How Computers Have Changed Accounting

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Author: Mike Peterson

Abstract

The practice of accounting can be traced back to ancient times, with "accounting books" of various forms discovered as early as 3500 B. C. From the time of 3500 B. C., accounting has progressed slowly through the evelopment of the modern double-entry system published by Luca Paciolo in the fifteenth century until the advent of the computer. In 1581 the first college of accountants was organized with power to regulate entry into the field. Along with the development of modern accounting, a stereotypical image of the accountant was developed, because of its task being routine and purity mathematical in function. The accountant is view as a dull person that is chain to his desk all day. A survey of college students proved this stereotype still exists. This stereotype is wrong. The computer is responsible for changing the accounting stereotypical image from being very task oriented to a career that in more diverse and flexible in life style.

How Computers of Changed Accounting:Accounting Stereotypical Image

Accounting is a profession similar to law and medicine. Such professions continually evolve and change as society and the needs of society change. In recent years, for example, the practice of medicine has change significantly with the invention and use of lasers. Likewise, the practice of law has change to reflect new specializations, such as environmental law. Also accounting profession has progessed with the information age with the computer.

Accounting may be defined as an information system that provides reports to various individuals or groups about economic activities of an organization or other entity. Accounting is the "language of business,"(Warren, Fess, & Revees, 1996. p. 2) because it is the means by which most business information is communicated. For example, companies distribute accounting reports that summarize their financial performance to their owners, creditors, government regulators, and potential investors.

Accounting has slowly progress from clay tables that indicated the payment of wages in Babylon around 3600 B. C. To the double-entry system that was invented by Luca Paciolo in the fifteenth century. Accountants being in a job that tasks were routine and purely mathematical in function develop a stereotype of beings chain to your desk all day, wearing green eye shades, and balancing the accounting books. This stereotypical view of accountants was correct because accounting was very task oriented. The computers has progressed the accounting profession. The stereotypical view of accounts in wrong. The computer is responsible for changing the accounting stereotypical image from being very task oriented to a career that in more diverse and flexible in life style.

A number of modern accounting concepts can be traced to prebiblical times. "Archaeologist and cultural anthropologists have found evidence in and some form as far back as 3600 B. C. in ancient Babylonia" (Rosenberg, 1996. p 4). But between 3600 B. C. and the fifteenth century accounting progressed slowly. The first indiction of modern bookkeeping did come about 600 B. C. with the business and household practices of ancient Rome. (p. 4) The development of modern accounting took place in the fifteenth century. "Luca Paciolo, a Franciscan monk, published a treatise on double- entry bookkeeping, ?Tractatus XI, Particularis de Computis,' included in his Summa de Arithmetica"(p. 5). This treatise is the first known significant writing on the subject of double-entry bookkeeping. Paciolo did not claim that he invented or discovered bookkeeping. The double-entry bookkeeping had been the " technique of financial recording by merchants and businessmen in Italy for some time prior to 1494" (p. 5).

Luca Paciolo's double-entry system is unique because " it records financial activities in such a way that an equilibrium is created within the records" (Warren, Fess, & Revees, 1996. p. 2). For example, assume a person borrows $1,000 from a bank. Within a double-entry system, the loan is recorded as $1,000 of cash received, and at the same time, an obligation is recorded for the eventual repayment of the $1,000. Each of the $1,000 amounts is balance by the other.

Rosenberg's book further states that t he next step to the development of modern accounting happened almost one hundred years later with the first college of accounts. The records show that in Venice, in 1581, the school was organized with power to regulate entry into the field. The school instituted a united accounting system though out Italy. An applicant was required to submit a certificate of fitness signed by a magistrate, serve a six-year apprenticeship with a practicing accountant, and pass an examination. (Rosenberg, 1996 p. 5)

Italy was the leader in accounting for many years, but by the eighteenth century Scotland and England took the lead. Public accounting was recognized in those countries during the latter part of the eighteenth century, but by the middle of the nineteenth century, there is tangible evidence of a separate profession of accounting developing. In 1854, a society of Scottish accountants, the Society of Accountants in Edinburgh, was formed, and not long thereafter, its members were designated as chartered accountants. In 1855, a similar society was organized in Glasgow, and during the next twenty-five years, several other accounting organizations came into being in various cities in England and Scotland. However, the Institute of Chartered Accountants of England and Wales, which was formed in 1880, probably had more to do with the shaping the future of the accounting profession than did any of the other organizations up to that time. (p. 5)

