ASSIGNMENT

COURSE TITLE: HISTORY OF ACCOUNTING THOUGHTS

COURSE CODE: ACC 802

NAME: MOBOLAJI ISKIL ADEWALE

MATRIC NO: 212038

Q1 Discuss the influence of the under listed pillars of philosophy in shaping Accounting
thoughts and practice

i. Theoretical philosophy:

Theoretical philosophy is the study of the principles for human knowledge, the development
of the sciences and the basis for scientific knowledge, the principles of thought,
argumentation and communication, metaphysis and the history of the subject itself. The
aspect of theoretical philosophy include epistemology, ethics, logic and metaphysics.

Theoretical philosophy, through metaphysics and epistemology, deeply influences accounting

thoughts and practices. Metaphysical concepts shape our understanding of what constitutes
economic reality and how it should be represented in financial statements. Epistemological
principles drive the pursuit of truth, transparency, and usefulness in financial reporting.
Together, these philosophical foundations ensure that accounting remains a robust discipline
aimed at accurately and reliably representing the financial reality of entities, thereby
supporting informed decision-making by stakeholders.

Metaphysics: Metaphysics, specifically ontology, deals with the nature of being and
existence. In accounting, this translates into defining what constitutes an entity that requires
financial reporting. This includes understanding the nature of assets, liabilities, equity,
revenue, and expenses.

The conceptual framework of accounting defines the elements of financial statements and
recognizes their existence and relevance. For example, the distinction between current and
non-current assets is rooted in an ontological understanding of time and resource utility.
It drives the principle of "substance over form" in accounting, which posits that the economic
reality of transactions should take precedence over their legal form. This ensures that
financial statements reflect the true nature of business activities.

Also, the determining fair value involves metaphysical assumptions about the existence and
nature of market values, which may not always be directly observable. These assumptions
guide the valuation of assets and liabilities.

The accrual basis in accounting is rooted in metaphysical assumptions about the nature of
economic events, the accrual basis recognizes revenues and expenses when they are incurred,
regardless of when cash transactions occur. This approach provides a more accurate
representation of an entity’s financial performance.

Epistemology: Epistemology is the theory of knowledge, it is concerned with minds relation

to reality and it is as old philosophy itself. It has played a crucial role in shaping accounting
as a discipline focused on accurate representation and truthful reporting of financial
information. Epistemology, the study of knowledge, influences the pursuit of objective truth
in financial reporting. Accounting standards aim to produce financial statements that
truthfully represent the economic activities of an entity.

It emphasize the need for verifiable evidence to support financial transactions and balances.
Auditing practices, for instance, are grounded in the need to obtain sufficient and appropriate
evidence to verify the accuracy of financial statements.

It focus on clarity and comprehensibility drives the requirement for transparency and full
disclosure in accounting. Financial statements are designed to provide stakeholders with clear
and comprehensive information about an entity’s financial position and performance.

The epistemological drive for clarity and certainty is mirrored in accounting principles that
stress transparency and full disclosure. Financial statements are designed to provide
stakeholders with clear, comprehensive, and understandable information about a company’s
financial position.

The principle that accounting information must be useful for decision-making is rooted in the
epistemological view that knowledge should enhance understanding and inform actions.
Accounting standards ensure that the information provided is relevant, reliable, and
comparable.
Epistemology influences the development of conceptual frameworks that guide the
preparation and presentation of financial statements. These frameworks provide a coherent
system of interrelated objectives and fundamentals, helping to ensure consistency and
comparability.

Lastly, the debate between principles-based and rules-based accounting standards reflects
epistemological considerations. Principles-based standards rely on broad concepts and
professional judgment, aiming for truthful representation, while rules-based standards
provide detailed prescriptions to ensure uniformity and reduce ambiguity.

Meanwhile, the historical approach is grounded in an epistemological preference for

objective, verifiable data. It records assets and liabilities at their original purchase cost, which
is clear and certain.

