Accounting is often described as the "language of business", made of words that we now associate exclusively with monetary calculations and economic interests. But words have a history that is too easily forgotten. Bringing that history back can help us understand how rich the nature of accounting was — and still is. Every financial transaction is always beyond finance: It often implies moral, social, political, and even religious meaning (hence the increasing call for greater exchanges between Western accounting and finance traditions and Islamic finance).
Take the word "rationality", for example. We associate it with intellectual abilities, mainstream economics, and the idea of making the most of your money. A different association emerges though if we look at its etymology: Ratio in Latin means "calculation", "schema", "proportion", and, surprisingly, "account". The Romans knew this well when they asked citizens to present their accounts in symmetrical tablets, in order to parem rationem, that is, to make sure that credits and debits were accurately accounted for and were in balance.
For the Romans, the aesthetical symmetry of the tablets (what we nowadays would symbolise in the form of a T account) was an indication of ethical conduct. This is also reflected in the word "equity", which does not simply show the balance between debits and credits but is a symbol of aequitas, that is, of fairness. Accounting for the Romans was an instrument to assess the moral position of a citizen in relation to the others in the same community.
The role of accounts and accounting as a compass for moral conduct becomes even more evident in the Renaissance, where ratio as "account" is explicitly linked to the idea of proportionality. Not by chance, Luca Pacioli — often described as the Father of Accounting — places accounting along with arithmetic and geometry in his text Summa de arithmetica, geometria, proportioni et proportionalita. Double-entry bookkeeping for him and various other religious authors of accounting treatises of that time was an instrument to make sure that decisions were wise, as wisdom was considered to lie in the middle (in medio stat virtus), not in the maximisation of profits and minimisation of costs.
For the late medieval and early modern accountants, accounting was viewed as a mirror. It's not by chance we use the word "speculation" (from speculum, ie, "mirror" in Latin) in finance. Accounting was a mirroring exercise, an opportunity to reflect on one's public image and actions and interrogate oneself on whether such image and actions were appropriate or not in ambiguous and changing circumstances.
Making an "inventory" was a way also of finding new solutions, of "inventing" them by recombining and reclassifying accounts in order to get a new view on problems, as another etymological insight reveals.
The advent of the accounting profession, with its ethics and codes of conduct, in the late 19th century somehow augmented the moral dimension of accounting. However, it also mixed it with other trends including the UK and US industrial revolutions in the Western world. Accounting also became secularised. With the separation between ownership and management, at least in some parts of the world, it became an instrument of measurement rather than of judgement: a tool for representation rather than one for reflection.
With the development of the finance function within organisations, numbers have been produced by professional accountants and are often viewed and used by other managers in the wider business. This process exponentially grew with the advent of information technologies such as enterprise resource planning (ERP) systems, where central databases now make accounting data available across functions and often in real time to all.
Accounting numbers are not "facts" (factum in Latin means "made"), and there has been a failure to make the public (a consumer of accounting figures) aware of the controversial nature of accounting numbers. This is even more evident with the expansion of business analytics, big data, artificial intelligence, and various kinds of data visualisation, where accounting numbers are often viewed as having a higher status than previously.
Accounting, once used to question the morality of behaviours, is now under scrutiny because it is not able to produce objective knowledge and facts. The paradox is that it was not designed for this purpose in the first place. It was instead designed for interrogating the mystery of value, as the religious link of the early accounting authors shows. By preaching the ambiguity of financial data, the accountant can regain centre stage.
Recovering accounting space for dialogue, for questioning individual and organisational purposes, and for inventory, invention, and compromise is a reasonable and achievable goal. It is within our reach as it has always been, in Roman as much as in digital times.
Paolo Quattrone, Ph.D., is professor and chair of accounting, governance, and social innovation at the University of Edinburgh Business School in the UK. To comment on this article or to suggest an idea for another article, contact Oliver Rowe, an FM magazine senior editor, at Oliver.Rowe@aicpa-cima.com.