Evolution of Accounting and Financial Regulation

Evolution of Accounting

• Over the past 5 centuries, accounting shifted from simple transaction tracking to evaluating full corporate performance.
• Functions as the “language of business,” translating operations into measurable financial health.

Rise of Capital Markets

• Industrial Revolution demanded large capital for factories, steam engines, machinery.
• Need for investment spurred creation of capital markets and stock exchanges (London, New York).
• Companies used financial statements to prove value and attract investors.

Regulatory Milestones

• Market crash & Great Depression eroded trust → government intervention.
• Securities Act 1933: mandates disclosure of critical information before sale of securities.
• Securities Exchange Act 1934: creates the SEC to oversee primary & secondary markets.

Modern Reforms

• Sarbanes–Oxley Act 2002:
  • Requires strong internal controls to deter fraud.
  • Executives personally certify financial-statement accuracy.
  • Boards must include financial experts.
• Global banking crisis 2008 exposed excessive risk & bad mortgages.
• Dodd–Frank Act 2010: imposes stricter oversight on banks, limits risky behavior.

Core Takeaways

• Accounting evolves with economic complexity and investor needs.
• Reliable, transparent financial reporting underpins market confidence.
• Regulatory cycles follow major crises, each raising the bar for accountability, controls, and investor protection.