Accounting has evolved as humans have evolved, and since the concepts of the accounting topic are made directly from its most basic conservation principle, it is not difficult to see why the accounting style has a direct relationship with age at all times. As man has evolved from a primitive age to a modern interdependent age, life has evolved from entertaining as a hunter-gatherer to a knowledge-driven, globalized world concept of “efficiency turning to greatness” and along with this evolution, self-accounting with abacus has evolved through management accounting for financial accounting and now managerial accounting; which focuses on decision making.
The US Financial Accounting Standards Board (FASB), which generally standardized and strengthened the globally adopted Generally Accepted Accounting Principles (GAAP), took significant steps in 2012 to come together with the International Accounting Standards Board (IASB) in a manner known as International convergence. Such convergence is expected to gradually harmonize the GAAPs and IFRS until they become the same in an effort to streamline linear business / enterprise reports into a consistent process globally.
1.1 Statement of the problem
There is no absolute certainty about what the future holds for accountants. However, it seems that the future age, which would certainly be a scientific advance, would move man from greatness to something worthy of time. Spiritualism, environmentalism and development can be key factors in the future age. This paper is to find out whether accounting itself is more of a reality that provides accurate solutions to economic problems where human ability to value natural capital would justly give rise to a significant asset in the balance sheet as opposed to the industrial age. , where even the man himself was considered labor and was not considered as important as the machines I operated.
2. LITERATURE REVIEW
This article was approached from a content analysis standpoint – both conceptual and relational. A content analysis is “a research technique for objective, systematic and quantitative description of manifest content in communication” – (Berelson, 52). The conceptual analysis was simply to investigate the presence of the problem, ie. whether there is a stronger presence of positive or negative words used with respect to the specific argument, whereas relational analysis is based on conceptual analysis by examining the relationship between concepts. As with other types of study, the first choices in determining what the possibility of this particular document are are explored.
2.1 The development of accounting theory
According to investopedia.com, accounting theory in light of its evolution can be defined as a review of both historical foundations of accounting practices as well as the way in which accounting policies are verified and added to the study and application of financial principles. Accounting as a discipline is believed to have existed since the 15th century. From that point on, businesses and economies have continued to evolve a lot. Accounting theory needs to adapt to new ways of doing business, new technological standards and gaps that are discovered in reporting mechanisms, and it is therefore a topic that is constantly evolving. As professional accounting organizations help companies interpret and use accounting standards, the Accounting Standards Board continually helps to create more effective practical applications of accounting theory. Accounting is the basis for effective and efficient business management and intelligent managerial decision-making, without which businesses and commerce anywhere in the world would operate blindly and deadly. It is therefore necessary to link how it has evolved to its future role.
2.2 Origin of the accounts
Luca Pacioli wrote a math book in 1494 (ehow) that consisted of a chapter on business mathematics. As this book is believed to be the first official book on bookkeeping, Luca Pacioli has been seriously considered ‘accounting father’. In his Maths book, Pacioli explained that the successful merchant needed 3 things: sufficient cash or credit; an accounting system that can tell him how things are going; and a good bookkeeper to operate it. Pacioli’s theory still applies today, it included both journals and ledgers, and it is believed to have popularized the use of duplicate accounts that had been in place since the late 1300s.
2.2.1 The first change in accounting
During the depression of 1772, the accounting profession went beyond the bookkeeping for cost accounting. The theory and idea were transformed into a method that determines whether a business operates efficiently or uses a surplus of labor and resources. The new theory of cost accounting enabled an educated bookkeeper or accountant to use the book that was kept to extract financial reports to show the effectiveness represented by such data. This new idea led to corporate survival during the Depression; company that would otherwise have failed without an intelligent management decision being informed of a breakthrough in cost accounting.
