"Accountancy" redirects here.

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Accounting, also known as accountancy, is the process of recording and processing

information about economic entities, such
as businesses and corporations.[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.[3] Practitioners
of accounting are known as accountants. The terms "accounting" and "financial
reporting" are often used interchangeably.[4]
Accounting can be divided into several fields including financial
accounting, management accounting, tax accounting and cost accounting.[5] Financial
accounting focuses on the reporting of an organization's financial information, including
the preparation of financial statements, to the external users of the information, such as
investors, regulators and suppliers.[6] Management accounting focuses on the
measurement, analysis and reporting of information for internal use by management to
enhance business operations.[1][6] The recording of financial transactions, so that
summaries of the financials may be presented in financial reports, is known
as bookkeeping, of which double-entry bookkeeping is the most common
system.[7] Accounting information systems are designed to support accounting functions
and related activities.

Accounting has existed in various forms and levels of sophistication throughout human
history. 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.[8] Today, accounting is facilitated by accounting
organizations such as standard-setters, accounting firms and professional bodies.
Financial statements are usually audited by accounting firms, [9] and are prepared in
accordance with generally accepted accounting principles (GAAP).[6] GAAP is set by
various standard-setting organizations such as the Financial Accounting Standards
Board (FASB) in the United States[1] and the Financial Reporting Council in the United
Kingdom. As of 2012, "all major economies" have plans to converge towards or adopt
the International Financial Reporting Standards (IFRS).[10][11]

History
[edit]
Main article: History of accounting

Portrait of Luca Pacioli, painted by Jacopo de'

Barbari, 1495 (Museo di Capodimonte)
Accounting is thousands of years old and can be traced
to ancient civilizations.[12][13][14] One early development of accounting dates back to
ancient Mesopotamia and is closely related to developments
in writing, counting and money;[12] there is also evidence of early forms
of bookkeeping in ancient Iran,[15][16] and early auditing systems by the
ancient Egyptians and Babylonians.[13] By the time of Emperor Augustus, the Roman
government had access to detailed financial information.[17]

Many concepts related to today's accounting seem to be initiated in medieval's Middle

East. 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.[20]

The spread of the use of Arabic numerals, instead of the Roman numbers historically
used in Europe, increased efficiency of accounting procedures among Mediterranean
merchants,[21] who further refined accounting in medieval Europe.[22] With the
development of joint-stock companies, accounting split into financial
accounting and management accounting.

The first published work on a double-entry bookkeeping system was the Summa de
arithmetica, published in Italy in 1494 by Luca Pacioli (the "Father of
Accounting").[23][24] Accounting began to transition into an organized profession in the
19th century,[25][26] with local professional bodies in England merging to form the Institute
of Chartered Accountants in England and Wales in 1880.[27]

Etymology
[edit]

Early 19th-century ledger

Both the words "accounting" and "accountancy" were in use in Great Britain by the mid-
1800s and are derived from the words accompting and accountantship used in the 18th
century.[28] In Middle English (used roughly between the 12th and the late 15th century),
the verb "to account" had the form accounten, which was derived from the Old French
word aconter,[29] which is in turn related to the Vulgar Latin word computare, meaning "to
reckon". 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".[29]

The word "accountant" is derived from the French word compter, which is also derived
from the Italian and Latin word computare. The word was formerly written in English as
"accomptant", but in process of time the word, which was always pronounced by
dropping the "p", became gradually changed both in pronunciation and in orthography to
its present form.[30]

Terminology
[edit]
Accounting has variously been defined as the keeping or preparation of the financial
records of transactions of the firm, the analysis, verification and reporting of such
records and "the principles and procedures of accounting"; it also refers to the job of
being an accountant.[31][32][33]

Accountancy refers to the occupation or profession of an accountant,[34][35][36] particularly

in British English.[31][32]

Topics
[edit]
Accounting has several subfields or subject areas, including financial
accounting, management accounting, auditing, taxation and accounting information
systems.[5]

Financial accounting
[edit]
Main article: Financial accounting
Financial accounting focuses on the reporting of an organization's financial information
to external users of the information, such as investors, potential investors and creditors.
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.[1]

Financial accounting produces past-oriented reports—for example financial statements

are often published six to ten months after the end of the accounting period—on
an annual or quarterly basis, generally about the organization as a whole. [6]

Management accounting
[edit]
Main article: Management accounting
Management accounting focuses on the measurement, analysis and reporting of
information that can help managers in making decisions to fulfill the goals of an
organization. In management accounting, internal measures and reports are based
on cost–benefit analysis, and are not required to follow the generally accepted
accounting principle (GAAP).[6] In 2014 CIMA created the Global Management
Accounting Principles (GMAPs). The result of research from across 20 countries in five
continents, the principles aim to guide best practice in the discipline.[37]

Management accounting produces past-oriented reports with time spans that vary
widely, but it also encompasses future-oriented reports such as budgets. Management
accounting reports often include financial and non financial information, and may, for
example, focus on specific products and departments. [6]
Intercompany accounting
[edit]
Main article: Intercompany accounting
Intercompany accounting focuses on the measurement, analysis and reporting of
information between separate entities that are related, such as a parent company and
its subsidiary companies. Intercompany accounting concerns record keeping of
transactions between companies that have common ownership such as a parent
company and a partially or wholly owned subsidiary. Intercompany transactions are also
recorded in accounting when business is transacted between companies with a
common parent company (subsidiaries).[38][39]

