The paper “ Accounting in 21st Century” is an impressive example of a finance & accounting term paper. The accounting profession has been under severe scrutiny all over the world for a decade ever since the fall of Enron, World Com in the U. S., and HIH Insurance in Australia due to artificially created rosy financial pictures of these publicly-owned corporations relying on which the public had invested their money on the shares of these corporations. But for the connivance or negligence of the accounting profession, this could not have been possible. When the so-called financial bubble burst, the creative accounting practices of the companies were exposed.
Brief BackgroundThe history of American accounting is traceable to English Accounting which took cues from the accounting concepts of Rome and Egypt. Egypt which had the system of scrutiny of accounts by engaging two taxation officers ultimately resulting in fiscal control was followed suit by Rome by introducing cross-checking of each other between the officers in charge of revenue expenditure and expenditure authorization. Thus the practice of keeping two identical records by two different persons to trace mistakes developed.
The British adopted this kind of audit in due course. British Statutory audit has its origins in the medieval practice of verification of trustees-managed farm transactions by outsiders. During the fifteenth century, this practice of independent checking of accounts spread to upcoming publicly owned companies that were accountable to outsider shareholders. Thus the purpose of accounts verification was to keep track of how the companies were run by the independent directors wherein also lay the auditors’ duty to identify financial malpractices disclosed by accounts. (De Ridder J) This led finally to the emergence of enactments in England in the 1900s requiring publicly owned companies to be audited by the representative investors.
(Chatfield M 1968) A case decided in 1887 (Leeds Estate 1887) paved the way for directives mandating audit. For example, the decision in the Leeds Estate case stated that books of accounts of the companies should be verified for the presence and value of reserves. (Chatfield M 1974) Then came the Companies Act 1907 in England requiring the filing of an audited balance sheet with the authorities and also to be made available to the shareholders.
Brickey F. Kathleen Washington University Law Quarterly vol 81.357 ‘from Enron to Worldcom and Beyond: Life and Crime After Sarbanes-Oxley’
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