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Namaste.In today’s session we will discuss about Evolution or history of Accounting, in thelast session we have understood various concepts and principles of accounting which have beenstandardized as accounting standard.Today let us look at how the accounting evolved.Now, do you know any Hindu or Indian festival which is associated with accounting or bookkeeping?Are you able to recognize or remember any of festivals which you would be celebrating,but it has a very strong relationship with accounting anybody is able to guess?I will give you a hint, it is something to do with the concept of accounting period.In the last session we have discussed accounting period concept, it means that infinite periodsare divided into a specific one year period when we close the books we reopen new booksand we prepare P and L and balance sheet at the end of the period that is the accountingperiod concept.Now, do you know or do you remember any festival which is associated with that period?Now, governments and merchants have been using the accounting for keeping records since almosttime immemorial and India had a very long tradition of preparing chopadis.Chopadis refer to the books of accounts and every year the old chopadis were closed andnew set of chopadis were opened.I think many of you have judged it or remember remembered it correctly that is called asLakshmi pooja and that is very important reason why Diwali is celebrated.Now, Lakshmi pooja is an auspicious day on which the old books are closed new books orchopadis are worshiped and then they are opened on the next day.Now, you can here understand how the concept of accounting period is very firmly rootedin Indian tradition.This is a traditional photo how the chopadis used to be worshiped and then the new chopadiswill be started during Diwali.This is a photograph of some records of how the accounting was made in the old period.We also see mention of several financial instruments particularly hundis which are mentioned inmany of the Indian scriptures and they were used extensively for transfer of money, herethere are some photographs of some of the hundis.Many of you would have heard about Kautilya Arthshastra; Kautilya Arthshastra has welldocumented rules about accounting.Chanakya or Vishnugupta or Kautilya, he was a statesman, economist and also a spiritualguru his period is around 4th century BC.And Kautilya prescribed the accounting theory that included bookkeeping, preparation offinancial statements, auditing, fraud risk management and so on.He considered accounting to be integral part of economics and various kingdoms in Indiaused his work until the 15th century before the advent of colonial rule.He recognized the importance of accounting in economic enterprises and he realized thatproper measurement of economic performance is extremely essential for efficient allocationof resources.Now, he has specified broad scope of accounting and considered the explanation and predictionat its proper objective.Now, the accounting rules are given for recording and classifying economic data also it wasemphasized the critical role of audit which needs to be independent and should be carriedout in a periodic manner, there were two important offices treasurer and comptroller generalthey were deliberately separated to ensure that there is audit independence.So, accounting the accountability was increased, specialization was brought in and the scopeof conflict was reduced considerably because of separation of these two office.Clarity, consistency and completeness of rules is key to such enforcement, these measureswere necessary, but not sufficient to eliminate fraudulent accounting.Now, according to Kautilya Arthshastra maintenance of accounts, now the financial year was fixedand a full process for closure of accounts and audit of the same was also mentioned.It covers the method of consolidation of accounts of various departments because under governmentyou have got so many departments and to get a complete picture for the kingdom or forthe state it is necessary to consolidate them properly.Now, accountants were required to furnish the completed accounts to the head office.Now, Kautilya says that receipts maybe for the current period for the last period andaccidental, so the receipts have been classified and the differentiation has been made betweencash receipts, debtors, currents and accrued in current and accrued income, income fromother sources, windfall gains and recovery of bad debts and so on.He has recognized the concept of risk and suggested that different rate of interestfor loans be charged.Foreign trade loan attracted the highest rate of interest because the returns are uncertain.So, to take care of risk; risk premium can be charged on such types of loans.Now, the expenditure on classification the expenditure classification was also done similarto classification of receipts.So, differentiation of capital expenditure and revenue expenditure was made an expenditureis of two kinds; daily expenditure and profitable expenditure.The expenditure between income and the difference between income and expense was termed as anet balance.He insisted on making long term investments especially in construction that would generateprofit over a period.It has also entailed keeping track of the work in progress.Now, the role and responsibility of a accountant has been quite well defined.In a hierarchical organization structure of senior to junior accountants existed in thekingdoms treasury function, the accountants maintain the books of accounts on annual basisaccording to prescribe standards and the same were furnished for audit at the end of theyear.Kautilya suggested good salaries be paid to accountants as well as auditor as higher incomewould keep them ethical.Because if they are not given good salary there are more chances that they commit thefraud, I think most of you who are looking forward to be accountants would be very happyto know that salary of accountants were at a very high level accountants as well as auditorsas per Kautilya’s principles.Now, one very important and fascinating part was segregation of two offices treasury andaudit, this is necessary for avoiding