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Accounting or Accountancy is the
measurement Measurement is the quantification (science), quantification of variable and attribute (research), attributes of an object or event, which can be used to compare with other objects or events. The scope and application of measurement are dependen ...

measurement
, processing, and
communication Communication (from Latin Latin (, or , ) is a classical language belonging to the Italic languages, Italic branch of the Indo-European languages. Latin was originally spoken in the area around Rome, known as Latium. Through the power o ...

communication
of financial and non financial information about economic entities such as
business Business is the activity of making one's living or making money by producing or buying and selling products (such as goods and services). Simply put, it is "any activity or enterprise entered into for profit." Having a business name A trad ...

business
es and
corporation A corporation is an organization—usually a group of people or a company—authorized by the State (polity), state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal ...

corporation
s. Accounting, which has been called the "language of business", measures the results of an organization's economic activities and conveys this information to a variety of users, including
investor An investor is a person that allocates capital with the expectation of a future financial return (profit) or to gain an advantage (interest). Through this allocated capital most of the time the investor purchases some species of property. Type ...
s,
creditor A creditor or lender is a party 300px, '' Hip, Hip, Hurrah!'' (1888) by Peder Severin Krøyer, a painting portraying an artists' party in 19th century Denmark A party is a gathering of people who have been invited by a host A host is ...

creditor
s,
management Management (or managing) is the administration of an organization An organization, or organisation (Commonwealth English The use of the English language English is a West Germanic languages, West Germanic language first spok ...

management
, and
regulators Regulator may refer to: Technology * Regulator (automatic control), a device that maintains a designated characteristic, as in: ** Battery regulator ** Pressure regulator ** Diving regulator ** Voltage regulator * Regulator (sewer), a control devic ...
. Practitioners of accounting are known as
accountant An accountant is a practitioner of accounting Accounting or Accountancy is the measurement, processing, and communication of financial and non financial information about economic entity, economic entities such as businesses and corporati ...

accountant
s. The terms "accounting" and "
financial reporting Financial statements (or financial reports) are formal records of the financial activities and position of a business, person, or other entity. Relevant financial information is presented in a structured manner and in a form which is easy to und ...
" are often used as synonyms. Accounting can be divided into several fields including
financial accounting Financial accounting is the field of accounting Accounting or Accountancy is the measurement, processing, and communication of financial and non financial information about economic entity, economic entities such as businesses and corporat ...
,
management accounting In management accounting or managerial accounting, managers use accounting Accounting or Accountancy is the measurement, processing, and communication of financial and non financial information about economic entity, economic entities such a ...
, external auditing,
tax accounting U.S. tax accounting refers to accounting Accounting or Accountancy is the measurement, processing, and communication of financial and non financial information about economic entity, economic entities such as businesses and corporations. Accou ...
and
cost accounting Cost accounting is defined as "a systematic set of procedures for recording and reporting measurements of the cost of manufacturing goods and performing services in the aggregate and in detail. It includes methods for recognizing, classifying, all ...
.
Accounting information system An accounting as an information system (AIS) is a system of collecting, storing and processing financial and accounting Accounting or Accountancy is the measurement, processing, and communication of financial and non financial information ab ...
s are designed to support accounting functions and related activities. Financial accounting focuses on the reporting of an organization's financial information, including the preparation of
financial statement Financial statements (or financial reports) are formal records of the financial activities and position of a business, person, or other entity. Relevant financial information is presented in a structured manner and in a form which is easy to un ...
s, to the external users of the information, such as
investor An investor is a person that allocates capital with the expectation of a future financial return (profit) or to gain an advantage (interest). Through this allocated capital most of the time the investor purchases some species of property. Type ...
s,
regulators Regulator may refer to: Technology * Regulator (automatic control), a device that maintains a designated characteristic, as in: ** Battery regulator ** Pressure regulator ** Diving regulator ** Voltage regulator * Regulator (sewer), a control devic ...
and
suppliers In commerce, a supply chain is a system of organizations, people, activities, information, and resources involved in supplying a product (business), product or service (business), service to a consumer. Supply chain activities involve the transfor ...

suppliers
; and management accounting focuses on the measurement, analysis and reporting of information for internal use by management. The recording of financial transactions, so that summaries of the financials may be presented in financial reports, is known as
bookkeeping Bookkeeping is the recording of financial transactions, and is part of the process of accounting Accounting or Accountancy is the measurement ' Measurement is the number, numerical quantification (science), quantification of the variab ...
, of which
double-entry bookkeeping Double-entry bookkeeping, also known as, double-entry accounting, is a method of bookkeeping Bookkeeping is the recording of financial transactions, and is part of the process of accounting Accounting or Accountancy is the measureme ...
is the most common system. Accounting has existed in various forms and levels of sophistication throughout human history. The double-entry accounting system in use today was developed in medieval Europe, particularly in
Venice Venice ( ; it, Venezia ; vec, Venesia or ) is a city in northeastern Italy Italy ( it, Italia ), officially the Italian Republic ( it, Repubblica Italiana, links=no ), is a country consisting of delimited by the and surrounding ...

Venice
, and is usually attributed to the Italian mathematician and Franciscan friar
Luca Pacioli Fra Luca Bartolomeo de Pacioli (sometimes ''Paccioli'' or ''Paciolo''; 1447 – 19 June 1517) was an Italian mathematician A mathematician is someone who uses an extensive knowledge of mathematics Mathematics (from Ancient Greek, G ...

