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.
- 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.