Bean Counters E-Book

Richard Brooks

• Herausgeber: Atlantic Books
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 534

Veröffentlichungsjahr: 2018

Beschreibung

'A devastating exposé.' Mail on Sunday They helped cause the 2008 financial crash. They created a global tax avoidance industry. They lurk behind the scenes at every level of government... The world's 'Big Four' accountancy firms - PwC, Deloitte, Ernst & Young, and KPMG - have become a gilded elite. Up in the high six figures, an average partner salary rivals that of a Premier League footballer. But how has the seemingly humdrum profession of accountancy got to this level? And what is the price we pay for their excesses? Leading investigative journalist Richard Brooks charts the profession's rise to global influence and offers a gripping exposé of the accountancy industry. From underpinning global tax avoidance to corrupting world football, Bean Counters reveals how the accountants have used their central role in the economy to sell management consultancy services that send billions in fees its way. A compelling history informed by numerous insider interviews, this is essential reading for anyone interested in how our economy works and the future of accountancy.

Leseprobe

ABOUT THE AUTHOR

Richard Brooks is an investigative journalist for Private Eye magazine. He writes on a range of subjects, including financial crime, public services and taxation. His work has appeared in many other outlets, including the Guardian and on the BBC. He was awarded the Paul Foot Award for Investigative Journalism in 2008 and 2015 and his work was highly commended in the 2016 British Journalism awards. He lives with his family in Reading.

Published in hardback and trade paperback in Great Britain in 2018 by Atlantic Books, an imprint of Atlantic Books Ltd.

Copyright © Richard Brooks, 2018

The moral right of Richard Brooks to be identified as the author of this work has been asserted by him in accordance with the Copyright, Designs and Patents Act of 1988.

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior permission of both the copyright owner and the above publisher of this book.

Image copyrights: figures 1, 2, 3, 6, 9, 10, 12, 13 © Richard Brooks; figures 4, 5 © Wikimedia Images; figure 7 © AP Images; figure 8 © PwC; figure 11 © Pressefoto ULMER/Markus Ulme

Every effort has been made to trace or contact all copyright holders. The publishers will be pleased to make good any omissions or rectify any mistakes brought to their attention at the earliest opportunity.

10 9 8 7 6 5 4 3 2 1

A CIP catalogue record for this book is available from the British Library.

Hardback ISBN: 978 1 78649 028 5Trade paperback ISBN: 978 1 78649 029 2E-book ISBN: 978 1 78649 030 8

Printed in Great Britain

Atlantic BooksAn imprint of Atlantic Books LtdOrmond House26–27 Boswell StreetLondonWC1N 3JZ

www.atlantic-books.co.uk

For Alex, Joe and Brigitte

CONTENTS

List of Figures

Prologue

Introduction: Meet the Bean Counters

Part I   From the Tigris to Wall Street: A Noble Profession’s Ignoble History

  1   Merchants and Mayhem

  2   Full Steam Ahead

  3   Accountancy Goes Wrong

  4   Trust Me, I’m a Consultant

  5   Free for All

  6   Crash!

Part II  False Prophets: The Price We Pay for the Failure of the Bean Counters

  7   Duty Free

  8   Great Britain, LLP

  9   Crime and Very Little Punishment

10   Far from Home

11   Unreformed and Unrepentant

Conclusion: What Can Be Done?

Appendix: The Big Four Family Trees

Acknowledgements

Bibliography

Notes and References

Index

LIST OF FIGURES

1    KPMG’s new club in Mayfair

2    The growth of the Big Four’s income

3    The changing balance between audit and non-audit income

4    Medici accountant Francesco Sassetti

5    The ‘Father of Accounting’ Luca Pacioli

6    The twentieth-century rise of consultancy

7    Lead auditor on Enron, David Duncan

8    GlaxoSmithKline’s Luxembourg tax-avoidance scheme

9    LuxLeaks whistleblower Antoine Deltour

10  PwC whistleblower Raphaël Halet

11  FIFA auditor Fredy Luthiger

12  The rise of consultancy after the financial crisis

13  Consultancy income v. productivity growth

PROLOGUE

In the summer of 2015, seven years after the financial crisis and with no end in sight to the ensuing economic stagnation for millions of citizens, I visited a new club.

