[dropcap letter="E"]
he development of modern accounting will run parallel to the sophistication of commerce and finance. Evidence of accounting entries already exists in the Sumerian civilization, three millennia before Christ, where, on clay tablets –the most distant relative of the iPad–, records of debit and credit balances are preserved. One must jump to the late 15th century to find truly disruptive changes in the accounting field when the bulk of mathematics developed by Arabs and Indians was applied to commercial activity that would take off with the European Renaissance.
At the end of the 15th century, Barcelona was one of the great commercial and financial centers of the Mediterranean along with Genoa, Valencia, Naples, and Venice. It is in Barcelona that, under the patronage of the publisher Pere Posa, Francesc Santcliment's book, Suma de la art de arismètica, was published in 1482. This incunabulum incorporates improvements and contributions to the more extensive Arte dell'abbaco (Treviso, 1478), very popular in its time, which compiled all practical mathematics known to date. These treatises, and others written in parallel in other commercial cities, always included a section with specific notes for the growing merchant class.
A little later, in 1494, Luca Pacioli (1445-1517), for whom Leonardo da Vinci felt great admiration, would lay the foundations of what we know today as double-entry accounting, that is, the debit credit, but never there is, of modern business schools. Pacioli, born in a small Tuscan village, lived between Venice, Florence, and Rome, in one of humanity's most flourishing periods. As a young man, he served a wealthy Venetian merchant, Antonio Rompiasi, from whom we must infer that the restless Pacioli developed his interest in commercial matters. It is also in Venice where he was instructed in geometry and algebra by the master Bragadino. Although Pacioli is considered the father of modern accounting, these double-entry techniques, or "alla veneziana," had been developing among merchants of the Mediterranean arc for about two centuries.
Before the development of double-entry bookkeeping, the way of keeping a business's accounts was rather simple, in line with the simplicity of the operations carried out. Generally, there were no credit operations, and if there were, they were simple bilateral agreements, so there were no great differences between the accrual and cash criteria. Because writing and reading were not yet common during the Middle Ages, feudal states carried out account control orally. The person in charge of a part of the estate dictated the expenses incurred during the period and summarized the state of affairs aloud before a series of witnesses called the auditors, literally "those who listen" and who gave or did not give their approval to the account. Hence also the origin of the word that still designates this task and profession.
The incorporation of credit, exchange rates, or the need for a more accurate inventory record, generated the need to develop more precise accounting. Products began to be traded simultaneously in different ports: a commodity bought in Mallorca could be manufactured in Barcelona and then divided and transported to several ports before its final sale. The value chain became internationalized and years could pass between the purchase and sale of a commodity.
However, it will be Pacioli's Summa de Arithmetica, Geometrica, Porpotioni et Proportionalita that lays the foundations of modern accounting. It was a commercially very successful book (it would benefit from the invention of the printing press some years earlier), where the Venetian Renaissance man would detail everything he knew about mathematics. The text would include 27 pages where the double-entry system would be described for the first time in detail and with multiple examples. It is a safer and more accurate system because all transactions are recorded twice in a system integrated by different books: one for day-to-day tracking (which allowed for inventory control), and another for keeping the sums of global positions that, mutatus mutandi, reach our days. Since everything is recorded twice, if we sell a bale of wool for a ducat, we must record both the sale and the ducat. Each entry is rebalanced with its counterpart, maintaining the well-known balance of assets equal to liabilities in perfect symmetry.
The adoption of these techniques would not be immediate. It was an innovation that required no small effort and was only compensated when the sophistication of operations demanded it. It would not be until Europe launched its Industrial Revolution that the language created centuries earlier by Pacioli would definitively consolidate as habitual commercial practice, allowing the new industrial bourgeoisie to direct the operations of new empires and control their estates.
However, the great objective of improving accounting was not to have a management tool or to allow the control of complex operations, but above all it wanted to be a tool that protected the interests of creditors and shareholders of a business, first, of limited companies, then (the first modern limited companies would be constituted in England in 1600). Projecting a faithful, updated image of all a company's balances was the only way to guarantee that investors in a business fairly received their proportional share of the profits. Obviously, accounting, and even a proper audit, could not end fraud or scams, but their new nature and precision did allow for the establishment of a common language that generated trust between parties and, by extension, broadened the horizons of commerce and prosperity.
Looking at the origins of accounting allows us to gain perspective on how for centuries the uses and customs of commerce determined good accounting practices, as well as banking and commercial practices. Through a continuous process of trial and error, bottom-up, accounting principles were refined in a slow process of decantation. On the contrary, the late 20th century and the early 21st century have witnessed multiple political alterations to traditional legal principles. Spurious modifications, imposed top-down, often to appease powerful lobbies (such as leveraged Wall Street banking), which has favored a more short-term and volatile accounting system that, too often, has forgotten its main function, which is none other than to protect and generate trust towards creditors and shareholders, which is the same as saying trust in the economy as a whole. For reflection.