Luca Pacioli
. Today, accounting is facilitated by
accounting organizations Accounting or Accountancy is the measurement, processing, and communication of financial and non financial information about economic entity, economic entities such as businesses and corporations. Accounting, which has been called the "language ...
such as standard-setters, accounting firms and
professional bodies A professional association (also called a professional body, professional organization, or professional society) seeks to advocacy, further a particular profession, the interests of individuals engaged in that profession and the public interest. ...
.
Financial statement Financial statements (or financial reports) are formal records of the financial activities and position of a business, person, or other entity. Relevant financial information is presented in a structured manner and in a form which is easy to un ...
s are usually audited by accounting firms, and are prepared in accordance with
generally accepted accounting principles Publicly traded companies typically are subject to the most rigorous standards. Small and midsized businesses often follow more simplified standards, plus any specific disclosures required by their specific lenders and shareholders. Some firms oper ...
(GAAP). GAAP is set by various standard-setting organizations such as the
Financial Accounting Standards Board The Financial Accounting Standards Board (FASB) is a private standard-setting body whose primary purpose is to establish and improve Generally Accepted Accounting Principles (GAAP) within the United States in the public's interest. The Securi ...
(FASB) in the United States and the Financial Reporting Council in the
United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain,Usage is mixed. The Guardian' and Telegraph' use Britain as a synonym for the United Kingdom. Some prefer to use Britain as shorth ...

United Kingdom
. As of 2012, "all major economies" have plans to
converge Converge may refer to: * Converge (band), American hardcore punk band * Converge (Baptist denomination), American national evangelical Baptist body * Limit (mathematics) * Converge ICT, internet service provider in the Philippines See also

...
towards or adopt the
International Financial Reporting Standards International Financial Reporting Standards, commonly called IFRS, are accounting standard Publicly traded companies typically are subject to the most rigorous standards. Small and midsized businesses often follow more simplified standards, plus ...
(IFRS).IFRS Foundation, 2012
The move towards global standards
. Retrieved on April 27, 2012.


History

Accounting is thousands of years old and can be traced to
ancient Ancient history is the aggregate of past eventsWordNet Search – 3.0
"History"
from ...

ancient
civilization  A civilization (or civilisation) is a complex society A complex society is a concept that is shared by a range of disciplines including anthropology, archaeology, history and sociology to describe a stage of social formation. The concep ...

civilization
s.Robson, Keith. 1992. “Accounting Numbers as ‘inscription’: Action at a Distance and the Development of Accounting.” ''Accounting, Organizations and Society'' 17 (7): 685–708. The early development of accounting dates back to ancient
Mesopotamia Mesopotamia ( grc, Μεσοποταμία ''Mesopotamíā''; ar, بِلَاد ٱلرَّافِدَيْن ; syc, ܐܪܡ ܢܗܪ̈ܝܢ, or , ) is a historical region of Western Asia situated within the Tigris–Euphrates river system, in th ...

Mesopotamia
, and is closely related to developments in
writing Writing is a medium of human communication Communication (from Latin Latin (, or , ) is a classical language belonging to the Italic languages, Italic branch of the Indo-European languages. Latin was originally spoken in the area arou ...

writing
,
counting Counting is the process of determining the number of Element (mathematics), elements of a finite set of objects, i.e., determining the size (mathematics), size of a set. The traditional way of counting consists of continually increasing a (mental ...
and
money Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context. The main functions of money are distinguished as: a ...

money
; there is also evidence of early forms of
bookkeeping Bookkeeping is the recording of financial transactions, and is part of the process of accounting Accounting or Accountancy is the measurement ' Measurement is the number, numerical quantification (science), quantification of the variab ...
in ancient
Iran Iran ( fa, ایران ), also called Persia, and officially the Islamic Republic of Iran, is a country in Western Asia Western Asia, West Asia, or Southwest Asia, is the westernmost subregion A subregion is a part of a larger regio ...

Iran
,Oldroyd, David & Dobie, Alisdair: ''Themes in the history of bookkeeping'', The Routledge Companion to Accounting History, London, July 2008, , Chapter 5, p. 96 and early
auditing An audit is an "independent examination of financial information of any entity, whether profit oriented or not, irrespective of its size or legal form when such an examination is conducted with a view to express an opinion thereon.” Auditin ...
systems by the ancient
Egyptians Egyptians ( arz, المصريين, ; cop, ⲣⲉⲙⲛ̀ⲭⲏⲙⲓ, remenkhēmi) are an ethnic group of people originating from the country of Egypt Egypt ( ar, مِصر, Miṣr), officially the Arab Republic of Egypt, is a spanning t ...
and
Babylonians Babylonia () was an ancient Ancient history is the aggregate of past eventsWordNet Search – ...
. By the time of Emperor
Augustus Caesar Augustus (23 September 63 BC19 August AD 14) was the first Roman emperor The Roman emperor was the ruler of the Roman Empire during the imperial period (starting in 27 BC). The emperors used a variety of different titles through ...

Augustus
, the Roman government had access to detailed financial information.Oldroyd, David: ''The role of accounting in public expenditure and monetary policy in the first century AD Roman Empire'', Accounting Historians Journal, Volume 22, Number 2,
Birmingham, Alabama Birmingham ( ) is a city in the north central region of the U.S. state In the , a state is a , of which there are currently 50. Bound together in a , each state holds al jurisdiction over a separate and defined geographic territory wher ...
, December 1995, p.124
Olemiss.edu
/ref>
Double-entry bookkeeping Double-entry bookkeeping, also known as, double-entry accounting, is a method of bookkeeping Bookkeeping is the recording of financial transactions, and is part of the process of accounting Accounting or Accountancy is the measureme ...
was pioneered in the Jewish community of the early-medieval Middle East and was further refined in
medieval Europe In the history of Europe The history of Europe concerns itself with the discovery and collection, the study, organization and presentation and the interpretation of past events and affairs of the people of Europe since the beginning of ...
. With the development of
joint-stock companies A joint-stock company is a business entity In law, a legal person is any person or 'thing' (less ambiguously, any legal entity) that can do the things a human person is usually able to do in law – such as enter into contracts, lawsuit, sue ...
, accounting split into
financial accounting Financial accounting is the field of accounting Accounting or Accountancy is the measurement, processing, and communication of financial and non financial information about economic entity, economic entities such as businesses and corporat ...
and
management accounting In management accounting or managerial accounting, managers use accounting Accounting or Accountancy is the measurement, processing, and communication of financial and non financial information about economic entity, economic entities such a ...
. The first published work on a
double-entry bookkeeping system Double-entry bookkeeping, also known as, double-entry accounting, is a method of bookkeeping Bookkeeping is the recording of financial transactions, and is part of the process of accounting Accounting or Accountancy is the measureme ...
was the ''
Summa de arithmetica ' (''Summary of arithmetic, geometry, proportions and proportionality'') is a book on mathematics Mathematics (from Ancient Greek, Greek: ) includes the study of such topics as quantity (number theory), mathematical structure, structure (al ...
'', published in
Italy Italy ( it, Italia ), officially the Italian Republic ( it, Repubblica Italiana, links=no ), is a country consisting of a peninsula delimited by the Alps The Alps ; german: Alpen ; it, Alpi ; rm, Alps; sl, Alpe ) are the highest ...

