The emerging role of accounting as a social science
The social sciences study man as a member of society; they share a concern about social processes, and the results and consequences of social relationships. In this respect, the usefulness of accounting as a social science depends on the benefits which it may bring to society, rather than on the advantages which it may confer to its individual members. We would say, therefore, that although an individual businessman may benefit from the availability of accounting information, what is much more important is that society as a whole should benefit from the fact that its individual members use accounting information for the solution of business problems.
The history of accounting reflects the evolutionary pattern of social developments and in this respect, illustrates how much accounting is a product of its environment and at the same time a force for changing it. There is, therefore, an evolutionary pattern which reflects changing socio-economic conditions and the changing purposes to which accounting is applied. From today's perspective, we may distinguish four phases which may be said to correspond with its developing social role.
(1) Stewardship accounting has its origins in the function which accounting served from the earliest times in the history of our society of providing the owners of wealth with a means of safeguarding it from theft and embezzlement. The title 'stewardship' accounting also has its origins in the fact that wealthy men employed 'stewards' to manage their property. These stewards rendered an account periodically of their stewardship, and this notion still lies at the root of financial reporting today. Essentially, stewardship accounting involved the orderly recording of business transactions, and although accounting records of this type date back to as early as 4500 B.C., the method of keeping these records, known as 'book-keeping', remained primitive until fairly recent times. Indeed, the accounting concepts and procedures in use today for the orderly recording of business transactions have their origin in the practices employed by the merchants of the Italian City States during the early part of the Renaissance. The main principles of the Italian Method, as it was then known, were set out by Luca Pacioli in his famous treatise Summa de Arithmetica, Geometrica, Proportioni et Proportionalita which was published in Venice in 1494. The Italian Method, which became known subsequently as 'double-entry book-keeping' was not generally used in Western Europe until the early part of the 19th century. Whether or not businessmen kept their accounts on the single-entry or the double-entry principle, stewardship accounting played an important social role during the period of commercial expansion in Western Europe, which followed the Renaissance and characterized that phase of Capitalism known as Commercial Capitalism. Stewardship accounting is associated, therefore, with the need of businessmen to keep records of their transactions, the manner in which they had invested their wealth and the debts owed to them and by them.
(2) Financial accounting has a much more recent origin, and dates from the development of large-scale businesses which were made possible by the Industrial Revolution. Indeed, the new technology not only destroyed the existing social framework, but altered completely the method by which business was to be financed. The industrial expansion in the early part of the 19th century necessitated access to large supplies of capital. This led to the advent of the Joint Stock Company, which is a form of business which enables the public to participate in providing capital in return for 'shares' in the assets and the profits of the company. An earlier experience of the Joint Stock form of trading which had resulted in a frantic boom in company flotations, culminating in the South Sea Bubble of 1720, had instilled public suspicion of this form of trading. Reflecting this mood, Adam Smith, himself, questioned the ability of the directors of such companies to administer honestly and well any of the most routine and easily checked business, for being the Managers rather of other people's money than of their own, it cannot well be expected that they should look over it with the same anxious vigilance with which the partners of a private co-partnery frequently watch over their own Negligence and profusion. . . must always prevail, more or less, in the management of the affairs of such a company'. (Smith, 1904 edition.)
Nevertheless, the Joint Stock Companies Act, 1844 permitted the incorporation of such companies by registration without the necessity of obtaining a Royal Charter or a special Act of Parliament. It was not until 1855, however, that the Limited Liability Act permitted such companies to limit the liability of their members to the nominal value of their shares. This meant that the liability of shareholders for the financial debts of the company was limited to the amount which they had agreed to subscribe. In effect, in subscribing for a £1 share, a shareholder agreed to pay £1, and once he had paid that £1, he was not liable to make any further contribution in the event of the company's insolvency.
A THEORETICAL FRAMEWORK
Scope of accounting
Accounting is in an age of rapid transition; its environment has undergone vast changes in the last two decades and an accelerating rate of change is in prospect for the future. Much of what is accepted as accounting today would not have been recognized as such 50 years ago, and one may safely predict that in 50 years' time the subject will bear little resemblance to what it is today.
Changing social attitudes combine with developments in information technology, quantitative methods and the behavioural sciences to affect... see: A Theoretical Framework