Book review: Double Entry, by Jane Gleeson-White

A well-told study of the birth of accountancy in 15th-century Venice that veers off into an attack on the modern profession doesn't quite add up for Luke Johnson.

by Luke Johnson
Last Updated: 01 Oct 2012

I initially encountered doubleentry bookkeeping dozing at the back of a City of London Poly classroom at night school almost 30 years ago. I stayed awake enough to just about grasp the concept, realising its importance to business and our very way of life. In fact, everyone would benefit by learning the principles of accounting at an earlier age: I strongly believe it should be a compulsory subject in secondary schools.

Now Jane Gleeson-White has written a well-researched history of the idea. She has taken what for most would be a dull subject and made it relevant and readable. As someone who spends perhaps too much of his life studying financial statements, I enjoyed discovering how the system we use to compile and interpret them came about.

The author reminds us that history matters, even that of 'mundane professions', because they 'increasingly run the capitalist world'. I suspect very few qualified accountants have any idea when and where techniques such as 'trial balance' originated. Reading this book would enable them to put their work into context. They will be reminded that recording commercial transactions in a systematic manner facilitated the development of capitalism and the modern world.

The man who first transcribed the double-entry model of accounting was a Franciscan monk, named Luca Pacioli, living at the time in Venice. In 1494, he wrote an epic encyclopaedia of mathematics with the snappy title of Summa de Arithmetica, Geometria, Proportione et Proportionalita. Part of it was a 27-page treatise on bookkeeping as used by Venetian merchants. This is the element for which its author is celebrated.

Pacioli's book is famous because it was written in the vernacular - rather than formal Latin - and so was accessible to a much wider readership. And it was published just as Gutenberg's printing press was taking off, enabling it to be distributed much more widely and economically. The book sold well among nobles and entrepreneurs in Venice, Milan and Florence, even though it runs to 615 densely printed pages. Pacioli achieved such success with his pioneering volume that he had his portrait painted - probably the first mathematician to do so.

The great monk was a genuine Renaissance figure, later collaborating with Leonardo da Vinci, helping him understand perspective. He later wrote books on other subjects such as chess, while working as a university professor.

Gleeson-White goes into some depth about the core principle of double entry and how Pacioli described it. In many ways, she is at her best in the first half of the book, dealing with the history of the principle of debits and credits, each matching. Later chapters describe how accounting helped the rise of industrial capitalism in the 18th and 19th centuries in Britain, when limited companies, railways and factories first appeared.

To help joint stock companies and stock markets take off, the auditing profession arose, first in Scotland in 1854, and later in England and Wales. Societies of qualified practitioners came about in many other countries soon after. They laid down rules to judge the financial condition of business undertakings and set exams to prove their members knew their ledgers and journals.

And it is here in her tale that Gleeson-White becomes confused. As she says in the preface, she started writing a history of Pacioli's Venetian bookkeeping, but then the book goes wrong. She describes how accounting was first used by Keynes and others in the 1940s to develop the idea of national accounts and gross domestic product. And, rather than simply give us history, the author constantly allows her politics to intrude.

As the book progresses, this distortion becomes more apparent. The very title of the next chapter is a giveaway: The Rise and Scandalous Rise of a Profession. She attacks accountancy firms for the failings of everything from Enron to the Royal Bank of Scotland. But what about some blame attaching to the directors themselves, the lawyers, the regulators, the stockbrokers, bankers and all the others?

Moreover, unlike the earlier sections of the book, which told me things I didn't know, this ground has been covered to death in at least 50 books in the past few years alone, in much more detail and with more rigour. We don't need another analysis of why corporate governance and regulation need improving.

Sadly, since I started reading company accounts over 25 years ago, they have become far more complex but less comprehensible. In everything from recognition of income to valuation of intangible assets, the accounting profession's efforts too often tend to confuse rather than elucidate.

I suspect the various organisations that set the standards are misguided. But either way, virtually every practising accountant I know is honest and tries to do a decent job: which is more than can be said for too many members of the legal profession.

The final part of the book is no doubt the one that the author feels is the most important. In my opinion, the reader can happily skip it. She starts to quote people such as Al Gore - once a tobacco farmer, now a financier - and writes extensively about socialist/anarchist economists such as Raj Patel, who claims the real cost of a Big Mac is $200.

It is a shame the book deteriorates into a left-wing diatribe, because the key story - the history of bookkeeping - is an interesting one, and well told.

- Luke Johnson is chairman of Risk Capital


Double Entry: How the merchants of Venice created modern finance

Jane Gleeson-White

Allen & Unwin, £12.99

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