During the 1800s, many British entrepreneur made substantial financial investments in American enterprise and sent their public accountants to the United States to obtain objective reports. One English accountant was dispatched to the American Midwest during this period to look after the interest of the British owners of the Chicago, Burlington, and Quincy Railroad. He spent the rest of his working life in that railroad's accounting department. In this fashion, many other British accountants migrated to the New World, helping to establish the profession on this of the Atlantic. (p. 6)

By the 1880's there were a number of individuals and small firms practicing public accounting in this country, and in 1887, the first organization of public accounts, the American Association of Public Accounts was formed. This association, with many changes over the years, is now the American Institute of Certified Public Accountants (AICPA), the largest and probably the most influential organization of professional accounts in the world. (p. 6)

The passage of the income tax law of 1913 and establishment of the Securities and Exchange Commission in 1933 were tremendously stimulating to the accounting field in the twentieth century. Further, as government tapped corporations and individuals for income tax other taxes and the tax code became ever more complex, experts were needed to search deeply and laboriously into corporate and individual finances to determine what taxes were owed as well as for the purpose of helping the plan activities to minimize tax obligations. Similarly, the auditing duties of accounts were expanded and enhanced as the Securities and Exchange Commission, the stock exchanges, and the accounting profession began to give more and more attention to the types and amounts of information corporate financial statements were required to impart. Research and study of accounting and auditing participles governing such matters were pressed forward with increasing intensity. (p. 6)

The need to interpret and explain the complexity of modern financial matters was not confined to large corporations alone. Nonprofit organizations, small companies, and individuals, too, were affected. In matters relating to taxes, investments, and estate planning, many people found it difficult to cope on their own and increasingly turned for help to accountants, especially to individual practitioners and those is smaller accounting firms. (p. 6)

Along with the development of modern accounting, the professionals were developing a stereotypical image. Accountants were viewed as the people that wear the green eye shades that are chained to their desks all day crunching numbers to balance the accounting books. I notice this stereotypical view exists today as fellow college students would ask me what was my major. As I would tell them that major was accounting. They would respond with getting a perplexing look on their face and suggest that someone needs to do it.

The results on an accounting questionnaire survey of 40 Ricks College students confirmed this stereotypical view still exists. The purpose of the survey's questions was to find out how college student viewed accounting career. The results showed that over 60% of the college students surveyed knew someone that was majoring in accounting. Their view of the type of person that would major in accounting ranged from an out-going personality (35%) to a nerd good at math. Over 75% of the students felt that the working conditions of an accountant was being at a desk all day and 75% of them felt that accounting career would yield a boring job. The results of the survey confirmed the stereotypical view of the accountant with his green eye shades being at a desk all day balancing the accounting books. (Petersen, 1997)

This stereotypical view is not shared among everyone. In fact, Larry Lundy, who is a major force in the New Orleans business community, expresses his view.

I would urge every young person who has a desire to succeed in the business world and in most professions to get some accounting training and to apply the knowledge gain to career and personal goals." says Lundy. "The image of accountants as dull, intellectual nerds is just another propaganda message design to keep you away from a sound understanding of how to succeed in American business. (Bruno, 1995, p. 108)

The stereotypical image stems from the accounting clerks whose job is to compute, classify, and record numerical data in order to develop and maintain and compare current and past balance sheets. The accountants job before the computer required a myriad of hours of the accountant making business journal entries of the days transactions. They spend numerous hours posted the journal entries from the general journal and subsidiaries journal to the ledge.

The accounting clerk is responsible for making the financial statements of a business the balance sheet, income statement, statement of owner's equity, and cash flow. If the balance sheet debits and credits didn't balance he or she would have to spend numerous hours going back over his or her records to find the recording error. The work was very tedious and time consuming. Thus, the stereotype of the accountant was developed from the accounting clerk. The green eye shades part of the stereotype came because the accounts would wear them as they worked. The old western movies had the accountant at the bank wore them.