2.2.2 The influence of the American Revolution / British Court
At the end of the American Revolution, the first American (United States) government accounting system was created in 1789, and it was created to account for and manage the Treasury in the United States. The double entry practice and theory were adopted. The UK courts ruled that they needed professional accountants to provide financial information in court proceedings. Chartered accounting bodies / concepts were introduced in the UK (and especially in the US, the Certified Public Accountant – CPA). In 1887, the first standardized exam occurred, with Frank Broaker becoming the first CPA of the United States.
2.3 Modern Cost Accounting
First established by General Motors (GM) Company in 1923, it developed methods that helped cut its costs and streamlined operations, and this remained relevant for over 50 years. The new accounting techniques developed included return on investment, return on equity and GM’s flexible / adjustable budget concept.
2.4 Accounting Concepts and Conventions
This was established in the United States between 1936 and 1938 by the Accounting Practices Committee (CAP) and thus standardized accounting policies for all companies throughout the United States. In 1953, the generally accepted accounting principles (GAAP) were updated to new standards, the CAP became the Accounting Principles Board (APB) in 1959, and later in 1973 the APB (after suffering under poor management) was replaced by the Financial Accounting Standards Board (FASB). with greater powers and meaning for his professional attitude.
2.5 International Financial Reporting Standards
The FASB issued nearly 200 statements between 1973 and 2009, applying the accounting standards currently in use and is now taking current steps to harmonize all GAAP accounting principles with International Financial Reporting Standards (IFRS) from the International Accounting Standards Board (IASB). It is widely believed that the development of accounting subjects in any nation and across the globe is a mixed effort of both accounting theorists and practitioners. Thus, the framework for accounting is a harmony of efforts, whereby professional accounting bodies are usually at the forefront of a path to regulate and standardize accounting issues.
2.6 The Nigerian Scenario
In Nigeria, the case is no different from what has already been discussed. Most of the country’s accounting standards (concepts and conventions) were inherited from the British colonial masters. And because the world has indeed become a large global village with globalized accounting bodies overseeing and ensuring that all member states are up to date with current generally accepted accounting principles, Nigeria has also been instrumental in making more public and private sector reforms in recent and famous of which the federal government’s approval in July 2010 to adopt International Public Sector Accounting Standards (IPSAS) for the public sector and International Financial Reporting Standards (IFRS) for the private sector as a conscious effort to ensure a uniform reporting chart system throughout the country by both the public and private sectors.
2.7 International convergence of accounting standards
This concept is both a goal and a path taken to achieve such a goal. The FASB believed that the ultimate goal of convergence is a single set of high quality international accounting standards that companies around the world would use for both domestic and cross-border financial reporting. To this end, the FASB and the IASB make a conscious effort to jointly eliminate the differences between ‘GAAP’ and ‘IFRS’. Such a conscious effort was made on April 5, 2012, when an update report was submitted to the Financial Stability Board’s Accounting Convergence Plenary. The ever-increasing demand from global capital markets driven by investors’ desire for international quality, comparable high-quality economic information, is a result of the utility, which is expected to provide immediate decision-making and then accurate problem-solving solutions. The IASB was established on April 1, 2001 as successor to the International Accounting Standards Committee (IASC), and on March 1, 2001, the IASB, an independent accounting standard-setter based in London, England, assumed responsibility for accounting standardization. The IASB is responsible for issuing many accounting standards and statements known as International Financial Reporting Standards (IFRS).
