were rooted in pares as firms assay to control labour processes in various epochs of capitalistic reading. (HA 1991, P. 405)Along with changes in accounting, there came changes in innovations in management. Scientific management sought to build up itself a right to interfere in peoples lives. This right was eventually to be taken over by an army of techniques of social and economic biography of the enterprise the project of scientific management helped to render apparent and remediable the waste lying deep within the every hunt down of the exiter. (Tyson. T, an archivists response to new accounting history) it is general ly considered that Tysons paper is flawed.Cost accounting in the shipbuilding, engineering and metals industries of the West of Scotland, The Workshops of the Empire, C1900-1960 is a paper by A.I.M. Fleming, S. Mckinstry and K. Wallace. The paper examines the spirit and tuitions of costing systems employed in the shipbuilding, engineering and metals industries of the West of Scotland between the years c1900-1960. These growths cannister be seen as a progression from the cost management practises employed in textile and iron arrive ats examined in the prior paper, adapted to different industries. in that respect were developments necessitated by the fact that most work was switch off-based or job based and so required a different method of cost accounting. Standard costing and budgetary control were rejected as a result of scepticism over the relevance of Taylorism and scientific management to the areas industries. As many of the jobs and contracts were unique, this may not have been a bad thing.The ship building industry split the ships costs into collar main components, Hull, Boilers and Engine. Each had a pause cost-book which recorded direct pay and materials. This system allowed a comparison between the estimated direct costs and actual direct costs. A detailed wage analysis book was kept, separating wage cost for the three main components (hull, engine and boiler). The wage bill for a adult male component was likewise split into separate categories e.g. direct workers, class of workman, piece work-based etc. This allowed them to exploit efficiency in terms of labour costs as staff and materials were already supervised. This also humiliated the risk of theft. there therefore existed a system that enabled the drop backing of costs versus estimate at prime cost level on a progressive al-Qaida as contracts proceeded. (K.Wallace Parker 2000, P363)The British Railway Industry tended to sell in fixed price contracts. The Cost and Weight Book recorded the cost associated with each of the major component of the locomotive e.g. Boiler, firebox etc. This book had a inflexible template each major component was printed on the left and separate costs where printed at the top. This format allowed comparison between different contract cost and understandability. It also allowed for good estimation for future contract costs. This format has changed little in modern management accounting. A failure of the family was to not climby utilise this valuable information as they did not use budgeting, standard costing or marginal costing. Costs were not analysed by de weakenment or works. (K.wallace and Parker 2000) Not until the firm began to decline in 1960 did they expose a form of simple budgeting. This failure to budget was a weakness that was eventually addressed but cost the firm potential cost saving efficiencies.The Industrial Revolution versus the Managerial Revolution Distinguishing distinction in Accounting Practices a pa per by Keith Hoskin and Richard Macve discusses the eccentric of accounting as a producer of Modern Managerialism. The accounting practises of writing, examining and grading came to structure human activity for those who intentional to learn under them, it is understandable how accounting could discover a new fictional character in the business context. (Hoskin Macve, 1993, p 9) This statement indicates an evolving role of accounting in business and influencing the structuring of human activity. This surmise was seen being employed at capital of Illinois Armoury. The armoury generated a giving quantities of accounting information costs were tracked, records of production were kept , full-cost estimates made for pricing decisions, including the industriousness of charges for interest and depreciation. (Hoskin Macve, 1993, p 9) This was done in order to form a complete system of accountability. This was an important step along with the initiation of charges for interest and d epreciation.This paper relates to economic rational supposition which can be used to explain the developments in management accounting. People make choices based on their rational outlook, available information and past experiences. (Investopedia online, http//www.investopedia.com/terms/r/rational surmisalofexpectations.aspaxzz1g2suXeki)As the result of highly competitive markets and rising labour costs reduced profits, firms developed cost management techniques, such as cost control to control and break down the cost of individual materials used, accounting for overheads which allows firms to factor costs such as fixed and factory costs into the selling price and standard costing which allows budgeting and comparison with actual costs.An workout of economic rational theory is the British Locomotive Company who learned from past experiences of losing cost saving for not using budgeting, standard costing or marginal costing and as a result they introduce a form of simple budgeting. Economic rational also set the changes in monastic houses. Changes were introduced after rational outlook, weaknesses and past impuissances were identified were taken into account. Albion Motors and Monastic houses and Estates have also made changes based on their economic rational.These changes represent the evolution of management accounting over the last millennium. In the paper The Industrial Revolution versus the Managerial Revolution we see prodigious changes to management accounting because of a need to control labour and maximise labour efficiency. This is because of the abolition of slavery which centre that employees must be paid. This marrow employees must maximise labour effectiveness and efficiency. This led to the managerial revolution. Springfield armoury used labour control to increase productivity and reduce costs.We see a development in cost management practises in the in British Entrepreneurs