Italy
in 1494 by
Luca Pacioli Fra Luca Bartolomeo de Pacioli (sometimes ''Paccioli'' or ''Paciolo''; 1447 – 19 June 1517) was an Italian mathematician A mathematician is someone who uses an extensive knowledge of mathematics Mathematics (from Ancient Greek, G ...

Luca Pacioli
(the "Father of Accounting").Lauwers, Luc & Willekens, Marleen: "Five Hundred Years of Bookkeeping: A Portrait of Luca Pacioli" (Tijdschrift voor Economie en Management,
Katholieke Universiteit Leuven The Katholieke Universiteit Leuven (or KU Leuven) is a Catholic research university A research university is a university A university ( la, universitas, 'a whole') is an educational institution, institution of higher education, higher ...
, 1994, vol:XXXIX issue 3, p.302)
KUleuven.be
/ref> Accounting began to transition into an organized profession in the nineteenth century, with local
professional bodies A professional association (also called a professional body, professional organization, or professional society) seeks to advocacy, further a particular profession, the interests of individuals engaged in that profession and the public interest. ...
in England merging to form the
Institute of Chartered Accountants in England and Wales The Institute of Chartered Accountants in England and Wales (ICAEW) is a professional membership organisation that promotes, develops and supports chartered accountants and students around the world. At the end of 2020, it has over 189,000 member ...
in 1880.


Etymology

Both the words accounting and accountancy were in use in
Great Britain Great Britain is an island An island (or isle) is an isolated piece of habitat that is surrounded by a dramatically different habitat, such as water. Very small islands such as emergent land features on atoll An atoll (), ...

Great Britain
by the mid-1800s, and are derived from the words ''accompting'' and ''accountantship'' used in the 18th century.Labardin, Pierre, and Marc Nikitin. 2009. “Accounting and the Words to Tell It: An Historical Perspective.” ''Accounting, Business & Financial History'' 19 (2): 149–166. In
Middle English Middle English (abbreviated to ME) was a form of the English language English is a West Germanic language of the Indo-European language family The Indo-European languages are a language family A language is a structured sys ...
(used roughly between the 12th and the late 15th century) the verb "to account" had the form ''accounten'', which was derived from the Old French word ''aconter'',Baladouni, Vahé. 1984. “Etymological Observations on Some Accounting Terms.” ''The Accounting Historians Journal'' 11 (2): 101–109. which is in turn related to the
Vulgar Latin Vulgar Latin, also known as Popular or Colloquial Latin, is non-literary Literature broadly is any collection of written Writing is a medium of human communication Communication (from Latin ''communicare'', meaning "to share") is th ...
word ''computare'', meaning "to reckon". The base of ''computare'' is ''putare'', which "variously meant to prune, to purify, to correct an account, hence, to count or calculate, as well as to think". The word "
accountant An accountant is a practitioner of accounting Accounting or Accountancy is the measurement, processing, and communication of financial and non financial information about economic entity, economic entities such as businesses and corporati ...

accountant
" is derived from the French word , which is also derived from the Italian and
Latin Latin (, or , ) is a classical language belonging to the Italic languages, Italic branch of the Indo-European languages. Latin was originally spoken in the area around Rome, known as Latium. Through the power of the Roman Republic, it became ...

Latin
word . The word was formerly written in English as "accomptant", but in process of time the word, which was always pronounced by dropping the "p", became gradually changed both in
pronunciation Pronunciation is the way in which a word or a language A language is a structured system of communication Communication (from Latin ''communicare'', meaning "to share" or "to be in relation with") is "an apparent answer to the painful d ...
and in
orthography An orthography is a set of conventions for writing Writing is a medium of human communication Communication (from Latin ''communicare'', meaning "to share" or "to be in relation with") is "an apparent answer to the painful divisions b ...
to its present form.


Terminology

Accounting has variously been defined as the keeping or preparation of the financial records of transactions of the firm, the analysis, verification and reporting of such records and "the
principles A principle is a proposition or value that is a guide for behavior or evaluation. In law Law is a system A system is a group of Interaction, interacting or interrelated elements that act according to a set of rules to form a unified ...
and procedures of accounting"; it also refers to the
job Employment is the relationship between two parties Image:'Hip, Hip, Hurrah! Artist Festival at Skagen', by Peder Severin Krøyer (1888) Demisted with DXO PhotoLab Clearview; cropped away black border edge.jpg, 300px, ''Hip, Hip, Hurrah!'' ...
of being an
accountant An accountant is a practitioner of accounting Accounting or Accountancy is the measurement, processing, and communication of financial and non financial information about economic entity, economic entities such as businesses and corporati ...

accountant
. Accountancy refers to the
occupation Occupation commonly refers to: *Occupation or job, one's role in society, often a regular activity performed for payment *Occupation (protest) As an act of protest, occupation is a strategy often used by social movements and other forms of collec ...
or
profession A Profession is a disciplined group of individuals who adhere to ethical standards and who hold themselves out as, and are accepted by the public as possessing special knowledge and skills in a widely recognised body of learning derived from r ...

profession
of an accountant, particularly in
British English British English (BrE) is the standard dialect A standard language (also standard variety, standard dialect, and standard) is a language variety that has undergone substantial codification of grammar and usage and is employed by a populatio ...
.


