ABSTRACT
After the South Sea Bubble of 1720 and the losses involved, there was general public suspicion about the use of joint stock companies as a means of enterprise. Indeed Adam Smith (1776) questioned the ability and motivation of the directors of such a company to conduct the oversight of the assets of the company in an honest manner, stating:
Of course this problem was one of the reasons for the development of financial accounting and reporting. This need was brought about by the need for a separation of the public and private actions of an individual and the need to record, and account for, the public actions because of the involvement of others in these public actions. Thus the medieval methods of bookkeeping, with the indistinguishability of public from private actions, was inappropriate to this modern world in which capitalist enterprise was beginning to arise. Capitalism required the ability to precisely measure activities and this was the founding basis of management accounting. Indeed it has been argued (Sombart, 1915) that capitalism would not have been possible without the techniques of double entry bookkeeping and its subsequent metamorphosis into management accounting. This accounting provided the mechanism to make visible the activities of all involved in the capitalist enterprise and to both record the effects of past actions and the expected results of future actions.