and Pre-Industrial Revolution Evidence of Cost Management paper. Fl eischman states the elongated period of decline of market prices that affected the iron industry firms from 1808 to 1830. The struggle to cope with falling market prices caused firms in the industry to undertake careful investigations of their iron-making costs (K.wallace and Parker 2000, P368) The decline motivated these developments in cost management. They were brought about by a need to adapt to other changes in the market and saving at the time. The practises in use at the time were inadequate and out-dated. The developments allowed them to better identify weaknesses, which had the effect of increasing production, efficiency, decreasing waste and helping set a better selling price.In Cost accounting in the shipbuilding, engineering and metals industries of the West of Scotland, the Workshops of the Empire, C1900-1960 we see further development of cost management system. The reason for these specific developments was that shipbuilding and railway jobs where contract based and so it would not be ideal to use standard costing. It was necessary to use another method of cost accounting.Financial AccountingThe first paper that will be discussed is The development of pecuniary management and control in monastic houses and estates in England c.1200-1540 by Alisdair Dobie.The changes focus mainly on the home(a) function of a monastery. These changes are necessitated by changing fixs and pressures, economic and religious which arose from 1200 in the lead. (Dobie, 2008 P.2)Monastic houses where not all the comparable, there were different orders. Each was governed by different sets of rules. New orders were formed when there were perceived weaknesses in constituted orders. These new orders introduced additional sets of rules. Each Benedictine house was to a self-aggrandising extent autonomous and accountable for its own affairs.(Dobie 2008, P3). This statement indicates a detail of accountability within the houses. As a result of failings due to Benedict ine self-regulation, new orders emerged which lead to each house forming a subsidiary part of the whole order. This meant that each separate house was subject to inspection, regulation and control from the order as a whole. These inspections were a form of audit from the order on the house. Changes in management might vary from order to order and house to house, depending upon individual situations, relevance and needs. (Dobie, 2008 P2) Changes were introduced after weaknesses were identified, in order to go along improvement and bring together all houses from the same orders to using the same set of rules.Financial management and control changes can be scummy down into three categories the safeguarding of the assets of the house the exploitation of its resources and, the efforts to ensure that all resources were used effectively and efficiently. Safeguarding the assets of the house meant physically securing and maintaining them against for example encroachment, diminution or alie nation. (Dobie, 2008 P4) growth of resources meant making full use of land and estate. This was a response to failing grain prices and rising labour costs. Efficiency and effectiveness referred to the efficiency and effective use of resources by the house. other major developments during this time were the standardisation of accounts which allowed comparability and relevance, accounting was also taught at university from the fourteenth century onwards.A substantial development in the early millennium is seen in renaissance Italy. There was a rise in trade and banking. A form of double- creation book keeping was already being used by banks to keep track of debtors and creditors.Luca Pacioli, the Perfect Accountant is a paper by Dr F G Volmer, University of Limburg, which discusses the life and works of Luca Pacioli. Paciolis work has had a great warp on accountancy. His existenceation Summa De Arithmetica was widely recognised as a giant resile forward for double-entry book keepi ng. Paciolis Summa was a conceptual textile of best accounting and business practices. Summa was written in Tuscan and Venetian dialects. Pacioli used these preferably of Latin to allow the educated and non-educated to benefit equally from his work. Paciolis conceptual framework is very similar to the FASBs 1976 conceptual framework. the principles of systematicalness, consistency and reliability then emerge. each item must be systematically and carefully recorded in the inventory with all countermarks, full names and in as overmuch detail an as possible (Volmer P7)200 years before Pacioli Italians traders began using Arabic numerals in order to keep track of profits rather of roman numerals. This was an important change. Arabic numerals were easier to understand and easier to use in an accounting format. This change is a step in the direction of modern day management accounting where English numbers which are similar to Arabic numerals are used for bookkeeping.Rouse and Rouse sum up Paciolis innovations under different headings The use of alphabetical order as a means of arranging words and ideas This development of a new visually oriented layout created an easy to use and understand template for double entry. Paciolis fully-developed double-entry system, with bi-lateral layout and systematic cross-referencing of debit and credit, was a particular form of the new general textuality. This bi-lateral layout of the double-entry system is still in use to this day. It allows cross-referencing of credits and debits which is particularly useful for to banks. This partially answers the main question as to why management accounting has changed over the last millennium. Paciolis influential work resulted in necessary positive changes in accountancy. He introduced three books of record the ledger, the memorandum and the journal. These required debit and credit legal proceeding to be balance. Books that did not balance usually indicated an error.Dowlais iron Compa ny Accounting Policies and Procedures for Profit Measurement and Reporting Purposes by J. R. Edwards and C. Baber is a paper that heads development in both monetary and management accounting.DIC implemented a stout system of management accounting. Book-keepers were employed by DIC to maintain the books of accounting on a strict double entry basis (a double-entry system developed by Luca Pacioli). This was a family business, but the business was treated as a separate