the conflict of interest between finance functionand audit function.Kautilya’s categorically stated that the head of finance and the head of audit shouldindependently and separately report to the king, he consider recognized the possibilityof collision between the two.In India, the government has now current government has comptroller general of audit and ministryof finance these are two separate functions.However, in the corporate world many times these functions may not be that much separatebecause audit executives may still report to CFO rather than directly to CEO.But it is necessary theoretically to have complete separation and have a independentposition for auditors, so that they can directly report to CEO or to the board.Kautilya significantly emphasized building of ethical culture because whatever rulesyou may unless there is a morality within it is likely that people will find out waysand means to somehow do various types of frauds.Now, Kautilya believed that character reflected personal values of individuals and ethicalvalue learning must commence right from childhood even as at as an adult ethical conduct wasas important as professional skill.Because skill alone is not at all enough to ensure that frauds do not happen or improperconduct does not happen.He proposed measures to build ethical climate in the kingdom.However, he was practical and recognized the potential of corruption.In accounting he talked about misstating financial statements due to abuse of power and fraudulentreporting.He devised a system of reward and punishment to ensure compliance of rules and regulations.Now, verification and auditing of accounts; now, a concept of continuous monitoring, periodicalauditing, verification of vouching existed even in ancient times.Checks were done daily and periodically five nights, pakshas, months, four months and yearthese were the periods when the periodical checks were done.Now, the attributes used in the present day for verifying income and payment voucherswere also used in those times.Interestingly, each department had species to pro had had spies to provide informationand report wrongdoing to the seniors.So, what is happening at a lower level was to be directly reported to seniors throughspies.There was a full process for discovering fraudulent transactions and punishing the accountantsfor misstating financial statements.This is about the ancient India, where the accounting was really well developed.Now, as far as the western countries are developed western countries are concerned the accountingdeveloped much later.So, in 1445 we have Luca patchouli Pacioli who is considered as a father of modern accountingbecause he published the first modern textbook of accounting, he is from Italy.Now, governments and merchants has been using the system of transactions, recording fora very long time.However, the system became a standard for merchants especially in Europe only afterPacioli structured and organized it in his book getting it.So, now the question which may arise is in the ancient India is it possible that we havesuch a detailed system of accounting as you can see in Arthshastra because system of accountingshould be supported by that must level of developed commerce.So, we do see that business, trade, commerce and industry all were highly developed inancient India.There was a very high BoP surplus that is Balance of Payments surplus which can be crosschecked by the movement of gold because a lot of gold used to used to be transferredto India there are records available about that movement.And, there are also records available about navigation because trade was happening throughsea routes, that is also available.Now, Indian business in the ancient time, the examination reveals that business peopleon the Indian subcontinent use the corporate form from a very ancient time and that corporateform used to be known as sreni.Now, the records are available around 800 BC and from there more or less continuouslyit was used until the advent of Islamic invasion in 1000 AD.Now, this provides the evidence for the use of corporate form for a very long time muchbefore the roman proto corporations.In fact, the use of sreni in ancient India was widespread including virtually every kindof business, political and municipal activity.Moreover, when we examine how these entities were structured, governed and regulated wefind that they bear many similarities to modern day corporations.This has there has been a detailed book by Professor Vikramaditya Khanna on economichistory of the corporate form in India, so we have taken this slides from that.We also have some other records particularly about world economic history.So, Paul Bairoch was a great post war economic historian, he has specifically documentedthe history of industry and also the urban history where a lot has been stated aboutthe share of India because India was a highly industrialized country before the arrivalof British and a more detailed record is available from the work of Angus Maddison.So, Angus Maddison was in charge of one very important project about world economic historywhich was instituted by OECD development center studies.Now, the economic history as has been brought in is really very interesting if we look atthe share of world GDP in the work of Angus Maddison it is documented from 00 to 1998,the same has been reproduced here in the slide.So, you can see here that India had a very high share in 00 it was as high as 32.9 percentup to year 1000 also it was 28.9 percent of the global GDP and as much as 1700 it wasas high as 24 percent.So, you can easily see that India and China were the dominant economies in the world;other countries like Western Europe and US has have arrived much later.So, the point I am trying to make is considering that a very high share of GDP for India thereis every possibility that we had a good system of accounting.So, the accounting system which is documented by Kautilya and other authors do have supportfrom other various others collaborative record.So, with this we will stop here you can see the details about this on internet, so I havegiven you the source as well.Now, here you can also see it in the form of a graph and with this we will stop.Namaste.