Topics

Accounting has several subfields or subject areas, including
financial accounting Financial accounting is the field of accounting Accounting or Accountancy is the measurement, processing, and communication of financial and non financial information about economic entity, economic entities such as businesses and corporat ...
,
management accounting In management accounting or managerial accounting, managers use accounting Accounting or Accountancy is the measurement, processing, and communication of financial and non financial information about economic entity, economic entities such a ...
,
auditing An audit is an "independent examination of financial information of any entity, whether profit oriented or not, irrespective of its size or legal form when such an examination is conducted with a view to express an opinion thereon.” Auditin ...
,
taxation A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity In law Law is a system A system is a group of Interaction, interacting or interrelated elements that act accord ...
and
accounting information system An accounting as an information system (AIS) is a system of collecting, storing and processing financial and accounting Accounting or Accountancy is the measurement, processing, and communication of financial and non financial information ab ...
s.Weber, Richard P., and W. C. Stevenson. 1981. “Evaluations of Accounting Journal and Department Quality.” The Accounting Review 56 (3): 596–612.


Financial accounting

Financial accounting focuses on the reporting of an organization's financial information to external users of the information, such as investors, potential investors and creditors. It calculates and records business transactions and prepares
financial statement Financial statements (or financial reports) are formal records of the financial activities and position of a business, person, or other entity. Relevant financial information is presented in a structured manner and in a form which is easy to un ...
s for the external users in accordance with
generally accepted accounting principles Publicly traded companies typically are subject to the most rigorous standards. Small and midsized businesses often follow more simplified standards, plus any specific disclosures required by their specific lenders and shareholders. Some firms oper ...
(GAAP). GAAP, in turn, arises from the wide agreement between accounting theory and practice, and change over time to meet the needs of decision-makers. Financial accounting produces past-oriented reports—for example financial statements are often published six to ten months after the end of the accounting period—on an
annual Annual may refer to: *Annual publication, periodical publications appearing regularly once per year **Yearbook **Literary annual *Annual plant *Annual report *Annual giving *Annual, Morocco, a settlement in northeastern Morocco *Annuals (band), a ...
or quarterly basis, generally about the organization as a whole.


Management accounting

Management accounting focuses on the measurement, analysis and reporting of information that can help managers in making decisions to fulfill the goals of an organization. In management accounting, internal measures and reports are based on cost-benefit analysis, and are not required to follow the generally accepted accounting principle (GAAP). In 2014 CIMA created th
Global Management Accounting Principles (GMAPs)
The result of research from across 20 countries in five continents, the principles aim to guide best practice in the discipline. Management accounting produces past-oriented reports with time spans that vary widely, but it also encompasses future-oriented reports such as
budgets A budget is a financial plan for a defined period, often one year. It may also include planned sales Sales are activities related to selling or the number of goods sold in a given targeted time period. The delivery of a service for a co ...
. Management accounting reports often include financial and non financial information, and may, for example, focus on specific products and departments.


Auditing

Auditing is the verification of assertions made by others regarding a payoff,Baiman, Stanley. 1979. “Discussion of Auditing: Incentives and Truthful Reporting.” Journal of Accounting Research 17: 25–29. and in the context of accounting it is the "
unbiased Bias is a disproportionate weight ''in favor of'' or ''against'' an idea or thing, usually in a way that is closed-minded, prejudicial, or unfair. Biases can be innate or learned. People may develop biases for or against an individual, a group, ...
examination and evaluation of the financial statements of an organization". Audit is a professional service that is systematic and conventional. An audit of financial statements aims to express or disclaim an independent opinion on the financial statements. The auditor expresses an independent opinion on the fairness with which the financial statements presents the financial position, results of operations, and cash flows of an entity, in accordance with the generally acceptable accounting principle (GAAP) and "in all material respects". An auditor is also required to identify circumstances in which the generally acceptable accounting principles (GAAP) has not been consistently observed.


Information systems

An accounting information system is a part of an organization's
information system An information system (IS) is a formal, sociotechnical, organizational system designed to collect, process, information storage, store, and information distribution, distribute information. From a sociotechnical perspective, information systems ar ...
used for processing accounting data. Many corporations use artificial intelligence-based information systems. The banking and finance industry uses AI in fraud detection. The retail industry uses AI for customer services. AI is also used in the cybersecurity industry. It involves computer hardware and software systems using statistics and modeling. Many accounting practices have been simplified with the help of accounting computer-based software. An
enterprise resource planning Enterprise resource planning (ERP) is the integrated management of main business processes, often in real time and mediated by software and technology. ERP is usually referred to as a category of business management software—typically a su ...
(ERP) system is commonly used for a large organisation and it provides a comprehensive, centralized, integrated source of information that companies can use to manage all major business processes, from purchasing to manufacturing to human resources. These systems can be cloud based and available on demand via application or browser, or available as software installed on specific computers or local servers, often referred to as on-premise.


Tax accounting

Tax accounting in the United States concentrates on the preparation, analysis and presentation of tax payments and tax returns. The U.S. tax system requires the use of specialised accounting principles for tax purposes which can differ from the
generally accepted accounting principles Publicly traded companies typically are subject to the most rigorous standards. Small and midsized businesses often follow more simplified standards, plus any specific disclosures required by their specific lenders and shareholders. Some firms oper ...
(GAAP) for financial reporting. U.S. tax law covers four basic forms of business ownership:
sole proprietorship A sole proprietorship , also known as a sole tradership, individual entrepreneurship or proprietorship, is a type of enterprise owned and run by one person and in which there is no legal distinction between the owner and the business entity I ...
,
partnership A partnership is an arrangement where parties, known as business partner A business partner is a commercial entity with which another commercial entity has some form of Business alliance, alliance. This relationship may be a contractual, exclus ...

partnership
,
corporation A corporation is an organization—usually a group of people or a company—authorized by the State (polity), state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal ...

corporation
, and
limited liability company A limited liability company (LLC) is the US-specific form of a private limited company A private limited company is any type of business entity in Privately held company, "private" ownership used in many jurisdictions, in contrast to a Pu ...
.
Corporate A corporation is an organization—usually a group of people or a company A company, abbreviated as co., is a Legal personality, legal entity representing an association of people, whether Natural person, natural, Legal person, legal ...
and personal income are taxed at different rates, both varying according to income levels and including varying marginal rates (taxed on each additional dollar of income) and average rates (set as a percentage of overall income).