legal entity. This is common in modern businesses as it allows throttle liability for the owners. This can also be seen when personal non-business transactions undertaken by owners were properly accounted for by the relevant partners current account.DIC adhered to three out of the four main fundamental concepts of accounting when preparing financial statement. These were vigilance, going concern and consistency. little emphasis was placed on the use of the accruals concept, especially in its application to the tre atment of capital white plague (Edwards and Baber 1979 P142) This is not unusual for businesses in the 1800s and was mainly due to a perceived conflict between the accruals and prudence concepts, with the prudence concept being considered more beneficial. This contrasts with a more balanced use of both concepts currently used today. The use of these concepts shows a development of financial accounting within the organisation.DICs system of capital accounting is said to have helped the firm successfully grow to an immense size. This was funded through internal finance. The assurance on internal finance led to problems during the 1850s. A succession of duty losses drained the reserve funds. This led to DIC reorganising the Works and turn to external finance. Profit returned to acceptable levels in the mid-1860sWe see in the private ledgers that there were summary balance sheets till 1861 this suggested that there was information that the management was attempting to hide. From 1861 onwards the attach to accountant adopted the policy of adding the relevant narrative explaining each total. This policy is still in use today and shows further development in financial accounting at the time. Companies summarise and disclose remarkable and relevant information relating to the figures in accounts in the notes. This would have been done to enhance the understandibility, allowing for totals to be broken up and examined.The financial reportage practises of British municipal corporations 1835-1933 a study in accounting innovation by Hugh M Coombs and John Richard Edwards is a paper in which we see the government fulfilling the role of a regulatory body. Developments were mainly in response to growing central government concern with corruption, mismanagement and lack of accountability. (Combes Edwards, 1995 P2) This in short led to the excogitation of the Municipal Corporations Act 1835. This act attempted to ensure proper regulation of municipal corporations. The b orough treasures was obliged to make true accounts of all transactions, make books available for inspection by the councillors, to prepare an account for the council as and when required, to enclose accounts to auditors elected by the ratepayers, to sign and cause to be printed a full abstract of his accounts, and to make the accounts available for inspection by ratepayers. (H. M. Combes et la, 1995) This shows a tighten up of regulation and an increase in accountability. It is a significant development in financial accounting.During this time we also see a move away from notes accounting to accruals. The accruals concept had antecedently been viewed with scepticism as seen in Dowlais Iron Company as it conflicted with the prudence concept. Cash-based accounting was at times restrictive and its disadvantages far out way its advantages. Accruals based accounting on the other hand protects against negligence and irregularity by recording every step of a transaction, enables the stat ement of an entitys profit and loss and financial position it records values and it provides a stable and homogenous basis for statistics. (Combes Edwards, 1995 P2)The guerilla development during this time was the use of the double accounting system of financial reporting. This system is able to combine the attributes of charge/discharge accounting with mercantile accounting. (Combes Edwards, 1995 P3) It is a combination of stewardship orientation and profit calculation orientation. The advantage of this system is that it would prevent anyone from being misled into assuming a connection between expenditure appearing debited in the capital account and the actual value of works associated with that expenditureIn the paper Engineering farming and accounting development at Albion Motors 1900- c.1970 by surface-to-air missile McKinstry we see the relationship between Albion Motors accounting systems and its engineering-orientated culture. This paper shows changes in both financial a nd management accounting. Albion motors used a well-developed double entry system, a system no doubt derived from the work of Pacioli. Depreciation was also charged on machinery, by assessing there useful life. Depreciation ranged from between 10% and 33.3%. Albion motors also used one of the first firms to use full accruals accounting, which is a clear change as firms had previously preferred to us prudence. Full accounts were but produced every financial year, as was a full stocktaking. A plant register was kept and retained by the engineering department. This allowed for accountability and reduced the chances of fraud in the depots.Albion motors employed a highly skilled but unqualified a company secretary and cashier, although this was not uncommon at the time when they became a public company they employed a chartered accountant. This is a significant development as the qualified accountants involvement reinforces the reputability of the companys financial accounts. It is now necessary for the public company accounts to be produced by someone who is qualified to do so, as not to do so would lead investors to question their accuracy. The non-qualified employee responsible for all accounting from 1914 until 1950 was succeeded by a chartered accountant. This emphasizes the reputation and influence of the profession of accountancy. It is around 1950s that there is seen the emergence of the financial accountant. The need of the users of financial information is changing, the emergence of this new official role show that clearly. Investors confidence in financial reports is dependent on financial information having characteristics which are discussed in IAS 1. Financial information must be relevant, up to date, reliable and free from bias. The financial accountant is qualified to produce financial information that abides by these criteria.Christie Malrys own double entry by B.S. Johnson An meter reading as foucauldian disclosures a paper by Sam McKinstry th at examines