Kill at Will

There was once when I was doing my auditing job, one of my colleague pops up this question out of no where. He said,

" Who the hell created accounting? I'm gonna kill him if I were to know him. "

He was actually the team leader of the very-tight-deadline interim audit engagement for the Company, Boral Plasterboard. I've got much respect for him.

I finally know now, who is the founder of the stupid accounting theory. There shouldn't be any theory in the first place. According to CPA Australia:

Some people could argue that 'theory of accounting' is a nonsensical and inappropriate label given to a particular physical activity, which is the ' accounting '.

Such people could point out that many, if not most, physical activities take place without the need to operate according to a 'theory'. Were this not the case, every human activity could be defined as a 'theory'!

In one sense, it's easy to understand the point being made here. It does seem ludicrous to talk of, for example, the 'theory of walking the dog'. While some human activities might not be underpinned by theory, accounting seems different. If there is no theory of accounting, how does one explain the existence of accounting rules? Perhaps we need to broaden up our idea of what a 'theory' actually is.

Present-day accounting theory is largely based on the principles of historical cost accounting (HCA). HCA was not invented. Instead, HCA was codified (i.e put in writing) by detailed observation of accounting activity, with inductive logic being used to infer higher level principles and objectives. Observers noted that accountants generally record events on the basis of transacted amounts, and inferred from this that accounting operated according to the principle of 'historical cost'. However, not all accounting principles are based on historical cost. For instance, revaluation of property is not transaction-based activity.

Early attempts by members of the accounting profession to document the concepts of accounting can be traced back to the 1920s. Over time, various efforts have been made to codify accounting activity on the basis of observation. Among them were authors who have since come to be regarded as founders of accounting theory:

Paton (1922); Sanders, Hatfield and Moore (1938); Gilman (1939); Paton and Littleton (1940); and Grady (1965).

One of the most famous codification exercises was that carried out in the 1960s by US accounting researcher Mr. Paul Grady. After a long period of observation, he produced his 'inventory of generally accepted accounting principles', also known as GAAP today. Grady made explicit the fact that GAAP rested on a number of principles, including that of using historical cost to record transactions.

For this instance, then what should be a better name for 'accounting'?

His name is Mr. Paul Grady. FYA.

Adapted from CPA Australia Study Guide