The fair value method reflects a metaphysical and epistemological shift towards capturing the
current economic reality. It values assets and liabilities based on current market conditions,
which can provide more relevant information but involves more estimation and judgment.

ii. Practical philosophy

Practical philosophy is the use of philosophy and philosophical techniques in everyday

life. It encompassing areas such as ethics, political philosophy social philosophy,
philosophy of law, philosophy of religion, feminist philosophy and the value theory that
has significantly influenced accounting thoughts and practices. These philosophical
domains provide a framework for understanding the role of accounting in society, guiding
the behaviour of accountants, and shaping the principles and standards that govern the
profession.

Development of Ethical Standards: Ethical philosophy emphasizes the importance of

integrity and honesty, which are core principles in accounting. Accountants are expected
to present true and fair views of financial statements, avoiding any form of
misrepresentation or deceit. Professional accounting bodies, such as the International
Federation of Accountants (IFAC) and the American Institute of Certified Public
Accountants (AICPA), have developed codes of ethics that reflect philosophical
principles. These codes provide guidelines for professional behaviour, emphasizing
responsibilities to the public, clients, and colleagues.
Responsibility and Accountability: Accountants have a fiduciary duty to act in the best
interests of their clients and stakeholders, ensuring that their actions do not harm others.
This ethical obligation is grounded in the philosophical principle of duty and
responsibility. Ethical considerations drive the need for transparency and full disclosure
in financial reporting. Philosophical ethics support the idea that stakeholders have a right
to know the true financial position of an entity, promoting trust and accountability.

Political philosophy: Political philosophy, particularly theories of justice and fairness,

underpin the regulatory frameworks governing accounting practices. Regulations aim to
protect the interests of various stakeholders, including investors, employees, and the
public.

The concepts of governance and accountability are rooted in political philosophy. Good
corporate governance practices ensure that companies operate transparently and
responsibly, with accounting playing a crucial role in monitoring and reporting corporate
activities.

Political philosophy influences the establishment of institutional frameworks like the

Financial Accounting Standards Board (FASB) and the International Accounting
Standards Board (IASB). These bodies create and enforce accounting standards to ensure
consistency and reliability in financial reporting.

The regulatory environment, shaped by political and legal philosophy, mandates

compliance with established accounting standards and principles. This ensures that
financial information is prepared consistently and comparably, promoting fairness and
efficiency in markets.

iii. Logic philosophy

It is the area of philosophy devoted to examine the scope and nature of logic. Logical
philosophy has had a profound influence on shaping accounting thoughts and practices.
Logic, as the study of valid reasoning, ensures that accounting principles and
methodologies are coherent, consistent, and rational. This influence can be seen in several
aspects of accounting, including the development of accounting systems, the structure of
financial statements, auditing practices, and decision-making processes.
Structure of double entry book-keeping: The double-entry bookkeeping system, which
forms the backbone of modern accounting, is a prime example of applied logical
principles. This system ensures that every transaction affects at least two accounts in a
way that maintains the accounting equation: Assets = Liabilities + Equity.

The logical structure of double-entry bookkeeping helps in maintaining a balanced ledger,

where the total debits always equal total credits, providing a built-in mechanism for error
detection.

The logical consistency of this system ensures systematic and comprehensive recording
of all financial transactions, facilitating accurate financial reporting and analysis. Logical
principles assist in account reconciliation processes, helping to identify and correct
discrepancies in financial records.

The logical principles assist in account reconciliation processes, helping to identify and
correct discrepancies in financial records.

Financial Statement Preparation and Analysis: Logic drives the standardization of

financial statements, ensuring they present financial information in a clear, coherent, and
consistent manner. This standardization allows stakeholders to understand and compare
financial data across different entities and periods.

Logical principles guide the classification and aggregation of financial data into
meaningful categories (e.g., assets, liabilities, revenue, expenses), facilitating easier
interpretation and analysis.