Forensic accounting

Forensic accounting is a specialty practice area of accounting that describes engagements that result from actual or anticipated disputes or
litigation A lawsuit is a proceeding by a party or parties against another in the civil Civil may refer to: *Civic virtue, or civility *Civil action, or lawsuit *Civil affairs *Civil and political rights *Civil disobedience *Civil engineering *Civil ...
. "
Forensic Forensic science, also known as criminalistics, is the application of science to Criminal law, criminal and Civil law (legal system), civil laws, mainly—on the criminal side—during criminal investigation, as governed by the legal standards ...
" means "suitable for use in a court of law", and it is to that standard and potential outcome that forensic accountants generally have to work.


Political campaign accounting

Political campaign accounting deals with the development and implementation of financial systems and the accounting of financial transactions in compliance with laws governing political campaign operations. This branch of accounting was first formally introduced in the March 1976 issue of The Journal of Accountancy.


Organizations


Professional bodies

Professional accounting bodies include the
American Institute of Certified Public Accountants The American Institute of Certified Public Accountants (AICPA) is the national professional organization of Certified Public Accountants (CPAs) in the United States, with more than 418,000 members in 143 countries in business and industry, publi ...
(AICPA) and the other 179 members of the
International Federation of Accountants The International Federation of Accountants (IFAC) is the global advocacy organization for the accountancy profession the accountancy profession; mainly for the financial accounting and auditing professions. Founded in 1977, IFAC has more than 175 ...
(IFAC), including
Institute of Chartered Accountants of Scotland {{Infobox accounting body , name_in_local_language= , image =ICAS-Logo.png , image_border = , alt = , image_caption = , abbreviation = ICAS , motto = , predecesso ...
(ICAS), Institute of Chartered Accountants of Pakistan (ICAP),
CPA Australia CPA Australia ("Certified Practising Accountant") is a professional accountancy, accounting body in Australia founded in 1886. As of 31 December 2020, it has 168,736 members working in 150 countries and regions around the world. CPA Australia cur ...
,
Institute of Chartered Accountants of India The Institute of Chartered Accountants of India (ICAI) is the World's second largest professional accounting body and largest professional accounting body of India under the ownership of Ministry of Corporate Affairs, Government of India . It w ...
,
Association of Chartered Certified Accountants Founded in 1904, the Association of Chartered Certified Accountants (ACCA) is the global professional accounting body offering the Chartered Certified Accountant qualification (ACCA). ACCA's headquarters are in London with principal administra ...
(ACCA) and
Institute of Chartered Accountants in England and Wales The Institute of Chartered Accountants in England and Wales (ICAEW) is a professional membership organisation that promotes, develops and supports chartered accountants and students around the world. At the end of 2020, it has over 189,000 member ...
(ICAEW). Professional bodies for subfields of the accounting professions also exist, for example the
Chartered Institute of Management Accountants The Chartered Institute of Management Accountants (CIMA) is a UK based professional body offering training and qualification in management accountancy and related subjects. It is focused on accountants working in industry, and provides ongoing s ...
(CIMA) in the UK and
Institute of management accountants The Institute of Management Accountants (IMA), formerly known as the National Association of Cost Accountants (NACA), is a professional organization of accountants. History IMA was founded in 1919 in Buffalo, New York Buffalo is the in ...
in the United States. Many of these professional bodies offer education and training including qualification and administration for various accounting designations, such as certified public accountant (
AICPA The American Institute of Certified Public Accountants (AICPA) is the national professional organization of Certified Public Accountants Certified Public Accountant (CPA) is the title of qualified accountants in numerous countries in the En ...
) and
chartered accountant Chartered accountants were the first accountant An accountant is a practitioner of accounting Accounting or Accountancy is the measurement, processing, and communication of financial and non financial information about economic entity ...
.


Firms

Depending on its size, a company may be legally required to have their
financial statement Financial statements (or financial reports) are formal records of the financial activities and position of a business, person, or other entity. Relevant financial information is presented in a structured manner and in a form which is easy to un ...
s
audited An audit is an "independent examination of financial information of any entity, whether profit oriented or not, irrespective of its size or legal form when such an examination is conducted with a view to express an opinion thereon.” Auditing ...
by a qualified auditor, and audits are usually carried out by accounting firms. Accounting firms grew in the United States and Europe in the late nineteenth and early twentieth century, and through several mergers there were large international accounting firms by the mid-twentieth century. Further large mergers in the late twentieth century led to the dominance of the auditing market by the "Big Five" accounting firms:
Arthur Andersen Arthur Andersen LLP was an American holding company based in Chicago (''City in a Garden''); I Will , image_map = , map_caption = Interactive map of Chicago , coordinates = , coordinates_f ...

Arthur Andersen
,
Deloitte Deloitte Touche Tohmatsu Limited (), commonly referred to as Deloitte, is a multinational corporation, multinational professional services network with offices in over 150 countries and territories around the world. Deloitte is one of the Big ...

Deloitte
,
Ernst & Young Ernst & Young Global Limited, doing business as EY, is a multinational corporation, multinational professional services Professional services network, network with headquarters in London, England. EY is one of the largest professional services ...
,
KPMG KPMG International Limited (or simply KPMG) is a British-Dutch multinational Multinational may refer to: * Multinational corporation, a corporate organization operating in multiple countries * Multinational force, a military body from multiple ...

KPMG
and
PricewaterhouseCoopers PricewaterhouseCoopers is a multinational Multinational may refer to: * Multinational corporation, a corporate organization operating in multiple countries * Multinational force, a military body from multiple countries * Multinational state, a ...

PricewaterhouseCoopers
. The demise of Arthur Andersen following the
Enron scandal The Enron scandal was an accounting scandal Accounting scandals are business scandals which arise from intentional manipulation of financial statement Financial statements (or financial reports) are formal records of the financial activities ...
reduced the Big Five to the Big Four.


