QUESTION 1 Some argue that accounting developed purely in response to the needs of the time brought about by changes

in the environment and societal demands. Others, particularly Sombert, claim that the development of the science of accounting has itself driven the evolution of commerce since it was only through the use of more precise accounting methods that modern business was able to grow, flourish and respond to the needs of its owners and the public. However, the weight of the available evidence suggests that accounting is itself a product of social and economic developments. The ancient Mesopotamian region experienced a robust economic development as a result of flourishing agriculture spurred by favourable flooding. The growth of agriculture necessitated the need for service industries such as banks supplying credit to farmers. Due to these developments and volumes of transactions, there arose a need to record and secure the records as well. The absence of a monetary unit as a medium of exchange made it difficult for individuals to record transactions giving rise to the need for accountants, skilled in recording .The equivalent of the modern day accountant was the scribe. In addition to writing up the transactions the scribe ensured that the agreements complied with the detailed code requirements for commercial transactions. Transactions were recorded on clay tablets. The clay tables would include, inter alia; quantities exchanged terms and conditions, and the insignia of the parties to the transaction. A thick layer of clay was wrapped around the tablet as security. For extra security, the whole transaction would be replicated on the envelope. Only transactions of material significance were recorded and secured. The concept of materiality can also be seen to emerge from this era as only important transactions considered material had their clay tablets specially stored. The Greeks developed coins as a medium of exchange, which saw a rise in commerce and trading which was previously predominantly batter. Banking activities increased and banks changed and loaned money and even arranged for cash transfers for citizens through affiliate banks in distant cities. For the purposes of accountability, banks had to keep individual account books for their clients. These developments ushered in the development and application of the ledger. The development of coinage in the economy meant that (for Accounting) there was now a basic unit of measurement and valuation making it easier to record transactions and value goods held.

Julius Caesars military expeditions meant that the authorities had to levy taxes and manage public funds centrally so as to avoid any leakages in the system. Among Roman accounting innovations was the use of an annual budget, which attempted to coordinate the Empire`s diverse financial enterprise, limited expenditure to the amount of estimated revenues and levied taxes in a manner which took into consideration its citizens ability to pay. Precisely, budgeting came as a response to the activities of the Empire; the treasury had to know how much they expected from its citizens so as to be austere in expenditure, giving rise to what is referred to as cost control. To minimise leakages, audit staff regularly checked public accounts. Feudalism in the medieval times centred on ownership of property. Accounting was focused on recording the rental income and the also known as the charge, and the expenses known as the discharge. Stewards were assigned to record these transactions and to report to the Landlord periodically Trade growth in Venice led to merchants keeping stocks of items for trade and extension of credit sales as trade relations grew. This necessitated the need for a system to record not only the volumes of transactions that were taking place but also how profitable the transactions were and records of stocks that were being held by the traders.Luca Paciolis Summa de Arithmetica, Geometrica, Proportioni et Proportionalita ( which is Italian for Review of Arithmetic, Geometry, Ratio and Proportion), which was first printed and published in Venice(1494) included a 27 page treatise in bookkeeping. Luca Pacioli codified the double entry accounting system and there was development of the trial balance. The trial balance gave birth to the income statement which shows the profitability of any economic activities of the traders. From the trial balance the balance sheet also emerged. The balance would show assets in terms of stock held by the traders and debtors for transactions carried out on credit. It also highlighted the creditors for traders as they would acquire some of their stocks on credit from suppliers. A major economic and social development in history is the industrial revolution, 1750-1900. Some of the developments born out of the revolution were production machinery and codified labour practices. Machinery led to a hike in production, stocks could no longer be cleared quickly, accounting responded to this by introduction of selling on credit. The existing accounting systems could not account for the huge labour costs as well as depreciation of machinery; these were automatically excluded from product cost. The system was deficient and could not therefore provide management with requisite and complete information.

Management Accounting is thought to be a child of the Industrial Revolution as accounting was responding to the different information needs of management and shareholders of organisation From this end regulations were passed as early as 1719 in the United kingdom with the passing of the Bubble Act 1719 to control the activities of Joint Stock Companies. After that other enactments were also passed some of them which were later reversed. Accounting as a profession assumed professional status around 1853 in Edinburgh with the Society of Accountants in Edinburgh (Chartered in 1854). Many other accounting bodies followed after this in different parts of the world. The Accounting bodies started engineering conventions which tried to answer the problems being faced by the dynamic socio-economic environment. The bodies later formed the International Accounting Standards Board which was responsible for the issuing out of International Financial Reporting Standards which are used in modern day accounting. The International Financial Reporting Standards themselves are also in response to the social and economic developments taking place. On the other hand Accounting, though to a lesser extent, led to the development of a new socio-economic system. Accounting made it possible for the Industrial Revolution to attain and sustain its success through accounting collective capital and accounting for production and sales for organisations and hence not only does accounting respond to social and economic developments it also influences the social and economic developments taking place. QUESTION 2 Many events have taken place in the last two decades, and they have impacted on accounting as a profession and practice. Some of the events have taken place are; the 2008 global liquidity crunch which originated in the US, the huge investments into exploration and mining, the scandal at Enron in the US, and the Hyper-Inflation experienced by the Zimbabwe that reached its peak in 2008. All these and more have had quite a significant impact on accounting and how it is practised. The hyper-inflation period had a massive impact on financial reporting. Hyperinflation is generally defined as inflation that is too high or when inflation spirals out of control. It is characterised by loss of real value of a currency. It is thought to be fuelled by the uncontrolled printing of a currency. Most Financial Statements reported for the year end 2008 could not comply fully with all the requirements of International Accounting Standard 29 Financial Reporting in Hyperinflationary Economies and International Accounting Standard 1 Presentation of Financial Statements.