3. PRESENTATION OF FINDINGS
To provide an image of this paper, two (2) illustrations are used to make presentations (interpretations) of the findings. Illustration.1 traces the evolution of accounting; its principles, roles, concepts, professionalism, standardization and internationalization. Illustration. 2 on the one hand relates to accounting development with human development and on the other hand it extends the understanding of the reader with regard to the subject. The reader (user) of this paper easily discovers a past-present-future view of the accounting role, and it intends to finally present what the future of the fiscal year could (or should) be. Self-accounting is not a terminology found in accounting literature, but is used here to depict any primitive accounting system maintained by traders long before double-entry. Self-accounting was thus the past of the accounting, as the accounting role was simply to have records of income and expenses, show liabilities and not necessarily show assets and profits that are separated from the trader’s personal or private income / property. Assets at times may have been posted as expenses. These are assumed because most companies operate (and still operate) as sole proprietors. The current role of accounting includes; management, financial reporting and managerial decision making. These three provide knowledge of what accounting is today. The management aspect is then referred to because wealthy merchants in Europe and America at that time trained their slaves to provide bookkeeping services. So the merchants themselves did not have to do the tasks. Financial Accounting was developed to provide the standard for financial reporting, especially for users of such reports that are largely to the companies concerned. Managerial accounting development evolved to provide items that would assist in the decision-making of managers and business owners. In general, all three accounting roles currently assist stakeholders in making good judgments about their dealings with companies. These stakeholders may or may not have the rights to receive the reports so discussed. Stakeholders include; creditors and government (only entitled to receive financial reports only); shareholders, investors and management (using both the financial reports and the executive reports); the employee and the management team (there are users of all reports: accounting, financial reports and management reports); and competitors, the resident community, and customers – who do not have the rights to receive such reports, but are able to retrieve financial reports (annual reports) to help make their decisions regarding any business of interest to them.
Having accurate records (reports) supports good decision making, but sometimes poor interpretation and assessment of the reports and their recorded results can lead to poor decisions made. The three roles of accounting presently have been the rock by which accounting standardization of principles and procedures has been developed to date. The new role (future) of the accounts must then be foreseen with great readiness as to what is likely to happen. Illustration.2 would make this concept fair.
Illustration.1- Evolution of Accounting in the United States (1300 – 2014)
Stewardship (pre 1300)
-Slaves trained to reproduce basic accounting
Double entrance (1300)
-Introduction of Double Entry principles
Accounting improved (1494)
-Financial reporting begins
Cost Accounting (1772)
-Managerial accounting for decision making begins
Double entry (1789)
-The principle of conservatism fully adopted
– Concepts / chartered bodies introduced
AICPA Formed in the United States (1887)
– Prerequisite standards and operational guidelines
-The certification process begins
Qualification Exam (1897)
-First standardized exams introduced
Cost Accounting changed (1923)
-Moderate cost accounting methods developed by General Motors Company and remained relevant beyond 1973
Concepts and Conventions (1936)
-Conservatism extended to other concepts and conventions
-US The Committee on Accounting Policies (CAP) creates standard accounting policies
CAP evolves (1953)
-New GAAP standards fully established
CAP develops further (1959)
-CAP becomes Accounting Principles Board
APB develops (1973)
-It is due to poor management and inability for accounting theory as desired, APB replaced by FASB
FASB was established (1973)
-Financial Accounting Standards Board replaces APB and issues over 200 opinions up to 2009
– The foundation of accounting standards worldwide is further strengthened
Influence from England (2001)
-IASB created as an independent ‘International Accounting Standards-Setter’ based in London, England
-IASB assumes responsibility from IASC on March 1, 2001
FASB and international convergence (2012-2014)
-GAAP (created by FASB) considered for merger with IFRS (created by IASB)
3.1 Financial statements vs. the future role of accounting?
What is Reality Accounting and what should Reality Accounting include? Wikipedia.com defines reality as the totality of all things, structures (actual and conceptual), events (past or present) and phenomena, whether observable or not. Reality is thus seen as a term that links ideologies with a world view or a part of it (conceptual framework). Reality Accounting is close to ‘Fair Value Accounting’, which is both a basis and a theory of accounting. And that seems to be changing to the future accounting role. In financial accounting, it is readily seen that accounting reflects the business and financial realities as they are, although it is common sense to know that accounting cannot adequately reflect reality, especially in relation to the technical limitation of double income accounting and book value. As part of the changes from Reality Accounting, a new concept of ‘Natural Capital’ has emerged. At the Rio + 20 Sustainable Development Summit organized by the United Nations Conference on Sustainable Development (UNCSD), held in Brazil on 20-22 December. June 2012. At the conference, a statement on natural capital was made, so natural capital is now understood to consist of all the earth’s natural assets (soil, air, water, flora and fauna) and the ecosystem services that result from them, enabling human life . It estimated that natural capital ecosystem products and services are worth trillions of US dollars a year and constitute food, fiber, water, health, energy, climate security and other essential services for all.