Standard-setters

Generally accepted accounting principles Publicly traded companies typically are subject to the most rigorous standards. Small and midsized businesses often follow more simplified standards, plus any specific disclosures required by their specific lenders and shareholders. Some firms oper ...
(GAAP) are accounting standards issued by national regulatory bodies. In addition, the
International Accounting Standards Board The International Accounting Standards Board (IASB) is the independent, accounting standard Publicly traded companies typically are subject to the most rigorous standards. Small and midsized businesses often follow more simplified standards, plus ...
(IASB) issues the
International Financial Reporting Standards International Financial Reporting Standards, commonly called IFRS, are accounting standard Publicly traded companies typically are subject to the most rigorous standards. Small and midsized businesses often follow more simplified standards, plus ...
(IFRS) implemented by 147 countries. While standards for international audit and assurance, ethics, education, and public sector accounting are all set by independent standard settings boards supported by IFAC. The International Auditing and Assurance Standards Board sets international standards for auditing, assurance, and quality control; the
International Ethics Standards Board for Accountants The International Ethics Standards Board for Accountants (IESBA) develops and promotes the International Code of Ethics for Professional Accountants (including International Independence Standards). The IESBA also supports debate on issues related ...
(IESBA) sets the internationally appropriate principles- based ''Code of Ethics for Professional Accounts'' the International Accounting Education Standards Board (IAESB) sets professional accounting education standards;
International Public Sector Accounting Standards International Public Sector Accounting Standards (IPSAS) are a set of accounting standards issued by the IPSAS Board for use by public sector entities around the world in the preparation of financial statements. These standards are based on Internat ...
Board (IPSASB) sets accrual-based international public sector accounting standards Organizations in individual countries may issue accounting standards unique to the countries. For example, in the
United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country Continental United States, primarily located in North America. It consists of 50 U.S. state, states, a Washington, D.C., ...

United States
the
Financial Accounting Standards Board The Financial Accounting Standards Board (FASB) is a private standard-setting body whose primary purpose is to establish and improve Generally Accepted Accounting Principles (GAAP) within the United States in the public's interest. The Securi ...
(FASB) issues the Statements of Financial Accounting Standards, which form the basis of
US GAAP Generally Accepted Accounting Principles (GAAP or U.S. GAAP, pronounced like "gap") is the accounting standard adopted by the U.S. Securities and Exchange Commission (SEC). While the SEC previously stated that it intends to move from U.S. GAAP ...
, and in the
United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain,Usage is mixed. The Guardian' and Telegraph' use Britain as a synonym for the United Kingdom. Some prefer to use Britain as shorth ...

United Kingdom
the
Financial Reporting Council The Financial Reporting Council (FRC) is an independent regulator in the United Kingdom, UK and Republic of Ireland, Ireland, responsible for regulating auditors, accountants and actuaries, and setting the UK's Corporate Governance and Stewardsh ...
(FRC) sets accounting standards. However, as of 2012 "all major economies" have plans to
converge Converge may refer to: * Converge (band), American hardcore punk band * Converge (Baptist denomination), American national evangelical Baptist body * Limit (mathematics) * Converge ICT, internet service provider in the Philippines See also

...
towards or adopt the IFRS.


Education, training and qualifications


Degrees

At least a
bachelor's degree A bachelor's degree (from Middle Latin Medieval Latin was the form of Latin Latin (, or , ) is a classical language belonging to the Italic languages, Italic branch of the Indo-European languages. Latin was originally spoken in the area ...
in accounting or a related field is required for most accountant and
auditor An auditor is a person or a firm appointed by a company A company, abbreviated as co., is a Legal personality, legal entity representing an association of people, whether Natural person, natural, Legal person, legal or a mixture of both, with ...
job positions, and some employers prefer applicants with a
master's degree A master's degree (from Latin ) is an academic degree awarded by University, universities or colleges upon completion of a course of study demonstrating mastery or a high-order overview of a specific field of study or area of Profession, professio ...
. A degree in accounting may also be required for, or may be used to fulfill the requirements for, membership to professional accounting bodies. For example, the education during an accounting degree can be used to fulfill the American Institute of CPA's (AICPA) 150 semester hour requirement, and associate membership with the Certified Public Accountants Association of the UK is available after gaining a degree in finance or accounting. A
doctorate A doctorate (from Latin Latin (, or , ) is a classical language belonging to the Italic branch of the Indo-European languages. Latin was originally spoken in the area around Rome, known as Latium. Through the power of the Roman Republ ...
is required in order to pursue a career in accounting
academia An academy (Attic Greek Attic Greek is the Greek language, Greek dialect of the regions of ancient Greece, ancient region of Attica, including the ''polis'' of classical Athens, Athens. Often called classical Greek, it was the prestige (sociol ...

academia
, for example to work as a university
professor Professor (commonly abbreviated as Prof.) is an academic An academy (Attic Greek: Ἀκαδήμεια; Koine Greek Ἀκαδημία) is an institution of secondary education, secondary or tertiary education, tertiary higher education, hig ...

professor
in accounting. The
Doctor of Philosophy A Doctor of Philosophy (PhD, Ph.D., or DPhil; Latin Latin (, or , ) is a classical language belonging to the Italic branch of the Indo-European languages. Latin was originally spoken in the area around Rome, known as Latium. Throug ...
(PhD) and the
Doctor of Business Administration The Doctor of Business Administration (commonly abbreviated as D.B.A., BAD, DrBA, or Dr.B.A.) is a professional doctorate File:Claude Bernard's thesis for his doctorate Wellcome M0011459.jpg, The cover of the thesis presented by Claude Bernard to ...
(DBA) are the most popular degrees. The PhD is the most common degree for those wishing to pursue a career in academia, while DBA programs generally focus on equipping business executives for business or public careers requiring research skills and qualifications.