the work of the novelist B.S. Johnson. This paper discusses the idea that accounting can be used to convey certain information to certain people. In this case the issue that the Double-entry system only favours specific interests in ordering and disadvantages others. (McKinstry 2006 P990) This directly disagrees with public interest theory which states that regulation is initially put in place to benefit society as a whole. (C. Deegan J Unerman 2006, P 65) This paper also takes into account and makes reference to the work of Luca Pacioli in double entry bookkeeping. Malry adapts the double entry system, converting situations in his life into monetary values and inputting these values as every debits or credits. This adaptation was particularly important in the context of British politics and Industrial relations at the time. these and other developments recharged and remorilised capitalism and retooled social democratise ideology and its politics. (McIlorys and Campbel ls 1999, P 93).Collectively these developments in financial accounting over the last millennium have resulted in financial accounting as we know it today. These changes where brought about by a change in the needs of users of financial information and the identifying of weaknesses.We see many changes in the financial management of monastic houses and estates at the start of the millennium. The early Period of rapid growth in terms of new foundations was over, and the later Middle-ages witnessed the response of organisations in their age of maturity endeavouring to maintain their purpose and position.(Dobie, 2008, P 3) Monasteries changed in order to adapt and survive the economic and religions pressures. These changed allowed them to maintain their positions survive the times. We see the introduction of an audit function and the changing of regulation to deal with the identification of weakness. Other factors such as the Black Death epidemic which impacted on the economy as well as the population influenced developments at the time.Luca Pacioli developed the double-entry system used at the time by traders after identifying elbow room for improvement this system is similar to the one used today. He also developed a conceptual framework of accounting best practises. Its influence can clearly be seen in todays IASB and FASB conceptual frameworks.In Dowlais Iron Company we see the implementing of a sophisticated financial reporting and management accounting system which complimented the financial accounting system. These systems allowed them to the size and success that they did. it is incredible that any firm would have grown to the size and achieved the significance of DIC in the absence of a satisfactory system for recording both inflows and outflows of cash and other asset and movement of resources within the firm (Edwards and Baber 1979 P139)The Financial reporting practises of British municipal corporations in 1835-1933 show developments in the regulation , disclosure and controls in order to deal with corruption, mismanagement and lack of accountability in municipal corporations.Political factors triggered by the two major wars impacted on both financial and management accounting. This can be seen in Engineering culture and accounting development at Albion motors a paper by Sam Mckinstry. World struggle 2 led to the introduction of a War pension scheme, which is accounted for using IAS 19. We also see in 1950 the development of the role of the financial accountant. The role of the financial accountant is created mainly to provide credibility and reassurance to financial accounts. The financial accounting is qualified to produce accounts in unanimity with regulations, to give a true and fair view of the firms finances in order to maintain investor confidence. This is a contribution factor in accounting being the reputable profession it is today. This is open to debate as it can be argued that this only gives the illusion of reputa bility. As seen in the collapse of Enron the financial reports approved by the financial accountants didnt give a true and fair view of the organisation.Possible theories into reasons for these changes are given in the postulate for and append of Accounting Theories The Market for Excuses a paper by Ross L. Watts and Jerold L. Zimmerman. The paper discusses the question of why accounting theories are predominantly normative and why no general theory is generally accepted. It is generally concluded that accounting theory has had little substantive, direct impact on accounting practise or policy formation despite half a century of search (R. L. Watts 1979, P 1) the theory of political process is one theorises the idea that individuals with top executive in government will attempt to gain wealth through the influence and prescribe accounting procedures that are in their own best interests. There is also the idea that as individuals have different interests there will be a number of different accounting theories on a single issue. This prevents general agreement on accounting history.(R. L. Watts 1979, P 273) This theory can be proven by looking at the recent scandal involving MPs expenses. MPs influenced the regulations on expenses in their own favour, in an attempt to gain wealth. There was also the issue that these individual expense claims were not made public but were leaked. This shows that disclosure requirements were inadequate, as a result of the identification of this weakness regulations have been tightened up. Another example of this is Ex-Prime Minister Tony Blair having tax-payers pay for his security when he travels the worlds for his own financial gains. Blairs complete reform of the Human Rights Act 1998 when he was in power gives him this right.The demand for public interest-orientated accounting theories depends on the extent of the governments role in the economy. (R. L. Watts 1979, P 275) a clear example of this is the adjusting of intere st rates in order to help economic growth. Another example of this is the financial reporting practises of British municipal corporations 1835-1933, where there was corruption, mismanagement and lack of accountability. The government gave the illusion of acting in the public interest but from further analysis it can be seen that this legislation was a response to public protest. We can see that there was a degree of self-interest involved.The motivation for all the developments of in financial accounting can be examined using Self-inte