Nestled among the hedge-fund managers plying their trade from some of the world’s most expensive real estate on Grosvenor Street, Mayfair, No. 20 had recently been opened by accountancy firm KPMG. It was, said the firm’s then UK chairman Simon Collins in the fluent corporate-speak favoured by today’s top accountants, ‘a West End space for people to meet, mingle and touch down’. Directors of client companies, ‘who have lots of meetings, can often find it pretty lonely if they don’t have a base’.1 The cost of the fifteen-year lease on the five-storey building was undisclosed, but would have been many tens of millions of pounds. It was evidently a price worth paying to look after the right people.

Inside, No. 20 is patrolled by a small army of attractive, sharply uniformed serving staff. On one floor are dining rooms and cabinets stocked with fine wines that would cost three-figure prices in a restaurant. On another, a cocktail bar leads out onto a roof terrace. Gazing down on the refreshed executives are neo-pop-art portraits of the men whose initials form today’s KPMG: Piet Klynveld (an early twentieth-century Amsterdam accountant), William Barclay Peat and James Marwick (Victorian Scottish accountants) and Reinhard Goerdeler (a German concentration-camp survivor who built his country’s leading accountancy firm).

Figure 1: The cocktail bar at No. 20, KPMG’s new club in Mayfair, with portraits of Piet Klynveld, William Barclay Peat, James Marwick and Reinhard Goerdeler.

KPMG’s founders had made their names forging a worldwide profession charged with accounting for business. They’d been the watchdogs of capitalism who had exposed its excesses. Their twenty-first-century successors, by contrast, had been found badly wanting. They had allowed a series of US subprime mortgage companies to fuel the financial crisis from which the world was still reeling, and had offered unqualified endorsement of British bank HBOS’s finances as it went to the wall. The opening of No. 20 was a revealing move during what for any other industry would have been a crisis of confidence and reputation.

‘What do they say about hubris and nemesis?’ pondered the unconvinced insider who had taken me into the club. There was certainly hubris at No. 20. But by shaping the world in which they operate, the accountants have ensured that they are unlikely to face their own nemesis. As the world stumbles from one crisis to the next, its economy precarious and its core financial markets inadequately reformed, it won’t be the accountants who pay the price of their failure to hold capitalism to account. It will once again be the millions who lose their jobs and their livelihoods. Such is the triumph of the bean counters.

INTRODUCTION

MEET THE BEAN COUNTERS

I lower refreshed eyes to the two white pages on which my careful numbers transcribe the company balance sheet. And, smiling to myself, I remember that life, which contains these pages, some blank, others ruled or written on, with their names of textiles and sums of money, also includes the great navigators, the great saints, poets of every era, none of whom appear on any balance sheet, being the vast offspring cast out by those who decide what is and isn’t valuable in this world.1

So reflected Bernardo Soares, the 1920s Lisbon bookkeeper who narrates Fernando Pessoa’s Book of Disquiet, lamenting his modest craft’s inability to capture the splendour of life.

It is true that accounting dwells on the business of life – transactions, assets, liabilities and profits – rather than the joy of it. But in doing so, the practice that has become a byword for tedious employment plays a central role in creating the environment in which commerce and culture can thrive.

Accounting even gave the world the written word. While the early societies of Mesopotamia could pass on their stories well enough through word of mouth, they could not rely on it for recording the activities that characterized the dawn of civilization: the sharing and trading of produce rather than its immediate consumption. ‘Bean counters’, who really did count beans, needed to write things down. It was the pictographic scripts representing quantities of grain, sheep and cattle stored, written on wet clay using a cut reed, that would be adapted to produce shapes representing sounds, and from there written words.