3.2 The concept of natural capital
Neither the services nor the stock of Natural Capital providing them are adequately valued compared to social and financial capital despite being fundamental to everything that exists. The daily use of Natural Capital remains grossly undetected in our financial system. Therefore, there is a need to use Natural Capital in a sustainable way. All stakeholders, including the private sector and governments, must begin to appreciate and account for the use of natural capital and to recognize the true cost of its economic growth as well as maintain human well-being now and in the future.
3.3 Natural capital framework
Although natural capital is treated as a free good but must be seen as part of a global wealth pool, governments must act now and wisely to create a framework to regulate, reward or tax the private sector for its use. Reliable policy frameworks that can report the value, use and depletion of natural capital must be the intention of any government that wants to get off to a good start with this new accounting phenomenon. A deeper financial impact is given to accounting under Reality Accounting, since everyone who is considered real is only real in their consequence and not in their physical. Therefore, for example, the value of Natural Capital would be the established value after considering various factors that give rise to such valuation. These factors include size, presence of mineral resources, location, other natural resources, presence of plant and animal life, etc.
Illustration 2 – The new role of the accounts (future)
HUMAN AGE …………. HUMAN EVOLUTION …………………………… . REGNSKABSUDVOLUTION
Primitive Age ……….. Hunter – Collector ……………………………. . Although Accounting
(Independence) …… (Living Residence) …………………………….. (Abacus )
Colonial Age ………… Colonialization ……………………………… … Stewardship Accounting
(Depending on age) ….. (Being effective) ……………………………… . (accounting)
Modern Age …………. Technology Powered by Industrialization ……. Financial Accounting
(Independence) ……. (To be effective) …………………………….. (Financial reporting)
Modern Age …………. Technology driven by knowledge ………….. Management Accounting
(Interdependence) … (From efficiency to greatness) ………… (decision making)
The Age of the Future ……… Technology Driven by Progress …….. Reality Accounting?
(Efficiency ……………. Environmentalism? ………………………… .. (Not as a tool for decision
based on …………….. Developmentalism? ……………………….. ..making but delivering
Mutual dependence …… Spiritualism? ………………………………….. exact solutions on
……………………….. (From Greatness to What?) ………….. …….. economic problems)
As man seeks greater heights in a modern world full of scientific and research discoveries, accountants must consider what their new role should be. From simply providing information about a company’s well-being to financial reporting as a corporate responsibility and now deciding the managerial approach to future forecasts, what does the future hold for accounting, or how is accounting expected to remain professional and relevant in the future that would seem be molded by environmental and developmental challenges across the globe. As accurate records and reports have supported good decision making, although sometimes poor interpretation and assessment of the reports and their recorded results have led to poor decisions made, the current accounting roles that have formed the cliff, such as accounting standardization of principles and procedures that have been developed are now facing obvious changes.
Under the scope of Reality Accounting, it is clearly observed that concepts such as International Convergence, Natural Capital, Environmentalism, Developmentalism and Fair Value Accounting pave the way for the future of accounting.
This article is intended to stimulate academic arguments for or against the subject to bring to accountants awareness of a subconscious change already taking place. Therefore, it is recommended that experienced researchers provide additional ideas, summaries and reviews that can push a clear path to the future of accounting.
First http://www.investopedia.com (Accounting Theory)
2nd http://www.eHow.com (History of accounting theory)
3. Berelson, Bernard. Content analysis in communication research. New York: Free Press, 1952