The accountant's green eye shade image is becoming history. The record keeping that is routine and purely mathematical in function in task are being performed using networked microcomputers and clerical personnel, not trained accountants. The Bureau of Labor Statistics of the federal government has provided data on the national projected demand for new workers in bookkeeping, accounting, and auditing clerks that are categorized closest to accounting clerk. This category is expected to decline by eight percent through the year 2005 because of the computer in preforming automation of office functions.(Long Description for Accounting Clerk, 1996, p. 2) One the other hand, accountants and auditors that are categorized closest to accountant the trend was in the other direction. The category of accounts is expected to grow by 13% through the year 2005 keeping pace with the growth of the economy. (Long Description for Accountant, 1996, p. 2) So, the computer in taking the place of the accounting clerk and increasing the demand of the accountant. With the computer the stereotypical view of the accountant is out of date because the computer is taking the place of the accounting clerk.

The computer has changed the job and skills demands of the accountant today. In a study, information containing in classified ads was used to gain insight into the qualities employers demand most in accounts today and how the qualities differ from those sought 10 and 20 years ago.

The data source used in this study was employers' classified advertisement for accounting positions. The results were found by the examination of the classified ads of The Chicago Tribune, The New York Times, and The Washington Post on a randomly chosen Sunday in March in 1973, 1983, and 1993. The total, 1,465 ads for 11 different accounting-related job positions. (Kreuz, & Newell, 1996, p. 336)

The increase in employers' demand for computer skills in the last 20 years is more dramatic than for any other characteristic. Just one percent of the employers in 1973 and six percent 1983 mentioned computer/mainframe skills in their ads. In 1993, over half of the employers' ads mentioned that computer skills were necessary, with the greatest demand for computer skills among the cost, senior account; and tax positions ranging between 67% and 70% of the ads. (p. 338)

With the computer the accounting career is no longer spending all day in the office. Imagine Jack, a model accountant, working at home on a Saturday morning during the busy season. Using his microcomputer with its internal modem, he dials into his firm's electronic mail and voice message systems to secure recent internal and external communications. Jack finds a message form his boss instructing his to examine some data left for him on the firm's mainframe computer system. Again using his microcomputer, Jack access the mainframe computer and combines the data left by his boss with other data obtained directly from the computer at the Alpha Company (a client). He downloads the combined data onto his microcomputer, obtains additional industry statistics from a public data base, and analyzes the data using a decision support software package running on his microcomputer. Jack also uses word processing and spreadsheet packages to preform parts of the analysis, and he formats the output using a desktop publishing system. Having completed his analysis, Jack sends the results directly to his boss through the firm's local area network, then schedules a meeting with his boss by entering an appointment onto the firm's computer-based calendaring system. Jack directs another copy of the report, via the local area network, to a laser printer in the office and one from himself. (Gelinas, Oram, & Wiggins, 1994. p. 4) Jack is the typical modern accountant that enjoys the more diverse and flexible life style to meet the needs of his of her personal life.

The computer is responsible for changing the accounting stereotypical image from being very task oriented to a career that in more diverse and flexible in life style. The stereotypical view of the accounting career requires a dull person that is chained of their desk all day crunching numbers to balance the accounting books is history. The modern accountant is using the computer to preform the task that is routine and purity mathematical. This allow the accountant to preform duties within minutes that before the computer took numerous hours to accomplish. Thus, the computer has changed the accounting career.

References

    
    

Bruno, M. (1995) Accounting. Black Collegian. 26(1), 104, 111. Gelinas, U., Oram, A., & Wiggins, W. (1994) Accounting Information Systems. Boston, MA: PWS-KENT Publishing Company. Kreuz, J., & Newell, G. (1996) Help Wanted - - Accountant: What the Classifieds say about Employers' Expectations. Journal of Education for Business. 71(6), 334, 339. Long Description for Accountant, (1996).Long Description for Accounting Clerk, (1996). Petersen, M. (1997 March) [Questionnaire of Ricks College Students]. Rosenberg, M. (1996) Opportunities in Accounting Careers. Lincolnwood, IL: NTC Publishing Group. Warren, C., Fess, P., & Reeve, J., (1996) Accounting. Cincinnati, OH: South-Western Publishing Company.


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