For centuries, accounting itself remained a fairly rudimentary process of enabling the powerful and the landed to keep tabs on those managing their estates. The word derives from the French aconter, to account for money or other assets with which one has been entrusted. But as the first part of this book explores, that narrow task has been transformed by commerce. In the process it has spawned a multi-billion-dollar industry and lifestyles for its leading practitioners that could hardly be more at odds with the image of a humble number-cruncher. The £4m-a-year, fifty-something recent UK boss of the second largest global accountancy firm, PricewaterhouseCoopers, drives the same Aston Martin model as James Bond (though, in his case, with a licence to bill). Next time you peer into a flashy car wondering if it’s being driven by a film star, you’re more likely to find yourself gawping at a bean counter.

Such riches come from the uniquely privileged position enjoyed by the upper end of today’s accountancy establishment. Just four major global firms – Deloitte, PricewaterhouseCoopers (PwC), Ernst & Young (EY) and KPMG – audit 97% of US public companies, all the UK’s top 100 corporations, and 80% of Japanese listed companies. They are the only players large enough to check the numbers for these multinational organizations, and thus enjoy effective cartel status. Not that anything as improper as price-fixing would go on. With so few major players, there’s no need. ‘Everyone knows what everyone else’s rates are,’ one of their recent former accountants told me with a smile. There are no serious rivals to undercut them: the five next-largest accountancy firms together turn over less than the smallest of the Big Four, KPMG.2 What’s more, since audits are a legal requirement almost everywhere, this is a state-guaranteed cartel. Its members then multiply their income from it threefold through consultancy practices built on the back of the captive audit market.

The largest accountancy firms effectively own a discipline that took shape alongside business in the city states of northern Italy around the time of the Renaissance. The growth of merchant trade, the arrival of Arabic mathematics and the influence of the Catholic Church (which had a few things to say on the vexed question of making money) came together to transform accounting. A system of ‘double-entry bookkeeping’ enabled traders to measure their performance and gauge their financial position at any given time. By recording assets and liabilities such as stocks and debts rather than simply tracking movements of goods and cash, it allowed a truer picture of an enterprise’s profit to be measured. This greater insight in turn encouraged investment and partnerships with others, perhaps in foreign lands.

As the centre of world economic gravity moved north and west in the sixteenth and seventeenth centuries, the new method of accounting facilitated international trade, and then industrialization, on an ever greater scale. Some early-twentieth-century thinkers went so far as to ascribe the rise of capitalism itself to double-entry bookkeeping. When he coined the term ‘Protestant work ethic’ in 1904, the German philosopher Max Weber also wrote: ‘The most generous presupposition for the existence of this present-day capitalism is that of rational capital accounting as the norm for all large industrial undertakings which are concerned with the provision of everyday wants.’3 The ‘capital accounting’ to which he referred was in fact the double-entry bookkeeping system, which introduced the concept of ‘capital’ as the measure of an owner’s interest in an enterprise (centuries before Karl Marx expounded his theory in Das Kapital in 1867). Weber’s near-contemporary, Austrian-American economist Joseph Schumpeter, saw the accounting method as ‘the towering monument’ of what he called the ‘cost–profit calculus’, which itself ‘powerfully propels the logic of enterprise’. Another German economist, Werner Sombart, was more categorical still. ‘It is impossible to imagine capitalism without double-entry bookkeeping,’ he claimed. ‘They are like form and content.’4

None of which makes accounting an unalloyed force for good, of course. By giving an impression of probity, a nicely balanced set of figures has often been a fraudster’s friend. Accounting and the information it presents, invariably controlled by proprietors rather than workers, can also be used as a tool of exploitation. Worse still, conveniently omitting the human costs of transactions and transforming them into neat ledger entries, it has been deployed for evil. History’s most proficient accountants include slave traders and the administrators of the Holocaust.

