NJ Accountant Discusses the History of Forensic Accounting

Video Transcript 

My name is Robert Bonavito, New Jersey Forensic Accountant. This video is part of a series of videos where I discuss forensic accounting topics for educational purposes only. If this was a litigated matter, I would take a different approach, have different conclusions based on different facts and circumstances. This video is the history of forensic accounting and the double entry bookkeeping system.

Our urge to account and measure and record wealth is one of the oldest human impulses we have. If you look back at what many considered the most successful businessman in the history of the United States or any country is Rockefeller.

And when Rockefeller started out, what he did, he was actually a bookkeeper. And what he said was, the reason he was able to acquire vast amounts of wealth and manage companies effectively is because what he learned as a bookkeeper. When I used to teach in college, I always did get really excited when I taught in college because the first day I would explain to the kids how important accounting was. Because most people don't realize how important it is.

And what I used to tell them it's one of the most vital important tools that mankind has ever invented. If you took away accounting from our society, we'd be back in the Stone Age within six months.

Accounting is more important than penicillin. It's more important than indoor plumbing, it's more important than almost any invention human beings have ever invented. If you took away accounting, the stock market would cease to function overnight.

Accounting really started in 3500BC. This is when men and women started to farm and settle down in villages. And why accounting started then, was because they needed to trade, they needed to say who owed who how much. "Okay, I gave you three goats, you gave me so many pounds of grain," and you needed a system to keep track of this. And this is where rudimentary accounting started.

Big breakthrough in accounting came in the first century BC. And this is when they started to use what is widely known as the double-entry bookkeeping system. And the big breakthrough for this system happened in the 14 and 15 hundreds. And what happened was there was an Italian priest named Luca Pacioli. And he at one point in his career worked in Venice.

Venice back in the 14, 15 hundreds was the center of the known world. This is where most of the commerce happened, in Venice.They traded all over the Mediterranean. And bookkeeping was extremely important because if you had bad books, you could face the death penalty if your books didn't balance.

So they spent a lot of time working on and developing a good system. And this is where they had that double-entry accounting system that we have today. The debits and credits you learned in high school or college, this is where it started out.

But what the big breakthrough was, Luca Pacioli, what he did was he wrote a book that was called "Summa," S-U-M-M-A. And this book was 1,500 pages long. That's a long book back in the 15 and 14 hundreds. And if you could think back to your history what happened a few centuries before that in the 13 hundreds, in the 14 hundreds, the printing press was invented, removable type. So, what he did was he wrote this book and only 30 pages in the book was devoted to what they called back then the Venetian double-entry accounting system, it was devoted to this system we're talking about, only 30 pages. The other stuff was on science and other things that he wrote about.

But he wrote this book, and because of the printing press, he published 2,000 copies. It took him one year to print 2,000 copies. And this book spread throughout the known world. And inside the book, these 30 pages that were devoted to the Venetian double-entry accounting system were copied and perfected and used throughout the known world. And what this led to, because now people could trade, and they could loan money, and they could have trial balances, and financial statements based on this system, it's basically the same system we use today. Of course, it's been improved but the debits and credits and the receivables, all that is the same. And this is enabled people to trade with each other and have confidence and to loan money and to borrow money. And that's what led to the enlightenment, and that's what led to where we are today.

Without accounting, without this rudimentary system, we could not function as a society. And as a forensic accountant, this is the history that I rely on when I go to court and testify, or it's a matrimonial issue or a loss-profit issue. As far as I'm concerned, this double-entry bookkeeping system is the beginning of forensic accounting. This is the end of the video, and my name again is Robert Bonavito. If you have any questions, give me a call or look me up on my website.