The logical structuring of financial statements aims to provide relevant and reliable
information that is useful for decision-making. Logical frameworks ensure that financial
data is presented in a way that aids stakeholders in making informed economic decisions.

Auditing Practices: Auditing practices are deeply rooted in logical methodologies that
emphasize systematic examination and verification of financial records. Auditors use
logical reasoning to trace transactions, verify balances, and test internal controls.

Logical principles guide the process of evidence collection, ensuring that auditors gather
sufficient, appropriate, and reliable evidence to form an audit opinion.

Logical analytical procedures, such as variance analysis and trend analysis, help auditors
identify unusual patterns or discrepancies that may indicate errors or fraud.
Logical approaches to testing internal controls help ensure that an organization’s financial
reporting processes are robust and reliable.

Logical Decision-Making Frameworks: Logical frameworks underpin budgeting and

forecasting processes, enabling systematic planning and allocation of resources. These
processes involve setting financial goals, projecting future revenues and expenses, and
making informed assumptions.

Also, logical techniques, such as scenario analysis and sensitivity analysis, help in
evaluating the impact of different assumptions and decisions on future financial
performance.

Furthermore, it principles guide cost accounting practices, ensuring that costs are
accurately allocated to products, services, or departments. This facilitates precise cost
control and pricing decisions.

Logical frameworks are used in management accounting to develop performance

measurement systems, such as balanced scorecards, that align with organizational goals
and strategies.

Logical Consistency in Accounting Standards:

The development of accounting standards, such as those by the Financial Accounting

Standards Board (FASB) and the International Accounting Standards Board (IASB), is
grounded in logical consistency. These standards provide a coherent set of principles that
guide financial reporting.

It informs the debate between principles-based and rules-based accounting standards.

Principles-based standards rely on broad, logically coherent concepts that require
professional judgment, while rules-based standards provide detailed prescriptions to
ensure consistency.

Lastly, logical consistency in accounting standards ensures uniformity and comparability

of financial statements, enabling stakeholders to make rational comparisons and decisions
based on reliable data.

Q2: Discuss the evolution of accounting from the Renaissance to the Industrial
Revolution
The evolution of accounting from the Renaissance to the Industrial Revolution represents a
significant transformation in the methods, practices, and role of accounting in society.
Scholars and researchers have challenged of describing accounting in the past, or at least
documenting an absence of accounting in particular contexts (Napier, 2006).

Renaissance Period (14th to 17th Century)

The Renaissance period marked a pivotal moment in accounting history with the introduction
and codification of the double-entry bookkeeping system. This system, often regarded as the
modern pillar of accounting, revolutionized financial record-keeping by ensuring that each
economic transaction impacted at least two accounts. This method facilitated a more accurate
and comprehensive representation of a business's financial state.

The double entry system (registration system) of the economic activities resulted from advent
of writing, trade and production (Bogdani, 2008). The accounting phenomenon progressed in
the Renaissance period and it was much related to art, science, literature, architecture, and
philosophy, accounting progressed. The development of accounting was addressed the
increasing need for financial information. The modern accounting pillar is the secondary
accounting system (double). Despite circumstances and changes in the business environment,
this system has proven to be useful and effective for more than five centuries. The double
registration system in accounting was formed in such a way that each census of each
economic transaction consists of two aspects that affect at least two accounts. Rights to
property in accounting are presented as liability to the owner (s) of capital and as a liability to
creditors: Assets = Liabilities + Capital (Rexhepi, 2015), (Asllanaj, 2010), (Ahmeti, 2008),
(Clendon, 2007); (Deana, Clarke, & Capalbob, 2016); (Kie, 2012); (Sangster, Stoner,
Scataglini-Belghitar, 2014).