Auditing
[edit]
Main articles: Financial audit and Internal audit
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".[41] Audit is a professional service that is systematic and
conventional.[42]

An audit of financial statements aims to express or disclaim an independent opinion on

the financial statements. 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.[43]

Information systems
[edit]
Main article: Accounting information system
An accounting information system is a part of an organization's information system used
for processing accounting data.[44] Many corporations use artificial intelligence-based
information systems. The banking and finance industry uses AI in fraud detection. The
retail industry uses AI for customer services. AI is also used in the cybersecurity
industry. It involves computer hardware and software systems using statistics and
modeling.[45]

Many accounting practices have been simplified with the help of accounting computer-
based software. An enterprise resource planning (ERP) system is commonly used for a
large organisation and it provides a comprehensive, centralized, integrated source of
information that companies can use to manage all major business processes, from
purchasing to manufacturing to human resources. 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.
Tax accounting
[edit]
Main article: Tax accounting
Tax accounting in the United States concentrates on the preparation, analysis and
presentation of tax payments and tax returns. The U.S. tax system requires the use of
specialised accounting principles for tax purposes which can differ from the generally
accepted accounting principles (GAAP) for financial reporting.[46] U.S. tax law covers four
basic forms of business ownership: sole proprietorship, partnership, corporation,
and limited liability company. Corporate and personal income are taxed at different
rates, both varying according to income levels and including varying marginal rates
(taxed on each additional dollar of income) and average rates (set as a percentage of
overall income).[46]

Forensic accounting
[edit]
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Main article: Forensic accounting
Forensic accounting is a specialty practice area of accounting that describes
engagements that result from actual or anticipated disputes or litigation.[47] "Forensic"
means "suitable for use in a court of law", and it is to that standard and potential
outcome that forensic accountants generally have to work.

Political campaign accounting

[edit]
Main article: Political campaign accounting
Political campaign accounting deals with the development and implementation of
financial systems and the accounting of financial transactions in compliance with laws
governing political campaign operations. This branch of accounting was first formally
introduced in the March 1976 issue of The Journal of Accountancy.[48]

Organizations
[edit]
See also: Category:Accounting organizations
Professional bodies
[edit]
Main article: Professional accounting body
Professional accounting bodies include the American Institute of Certified Public
Accountants (AICPA) and the other 179 members of the International Federation of
Accountants (IFAC),[49] including Institute of Chartered Accountants of
Scotland (ICAS), Institute of Chartered Accountants of Pakistan (ICAP), CPA
Australia, Institute of Chartered Accountants of India, Association of Chartered Certified
Accountants (ACCA) and Institute of Chartered Accountants in England and
Wales (ICAEW). Some countries have a single professional accounting body and, in
some other countries, professional bodies for subfields of the accounting professions
also exist, for example the Chartered Institute of Management Accountants (CIMA) in
the UK and Institute of management accountants in the United States.[50] Many of these
professional bodies offer education and training including qualification and
administration for various accounting designations, such as certified public accountant
(AICPA) and chartered accountant.[51][52]

Firms
[edit]
Main article: Accounting networks and associations
Depending on its size, a company may be legally required to have their financial
statements audited by a qualified auditor, and audits are usually carried out
by accounting firms.[9]

Accounting firms grew in the United States and Europe in the late nineteenth and early
twentieth century, and through several mergers there were large international
accounting firms by the mid-twentieth century. 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.[53] The demise of Arthur
Andersen following the Enron scandal reduced the Big Five to the Big Four.[54]

Standard-setters
[edit]
See also: Accounting standards and Convergence of accounting standards
Generally accepted accounting principles (GAAP) are accounting standards issued by
national regulatory bodies. In addition, the International Accounting Standards
Board (IASB) issues the International Financial Reporting Standards (IFRS)
implemented by 147 countries.[1] Standards for international audit and assurance, ethics,
education, and public sector accounting are all set by independent standard settings
boards supported by IFAC. The International Auditing and Assurance Standards Board
sets international standards for auditing, assurance, and quality control;
the International Ethics Standards Board for Accountants (IESBA)[55] sets the
internationally appropriate principles-based Code of Ethics for Professional
Accountants; the International Accounting Education Standards Board (IAESB) sets
professional accounting education standards;[56] and International Public Sector
Accounting Standards Board (IPSASB) sets accrual-based international public sector
accounting standards.[57][4]
Organizations in individual countries may issue accounting standards unique to the
countries. For example, in Australia, the Australian Accounting Standards Board
manages the issuance of the accounting standards in line with IFRS. In the United
States the Financial Accounting Standards Board (FASB) issues the Statements of
Financial Accounting Standards, which form the basis of US GAAP,[1] and in the United
Kingdom the Financial Reporting Council (FRC) sets accounting standards.[58] However,
as of 2012 "all major economies" have plans to converge towards or adopt the IFRS.[10]