Accounting in A Nutshell

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Last year marked the 125th anniversary of the accounting profession, with the theme ‘Alive’. The theme indicates that the profession is more important and alive than ever. Continuity, sustainability, continuous auditing, fraud, and work-life balance are themes that are keeping many accountants busy these days. The founders of the Netherlands Institute of Accountants (NIvA) in 1895 would probably never have dared to dream of such developments. How has the accountancy profession developed over the past 126 years and where does it stand today? In this article, we take a bird’s eye view of the accountancy profession and discuss some of the major trends in the sector.

The Pincoffs affair in 1879 was the immediate cause for the rapid development of the accounting profession. It concerned a large-scale accounting scandal in 1879 of N.V. Afrikaanse Handelsvereniging, in which an estimated 12 million guilders were embezzled. As a result of this large-scale fraud case, the call for independent supervision of companies grew; after all, the trust had been damaged. So in 1883 the Bureel van Boekhouding ‘Confidentia’ (now known as Ernst & Young) was established by Barend Moret. Confidentia gave a broad range of tasks to the bookkeepers of the time, but the controlling function remained limited. A few years later, in 1895, the NIvA was founded; the first professional organization of accountants. [1]

After the creation of the NIva, the number of accountants and accounting organizations increased. However, it would take another 67 years until the title of chartered accountant (RA) was legally protected. On June 28, 1962, the accounting profession was finally legally established in the RA Act; a milestone for the profession we can say. RAs who were registered obtained the authority to issue a “statement of fairness. With the introduction of this law the various professional organizations, which had been formed in the meantime, merged to form the NIVRA. Interestingly, when the RA Act was introduced, only two members of the professional association were authorized to conduct statutory audits. A few years later, the AA Act followed as well, the law that we know today as the law that protects the title of accountant- administration consultant. [2]

A jump to another milestone in the accountancy profession takes us to the year 2006; the year in which the ‘Accountants Organizations Supervision Act’ (Wta) came into force. In basic terms, this law ensured that the supervision of accountants was shifted from the individual to the accounting firm.

With the advent of the latest and most advanced technologies such as robotic accounting and artificial intelligence, many people believe that the duties of the accountant can be taken over by computers and robots.

Now, many years later, it seems that the accounting profession has evolved into a profession with an important social role. This social role in a complex and fluid world makes the profession diverse and subject to continuous change. On the other hand, in recent years the (perhaps somewhat hackneyed) discussion has also arisen about the extent to which the accountancy profession is going to ‘disappear’. With the advent of the latest and most advanced technologies such as robotic accounting and artificial intelligence, many people believe that the duties of the accountant can be taken over by computers and robots. For example, a 2018 survey by World Economic Forum found that accountants and auditors were among the professions whose jobs Would disappear due to automation.[3] 

An entirely different, perhaps more realistic, perspective is that automation offers several opportunities to improve the quality of an audit. For example, repetitive tasks can be automated and techniques such as data mining, machine learning, and sentiment analysis can be used to analyze a larger set of data and documents [4]. In short, technology will most likely take on the role of a complement rather than a substitute.

And then there is the emerging role of sustainability reporting. We can no longer ignore the fact that we need to move towards a more sustainable way of life and that companies play a crucial role in this. Therefore, companies need to report reliable and comparable information on their improvements in sustainable business practices. The guidelines for reporting non-financial information are in continuous development. On April 21, for example, a new directive called CSRD (Corporate Sustainability Reporting Directive) was approved, which means that as of 2023 all large companies in the European Union will be required to report on their progress concerning sustainability. The crucial role of the auditor in providing assurance on these sustainability reports was demonstrated a few months ago when EY, Shell’s auditor, named the energy transition and the financial impact of climate risk as a key audit matter for the first time. This statement made it clear that not only financial information is considered important, but also non-financial information must play an essential role in providing an audit opinion. Interested in the topic of sustainability reporting and the role of the accountant in this? Then click here.

The human aspect also seems to be gaining traction in the accountancy profession. For example, in an era when generation Y and X are entering the job market, a much-discussed topic has made its appearance: work-life balance. The stereotypical “boring” male accountant who works 80 hours a week and says goodbye to the Zuidas at 5 a.m. no longer seems to arouse much enthusiasm among the current and new generation of accountants. This is in line with research showing that a healthy work-life balance is associated with job satisfaction, performance, and ethical decision-making [5]. The same research showed that women attach greater importance to work-life balance than men. A nice consequence of the increasing attention to work-life balance and diversity is therefore the increasing number of female accountants in the profession. If sufficient attention is paid to personal development, space, and flexibility, combining working in accountancy with maintaining a family is indeed possible. For example, accountancy firms are intensively implementing a diversity policy, both in terms of gender and ethnicity. After all, different genders and ethnicities have different perspectives and characteristics, which can complement each other to achieve higher audit quality. 

At the same time, we cannot avoid the term “fraud”. Indeed, not a year goes by without a large-scale accounting scandal hitting the headlines. The Wirecard scandal reignited the decades-old debate about what exactly the role of the accountant should be in detecting fraud. Funny really that there is still no unanimity on this issue, given that the profession emerged in response to a large-scale accounting scandal; the Pincoffs affair. The fact that large-scale fraud cases are still coming to light after approximately 125 years makes it clear that there is at least an important role for improvement, and that the accountant may be able to play a role in this. The only question is how far this should go. In order to answer this question, the NBA’s working group on fraud has launched a pilot project. The main focus is on how accountants can report on fraud in a more client-specific way [6]. Are you interested in the subject of fraud? Then click here.

Finally, we look back on a hectic year; a year in which the accountant not only had to carry out an annual audit but was also given another one: the NOW audit. NOW stands for Temporary Emergency Measures for Bridging Employment and concerns a concession to employers. Employers who have lost 20% of their turnover during the period in question are entitled to support from the government to cover their wage cost obligations. Since the start of the corona crisis, about 26 billion euros of NOW aid has already been spent [7]. Given this huge amount, it is not surprising that the government requires some level of assurance when providing the NOW support to companies, to prevent companies from abusing the support package. The auditor was therefore assigned the task of providing an assessment on this.

All in all, we can conclude that the accounting profession has gone through quite a journey in 126 years. What began as a small group of accountants has grown into a large professional organization with an important social role. A social role that requires the accountant to be flexible in a world of change.