Paragraph 10 of IAS 1 outlines a complete set of Financial Statements to comprise and include a statement of Financial Position as at the beginning of the earliest comparative period when an entity applies an accounting policy retrospectively or makes a retrospective restatement of items in its financial statements or when it reclassifies items in its financial statements. As such many entities did not disclose comparative statements of Financial Positions due to the fact it was impracticable for compliance to comply. The year 2009 saw entities failing to produce financial statements that were compliant with International Accounting Standard (IAS) 21 The Effects of Changes in Foreign Exchange Rates and IAS 29 Financial Reporting in Hyperinflationary Economies. The reasons for failure were the nation`s previous functional currency the Zimbabwean Dollar, was subjected to severe hyperinflation before the date of transition to IFRS because it had the following characteristics, a reliable general price index was not available to all entities with transactions and balances in the Zimbabwean Dollar, and exchangeability between the Zimbabwean dollar and a relatively stable currency did not exist. Hence a formal exchange rate could be established as only the parallel market was the functional market. The inflation rate could not be ascertained as shelves were empty.

In 2008 there was a global economic recession which started as a sub prime credit lending crunch. The crisis exposed weaknesses in financial systems worldwide demonstrating how interdependent economies are, and how this has caused policy dilemmas. The crisis resulted from a confluence of factors and processes at both the macro-financial level (across financial sectors) and the micro-financial level (the behaviours of individual institutions and the functioning of specific market segment). This joint influence of both macro and micro factors resulted market excesses and the emergence of systematic risks of unprecedented magnitude and complexity. There had been no single monitoring of all financial services in the USA each line of business had its own regulation hence there was total oversight over the At the turn of the millennium, Enron, a US energy company collapsed as a result of unscrupulous business activities by its officers. Immediately prior to its collapse, it reported sound finances and operations in its financial statements. The auditors Anderson, gave a thumbs up opinion and did not alert the shareholders to the deep rot that had taken its toll on the company. The company exploited loopholes in accounting standards to

exaggerate revenue, assets, and cash flows whilst using special purpose vehicle companies to hide is debt and operate complex financial instruments. The resulting impact on accounting is that people lost faith in the profession. As such there was a call for audit firms to be rotated periodically to avoid collusion, others suggested the setting up of a body to regulate and monitor accounting firms. Furthermore, the recent surge in exploration of minerals has resulted in the discovery of vast potential in emerging economies. QUESTION 3 The hyper inflation situation in Zimbabwe became a real case study for academics across the accounting arena. Its effect to the accounting profession was too immense to be ignored. As a result amendments were done to international Financial Reporting Standards specifically because of the economic situation that was prevailing in Zimbabwe. Most companies failed to present IFRS compliant financial statements for the financial year ended 31 December 2009 due to the effects of severe hyper inflation as defined in revised IFRS 1. The first amendment replaced reference to a fixed date of 1 January 2004 with the date of transition to IFRS. The second amendment provides guidance for entities emerging from severe hyperinflation to resume presenting IFRs compliant financial statements. An entity can elect to use the fair value as the deemed cost in its opening IFRS statement of financial position. As the country emerged from the hyperinflation period and the adoption of multi currency in 2009 the opening values for balances in the financial statements presented a challenge for the reporting entities. For the 2009 reporting year all IFRS reporting organisation got qualified opinions from their external auditors as the values of their opening balances had no reconstruction of transactions that occurred before the date of transition to IFRS. The situation prevailing in Zimbabwe necessitated the above mentioned amendments. This resulted in entities that elected to use the hyperinflation exemption and use fair values as opening balances as being IFRS compliant. The effect of the application of the amendments was to render the opening Statements of Financial Positions, prepared on 1 January 2009 (date of transition to IFRS) IFRS compliant. The credit crunch witnessed a number of reforms being proposed by both regulatory and accounting bodies. A number of annual improvements and new IFRSs are being issued by the IASB specific amendments will be looked at but the following are the amendments done for Financial Instruments derivatives included. IAS 39 Financial Instruments:

Recognition and measurement was revised July 2008 and April 2009):, the amendments for eligible hedged items and resulting from April 2009 Annual improvements to IFRS`s. The amendments provide clarification on two aspects of hedge accounting that is identifying inflation as a hedged risk or portion and hedging with options. Enron and many other organizations traded using complex financial instruments some of which they did not entirely report in order to give a true and fair view of the company. Such practices prompted the amendments to IFRS 7 Financial Instruments: Disclosures (Issued May and October 2010), amendments from May 2010 annual improvements to IFRSs, effective for annual periods beginning on or after 1 January 2011. Provides clarification on the required level of disclosure about credit risk and collateral held and provides relief from disclosures previously required regarding negotiated loans. Increases the disclosure requirements for transactions involving transfers of financial assets and this is effective for periods beginning on or after 1 July 2011. As the Standards continued to keep an eye on developments that have been taking place in global financial markets it decided to issue a new standard altogether IFRS 9 Financial instruments which was issued in November 2009 and amended in October 2010 but is to be effective for annual periods beginning on or after 1 January 2013.