Accounting
[1][2] Accounting measures the results of an organization's economic activities and conveys this information to a variety of stakeholders, including investors, creditors, management, and regulators.
The double-entry accounting system in use today was developed in medieval Europe, particularly in Venice, and is usually attributed to the Italian mathematician and Franciscan friar Luca Pacioli.
As of 2012, "all major economies" have plans to converge towards or adopt the International Financial Reporting Standards (IFRS).
For example, Jewish communities used double-entry bookkeeping in the early-medieval period[18][19] and Muslim societies, at least since the 10th century also used many modern accounting concepts.
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".
It calculates and records business transactions and prepares financial statements for the external users in accordance with generally accepted accounting principles (GAAP).
[6] GAAP, in turn, arises from the wide agreement between accounting theory and practice, and changes over time to meet the needs of decision-makers.
[38][39] Auditing is the verification of assertions made by others regarding a payoff,[40] and in the context of accounting it is the "unbiased examination and evaluation of the financial statements of an organization".
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 accepted accounting principles (GAAP) and "in all material respects".
An auditor is also required to identify circumstances in which the generally accepted accounting principles (GAAP) have not been consistently observed.
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.
[46] U.S. tax law covers four basic forms of business ownership: sole proprietorship, partnership, corporation, and limited liability company.
Further large mergers in the late twentieth century led to the dominance of the auditing market by the "Big Five" accounting firms: Arthur Andersen, Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers.
[71][72] Empirical studies document that leading accounting journals publish in total fewer research articles than comparable journals in economics and other business disciplines,[73] and consequently, accounting scholars[74] are relatively less successful in academic publishing than their business school peers.
[75] 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.
[76] The year 2001 witnessed a series of financial information frauds involving Enron, auditing firm Arthur Andersen, the telecommunications company WorldCom, Qwest and Sunbeam, among other well-known corporations.
These problems highlighted the need to review the effectiveness of accounting standards, auditing regulations and corporate governance principles.
In others, tax and regulatory incentives encouraged over-leveraging of companies and decisions to bear extraordinary and unjustified risk.
[77] The Enron scandal deeply influenced the development of new regulations 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.
After a series of revelations involving irregular accounting procedures conducted throughout the 1990s, Enron filed for Chapter 11 bankruptcy protection in December 2001.
[79] One consequence of these events was the passage of the Sarbanes–Oxley Act in the United States in 2002, as a result of the first admissions of fraudulent behavior made by Enron.
The act significantly raises criminal penalties for securities fraud, for destroying, altering or fabricating records in federal investigations or any scheme or attempt to defraud shareholders.
[81] Acts leading to accounting errors are not criminal but may breach civil law, for example, the tort of negligence.