Professional qualifications

Professional accounting qualifications include the
Chartered Accountant Chartered accountants were the first accountant An accountant is a practitioner of accounting Accounting or Accountancy is the measurement, processing, and communication of financial and non financial information about economic entity ...
designations and other qualifications including certificates and diplomas. In Scotland, chartered accountants of ICAS undergo Continuous Professional Development and abide by the ICAS code of ethics. In England and Wales, chartered accountants of the
ICAEW The Institute of Chartered Accountants in England and Wales (ICAEW) is a professional membership organisation that promotes, develops and supports chartered accountants and students around the world. At the end of 2020, it has over 189,000 member ...
undergo annual training, and are bound by the ICAEW's
code of ethics Ethical codes are adopted by organizations to assist members in understanding the difference between right Rights are law, legal, social, or ethics, ethical principles of Liberty, freedom or entitlement; that is, rights are the fundamental nor ...
and subject to its disciplinary procedures. In the
United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country Continental United States, primarily located in North America. It consists of 50 U.S. state, states, a Washington, D.C., ...

United States
, the requirements for joining the
AICPA The American Institute of Certified Public Accountants (AICPA) is the national professional organization of Certified Public Accountants Certified Public Accountant (CPA) is the title of qualified accountants in numerous countries in the En ...
as a
Certified Public Accountant Certified Public Accountant (CPA) is the title of qualified accountants in numerous countries in the English-speaking world. It is generally equivalent to the title of chartered accountant Chartered accountants were the first accountant ...
are set by the Board of Accountancy of each
state State may refer to: Arts, entertainment, and media Literature * ''State Magazine'', a monthly magazine published by the U.S. Department of State * The State (newspaper), ''The State'' (newspaper), a daily newspaper in Columbia, South Carolina, Un ...
, and members agree to abide by the AICPA's Code of Professional Conduct and Bylaws. The ACCA is the largest global accountancy body with over 320,000 members and the organisation provides an ‘IFRS stream’ and a ‘UK stream’. Students must pass a total of 14 exams, which are arranged across three papers.


Research

Accounting research is
research Research is "creative and systematic work undertaken to increase the stock of knowledge". It involves the collection, organization and analysis of information to increase understanding of a topic or issue. A research project may be an expa ...

research
in the effects of economic events on the process of accounting, the effects of reported information on economic events, and the roles of accounting in organizations and society. It encompasses a broad range of research areas including
financial accounting Financial accounting is the field of accounting Accounting or Accountancy is the measurement, processing, and communication of financial and non financial information about economic entity, economic entities such as businesses and corporat ...
,
management accounting In management accounting or managerial accounting, managers use accounting Accounting or Accountancy is the measurement, processing, and communication of financial and non financial information about economic entity, economic entities such a ...
,
auditing An audit is an "independent examination of financial information of any entity, whether profit oriented or not, irrespective of its size or legal form when such an examination is conducted with a view to express an opinion thereon.” Auditin ...
and
taxation A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity In law Law is a system A system is a group of Interaction, interacting or interrelated elements that act accord ...
.Oler, Derek K., Mitchell J. Oler, and Christopher J. Skousen. 2010. “Characterizing Accounting Research.” ''Accounting Horizons'' 24 (4): 635–670. Accounting research is carried out both by academic researchers and practicing accountants. Methodologies in academic accounting research include archival research, which examines "objective data collected from
repositories Repository may refer to: * ''The Repository'', a newspaper in Ohio * ''Ackermann's Repository'', a British periodical published 1809–1829 * Repository (version control), a data structure which stores metadata for a set of files or directory stru ...
"; experimental research, which examines data "the researcher gathered by administering treatments to subjects"; analytical research, which is "based on the act of formally modeling
theories A theory is a reason, rational type of abstraction, abstract thinking about a phenomenon, or the results of such thinking. The process of contemplative and rational thinking is often associated with such processes as observational study or researc ...

theories
or substantiating ideas in mathematical terms"; interpretive research, which emphasizes the role of language, interpretation and understanding in accounting practice, "highlighting the symbolic structures and taken-for-granted themes which pattern the world in distinct ways";
critical Critical or Critically may refer to: *Critical, or critical but stable, medical state Medical state is a term used to describe a hospital A hospital is a health care institution providing patient treatment with specialized medical and nursing s ...
research, which emphasizes the role of power and conflict in accounting practice;
case studies A case study involves an up-close, in-depth, and detailed examination of a particular case or cases, within a real-world context. For example, case studies in medicine may focus on an individual patient or ailment; case studies in business might cov ...
;
computer simulation Computer simulation is the process of mathematical modelling, performed on a computer, which is designed to predict the behaviour of, or the outcome of, a real-world or physical system. The reliability of some mathematical models can be determ ...
; and
field research Field research, field studies, or fieldwork is the collection of raw data outside a laboratory A laboratory (, ; colloquially lab) is a facility that provides controlled conditions in which science, scientific or technological researc ...

field research
.Coyne, Joshua G., Scott L. Summers, Brady Williams, and David a. Wood. 2010. “Accounting Program Research Rankings by Topical Area and Methodology.” ''Issues in Accounting Education'' 25 (4) (November): 631–654. Empirical studies document that leading accounting journals publish in total fewer research articles than comparable journals in economics and other business disciplines, and consequently, accounting scholars are relatively less successful in
academic publishing Academic publishing is the subfield of publishing which distributes academic research and scholarship. Most academic work is published in academic journal articles, books or thesis' form. The part of academic written output that is not formally ...
than their
business school A business school is a university-level institution that confers degrees in business administration Business administration (also known as business management) is the administration of a commercial enterprise. It includes all aspects of overse ...

business school
peers. Due to different publication rates between accounting and other business disciplines, a recent study based on academic author rankings concludes that the competitive value of a single publication in a top-ranked journal is highest in accounting and lowest in marketing.


Scandals

The year 2001 witnessed a series of financial information frauds involving
Enron Enron Corporation was an American energy In , energy is the that must be to a or to perform on the body, or to it. Energy is a ; the law of states that energy can be in form, but not created or destroyed. The unit of measuremen ...
, auditing firm
Arthur Andersen Arthur Andersen LLP was an American holding company based in Chicago (''City in a Garden''); I Will , image_map = , map_caption = Interactive map of Chicago , coordinates = , coordinates_f ...