The Renaissance period of Accounting are discuss below:

1. Double-Entry Bookkeeping: The most notable advancement in accounting during the

Renaissance was the development and dissemination of double-entry bookkeeping. Luca
Pacioli, an Italian mathematician, published "Summa de Arithmetica, Geometria, Proportioni
et Proportionalità" in 1494, which included a section on bookkeeping called "Particularis de
Computis et Scripturis". This work codified the principles of double-entry bookkeeping.
Double-entry bookkeeping involves recording each transaction twice, as both a debit and a
credit, to ensure the accounts remain balanced. This method provided a more accurate and
reliable way of tracking financial information.
2. Rise of Merchant Class: The growth of trade and commerce during the Renaissance led to
the rise of a wealthy merchant class who needed more sophisticated accounting methods to
manage their businesses. Merchants kept detailed records of their transactions, inventories,
and finances to better control their operations and profits.

3. Banking and Credit: The development of banking and credit systems in Renaissance Italy,
particularly in Florence and Venice, necessitated advanced accounting practices to manage
loans, deposits, and interest. Banks began to use accounting to track their own financial
health and to provide transparency to their clients.

Early Modern Period (17th to 18th Century)

1. Expansion of Commerce: The expansion of European trade with Asia, Africa, and the
Americas led to increased complexity in business transactions and financial arrangements.
Joint-stock companies, such as the British East India Company and the Dutch East India
Company, emerged. These companies needed systematic accounting practices to manage
large-scale, long-term investments from multiple shareholders.

2. Development of Accounting Standards: With the rise of corporations and public

investment, there was a need for more standardized accounting practices to ensure
consistency and comparability of financial statements. Early efforts to standardize accounting
practices began, although these were often informal and varied between regions and
industries.

Industrial Revolution (Late 18th to Early 19th Century)

1. Industrialization and Scale: The Industrial Revolution brought about mass production,
large-scale enterprises, and complex supply chains. This increased the volume and
complexity of financial transactions. Factories and railways required substantial capital
investment, leading to the need for more detailed cost accounting and financial management.

2. Professionalization of Accounting: The rise of large corporations and complex financial

structures led to the professionalization of accounting as a distinct profession. Professional
accounting bodies began to form, such as the Institute of Chartered Accountants in England
and Wales (ICAEW) in 1880, setting standards and providing certification for accountants.

3. Managerial Accounting: The need for internal financial information to aid in decision-
making led to the development of managerial accounting. Techniques such as budgeting, cost
accounting, and performance measurement became integral to managing large industrial
enterprises.

4. Regulatory Environment: Governments began to recognize the importance of accurate

financial reporting for the economy. Regulations started to emerge to ensure transparency and
protect investors. The British Companies Act of 1844 was one of the first laws to require
public companies to produce audited financial statements.

In conclusive, from the Renaissance to the Industrial Revolution, accounting evolved from
basic record-keeping to a complex, standardized, and professionalized practice. Key
developments included the advent of double-entry bookkeeping, the expansion of commerce,
the rise of joint-stock companies, the professionalization of the accounting profession, and
the establishment of regulatory frameworks. These changes were driven by the increasing
complexity of economic activities, the need for reliable financial information, and the growth
of global trade and industrial enterprises.

Reference

Bogdani, I. (2008). Kontabiliteti për Jurist/ Accounting for Lawyer. Tiranë: Albpaper.

Rexhepi, S. (2015). Bazat e kontabilitetit/Basics of Accounting. Prishtinë: N.G.B. Grafika

Rezniqi

Asllanaj, R. (2010). Kontabiliteti Financiar/Financial Accounting. Prishtinë: Këshilli botues i

Universitetit të Prishtinës.

Ahmeti, S. (2008). Kontabiliteti Financiar/ Financial Accounting. Prishtinë: Kolegji Iliria

Deana, G.; Clarke, F. & Capalbob, F. (2016). Pacioli's double entry – part of an intellectual
and social. Accounting history review.
Kie, H.S. (2012). Fundamentals of Accounting. Oxford Fajara

Sangster, A.; Stoner, G.G. & Scataglini-Belghitar, P.D.L. (2014). Pacioli's example entries
Aconundrum resolved?Abacus, 1(50), pp. 93–106.