Accounting for More Inclusive Economies

Role of Accounting in Development

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Accounting & Inclusive Development

What role does accounting actually play in economic growth and development? Economic growth is defined as a rise in national or per capita income and is a pre-condition for development. Development usually leads to fundamental changes in the structure of the economy. A a result, a greater part of the population participates in the production as well as in the enjoyment of growth.

The role of accounting in economic growth is not widely understood. Therefore, in this part we discuss the question: does accounting make a difference to businesses and economies or is it just imposing a “western way of doing things”?


Role of Accounting in development of major civilisations

From a historical perspective, there is evidence that accounting is not only the glue that holds economies together but also plays a significant role in economic growth. The origin of accounting is tied to the first emergence of cities over 10000 years ago. Small clay tokens found in archaeological sites dated between 8000 – 3500 BC, were used by Sumerians for as counters to keep track of goods. One of the leading specialists, Schmandt-Besserat discovering the meaning of the tokens, counts a repertory of some three hundred types of counters, enabling the management of information on multiple categories of goods. These tokens, representing debts, were stored in round clay jars called Bullae. Being non-transparent and sealed, there had to be a method to show what it is inside. So, accountants impressed the tokens on the outside of these “clay envelopes”. The shape and number of counters held inside were thus “catalogued”. Around 3200 BC, the “clay-envelopes” were replaced with impressions of tokens on clay-tablets to record received or dispersed quantities.

Around 3100 BC, numerals were invented and impressed on clay by means of a stylus: circles represented 10 and wedges represented 1. Thus for “33”, only 3 circles and 3 wedges and an incised pictograph representing the item were needed instead of 33 impressions. The tablets were still used exclusively for accounting.

Accounting - root of many inventions

Economic development, more regulations and sophistication required finally the introduction of logo-grams to add names of suppliers and customers. They were easily drawn pictures representing a word in a particular tongue. Schmandt-Besserat gives the example of the name “Neil” being a picture of bent knees (kneel). Accounting birthed writing!

Another important invention required by accounting emerged from Sumer: the introduction of an administrative calender with 12x 30-day months. Accounting is at the root of many inventions that made civilisations great! Sumerians inhabited the first large cities. The institutions and temples managing land and labour needed to track the inputs and outputs of resources for forward planning. Resources needed to be allocated to secure the needs of a growing population and later to generate an economic surplus. Trade required the exchange of receipts and contracts. Taxes and interest needed to be fair. The meanings of “accounting” are counting and being accountable.  Thus, records helped the writer to remember, and enabled outside parties to check how well resources were managed. Incredibly early in human history, effective management defined as ensuring that resources were allocated and consumed according to plan, required accounting.

Industrial Revolution

Fast forward to the industrial revolution. It is difficult to isolate accounting as the cause for the substantial economic growth experienced in this period, which is also referred to as the birth of the modern civilisation. Based on extensive research, in its paper “Growth, development and accounting:seeing the bigger picture”, ICAF argues that accounting was a fundamental part of the industrial revolution: ”During this period, the use of administrative coordination allowed organisations to take advantage of technological advancements which in turn led to a period of accelerated economic growth. This era also saw a growing demand for, and use of, management accounting to enable managers to allocate resources more effectively as well as monitor output from employees. Some researchers go so far as to argue that accounting facilitated administrative coordination which in turn led to the transformation of small companies into the large organisations of the modern world. “


Development Theories' Views of Accounting

Development experts put different hats on accounting deepending on the theoretical tradition they follow.

Conservative Tradition

Under the conservative tradition of development, the role of accounting is perceived as neutral: necessary data is accumulated, analysed, interpreted, and information is reported for rational decision-making (based on ex-post information!). It is also a role of attestation providing assurance that the business (or any other organisation) conduct their affairs honestly and in accordance with law or accepted policies.

Reformist Tradition

The reformist tradition emphasises structural and other reforms as vital for advancement in socio-economic development. Subsequently, collection and analysing of data will have a wider focus, looking at the effect of economic policies on all stakeholders. It also provides information about the impact of bi- and multi-lateral relationships. Accountability is crucial for the success of such relationships which accounting facilitates.

Radical Tradition

The radical tradition, of which Marxist and neo-Marxist ideologies are part of, aim for the establishment of a socialist society. Development focuses on internal modes of production achieved through governments using their significant role in national development to establish state-owned enterprises. With their non-market driven objectives, the role of accounting is reduced to legal compliance at central government level.


This very brief excursion into the roles of accounting in various development theories underlines that accounting is multi-dimensional: legal, economic, social and political.

  • it contributes to the development of financial markets, leading indirectly to a channelling of the funds for investment and development.

  • improves the functioning of the tax system

  • offers a rational evaluation of projects to target scarce resources to viable projects;

  • increases accountability in the management of funds (use of loans!)

  • facilitates commercial and financial transactions


Thus, accounting facilitates economic development and growth on macro- and micro-levels. I would go so far to argue that the low level of record-keeping among micro-enterprises is one of the main reason for low performance based on practical experience and a number of studies, in particular one from Ghana published only last year by Kwame Oduro Amoako and others.

Enthoven, one of the most prolific researchers and writers about the role of accounting in development, maintains that advancement in economic development can be jeopardised without effective accounting and financial management systems, both at the micro and macro-levels.


Sources:;; “Creating Economic Order” by Michael Hudson and Cornelia Wunsch; “Accounting in Proto-Cuneiform” by Robert K. Englund; “Evolution of Writing” by Denise Schmandt-Besserat;

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