Arthur Andersen
, the telecommunications company
WorldCom MCI, Inc. (subsequently Worldcom and MCI WorldCom) was a telecommunications company. For a time, it was the second largest long-distance telephone company in the United States, after AT&T. Worldcom grew largely by acquiring other telecommunic ...
,
Qwest Qwest Communications International, Inc. was a large United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country Continental United States, primarily located in ...

Qwest
and Sunbeam, among other well-known corporations. These problems highlighted the need to review the effectiveness of
accounting standards Publicly traded companies typically are subject to the most rigorous standards. Small and midsized businesses often follow more simplified standards, plus any specific disclosures required by their specific lenders and shareholders. Some firms opera ...
, auditing regulations and
corporate governance Corporate governance is the collection of mechanisms, processes and relations used by various parties to control and to operate a corporation A corporation is an organization—usually a group of people or a company—authorized by the St ...
principles. In some cases, management manipulated the figures shown in financial reports to indicate a better economic performance. In others, tax and regulatory incentives encouraged over-leveraging of companies and decisions to bear extraordinary and unjustified risk.Astrid Ayala and Giancarlo Ibárgüen Snr.: "A Market Proposal for Auditing the Financial Statements of Public Companies" (Journal of Management of Value,
Universidad Francisco Marroquín Francisco Marroquín University (Spanish Spanish may refer to: * Items from or related to Spain , * gl, Reino de España, * oc, Reiaume d'Espanha, , , image_flag = Bandera de España.svg , image_coat = Escudo de España (mazonado) ...
, March 2006) p. 41
UFM.edu.gt
/ref> The
Enron scandal The Enron scandal was an accounting scandal Accounting scandals are business scandals which arise from intentional manipulation of financial statement Financial statements (or financial reports) are formal records of the financial activities ...
deeply influenced the development of new
regulations Regulation is the management of complex systems according to a set of rules and trends. In systems theory Systems theory is the interdisciplinary study of system A system is a group of Interaction, interacting or interrelated elements that a ...
to improve the reliability of financial reporting, and increased public awareness about the importance of having accounting standards that show the financial reality of companies and the objectivity and independence of auditing firms. In addition to being the largest
bankruptcy Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditor A creditor or lender is a party 300px, '' Hip, Hip, Hurrah!'' (1888) by Peder Severin Krøyer, a painting portraying an artists' par ...

bankruptcy
reorganization in American history, the
Enron scandal The Enron scandal was an accounting scandal Accounting scandals are business scandals which arise from intentional manipulation of financial statement Financial statements (or financial reports) are formal records of the financial activities ...
undoubtedly is the biggest audit failure causing the dissolution of
Arthur Andersen Arthur Andersen LLP was an American holding company based in Chicago (''City in a Garden''); I Will , image_map = , map_caption = Interactive map of Chicago , coordinates = , coordinates_f ...

Arthur Andersen
, which at the time was one of the five largest accounting firms in the world. After a series of revelations involving irregular accounting procedures conducted throughout the 1990s, Enron filed for
Chapter 11 Chapter 11 of the United States Bankruptcy Code ( Title 11 of the United States Code The Code of Laws of the United States of America (variously abbreviated to Code of Laws of the United States, United States Code, U.S. Code, U.S.C., or USC) ...
bankruptcy protection in December 2001. One consequence of these events was the passage of
Sarbanes–Oxley Act The Sarbanes–Oxley Act of 2002 is a United States federal law The law of the United States comprises many levels of codified and uncodified forms of law Law is a system A system is a group of Interaction, interacting or inter ...
in the
United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country Continental United States, primarily located in North America. It consists of 50 U.S. state, states, a Washington, D.C., ...

United States
2002, as a result of the first admissions of fraudulent behavior made by Enron. The act significantly raises criminal penalties for
securities fraud Securities fraud, also known as stock fraud and investment fraud, is a deceptive practice in the stock or commodity market, commodities markets that induces investors to make purchase or sale decisions on the basis of false information, frequently ...
, for destroying, altering or fabricating records in federal investigations or any scheme or attempt to defraud shareholders.Aiyesha Dey, and Thomas Z. Lys: "Trends in Earnings Management and Informativeness of Earnings Announcements in the Pre- and Post-Sarbanes Oxley Periods (
Kellogg School of Management The Kellogg School of Management at Northwestern University (also known as Kellogg) is the business school A business school is a university-level institution that confers degrees in or . A business school may also be referred to as school o ...

Kellogg School of Management
, Evanston, Illinois, February, 2005) p. 5


Fraud and error

Accounting
fraud In law Law is a system A system is a group of Interaction, interacting or interrelated elements that act according to a set of rules to form a unified whole. A system, surrounded and influenced by its environment, is described by ...

fraud
is an intentional misstatement or omission in the accounting records by management or employees which involves the use of deception. It is a criminal act and a breach of civil tort. It may involve collusion with third parties. An accounting error is an unintentional misstatement or omission in the accounting records, for example misinterpretation of facts, mistakes in processing data, or oversights leading to incorrect estimates. Acts leading to accounting errors are not criminal but may breach civil law, for example, the tort of
negligence Negligence (Lat. ''negligentia'') is a failure to exercise appropriate and/or ethical ruled care expected to be exercised amongst specified circumstances. The area of tort A tort, in common law In law, common law (also known as judicial ...

negligence
. The primary responsibility for the prevention and detection of fraud and errors rests with the entity's management.


See also

*
Accounting Information System An accounting as an information system (AIS) is a system of collecting, storing and processing financial and accounting Accounting or Accountancy is the measurement, processing, and communication of financial and non financial information ab ...
*
Accounting records upright=1.35, Accounting Operations Accounting records are key sources of information Information can be thought of as the resolution of uncertainty; it answers the question of "What an entity is" and thus defines both its essence and the nat ...


References


External links

*
Operations Research in Accounting
on the Institute for Operations Research and the Management Sciences website {{Authority control Financial accounting fi:Laskentatoimi