The same genius of double-entry bookkeeping that so enhanced the understanding of a business’s results could also be used to distort them. As one eighteenth-century English critic presciently observed, the method was ‘capable of being converted into a cloak for the vilest statements that designing ingenuity can fabricate’.5 At perhaps its lowest point, around the turn of the twenty-first century, the elite of the modern accountancy profession itself – certainly in the United States – would be less interested in ensuring business was properly accounted for than in drawing a veil over its abuses. With Arthur Andersen & Co.’s accountants waving the magic double-entry bookkeeping wand to conjure false profits and spirit away losses, Enron became the ultimate accounting trick.

THE GILDED PROFESSION

Despite the economic risks posed by misleading accounting – which would explode as the financial crisis just a few years later – the bean counters now perform their duties with relative impunity. Even before Enron, the big firms had persuaded governments that litigation against them was an existential threat. They should therefore be allowed to operate with limited liability, suable only to the extent of the modest funds their partners invested in their firms rather than all their personal wealth. Trading companies had enjoyed this concession since the nineteenth century, but it had not been accorded to professionals who had no need to attract shareholders and who didn’t – indeed, shouldn’t – take the same commercial risks. The unparalleled advantages of a guaranteed market with huge upside and strictly limited downside are the pillars on which the Big Four’s multi-billion-dollar businesses are built. As the second part of this book examines, they use their uniquely privileged position to profit from almost every area of business and official life. And they do so without fearing serious consequences of their abuses, whether it is the exploitation of tax laws, slanted consultancy advice or overlooking financial crime.

Conscious of their extreme good fortune and desperate to protect it, the accountants then protest the harshness of their business conditions. ‘The environment that we are dealing with today is challenging – whether it’s the global economy, the geopolitical issues, or the stiff competition,’ claimed PwC’s global chairman Dennis Nally in 2015 as he revealed what was then the highest ever income for an accounting firm: $35bn. The following year the number edged up – as it did for the other three Big Four firms despite the stiff competition – to $36bn. Although they are too shy to say how much profit their worldwide income translates into, figures from countries where they are required to disclose it suggest PwC’s would have been approaching $10bn – enough to put it comfortably in the top ten of the FTSE100 Index or the top twenty of the Dow Jones Industrial Average if it were a publicly traded company.6 Among the challenges during the year, said Nally, was the ‘compulsory rotation’ of auditors in Europe, a new game of accountancy musical chairs in which the Big Four exchange clients every ten years or so. This is what passes for competition at the top of world accountancy. It’s so ‘stiff’ that more than a century after they were created, and changed only by some mergers and the fall of Andersen’s, the same firms still control 99% of the market. Some companies have been audited by the same firms for just as long: KPMG counts General Electric as a 106-year-old client; PwC stepped down from the Barclays audit in 2016 after a 120-year stint.

As professionals, accountants are generally trusted to self-regulate – with predictably self-indulgent outcomes. Where a degree of independent oversight does exist, such as from the regulator established in the US following Enron and the other major scandal of the time, WorldCom, powers are circumscribed. A rapidly revolving door between regulated and regulators also ensures that intervention is limited. When it comes to setting the critical rules of accounting itself – how the double-entry system works in practice and how industry and finance are audited – the Big Four are equally dominant. Their alumni control the international and national standard-setters, ensuring that the rules of the game suit the major accountancy firms and their clients.

The long reach of the bean counters extends into the heart of governments. In Britain, the Big Four’s consultants counsel ministers and officials on everything from healthcare to nuclear power. Although their advice is always labelled ‘independent’, it invariably suits a raft of corporate clients with direct interests in it. And, unsurprisingly, most of the consultants’ prescriptions – such as marketization of public services – entail yet more demand for their services in the years ahead. Mix in the routine recruitment of senior public officials through a revolving door out of government, and the Big Four have become a solvent dissolving the boundary between public and private interests. In some areas they are so influential that they have begun to undermine a model of government in which politicians act on objective advice. The accountants-turned-consultants will give a different – and more politically helpful – view of the world to the one offered by officials bearing sometimes uncomfortable truths.

There are other reasons for governments to cosset the Big Four. In the service-based economies of the UK and US that they call home, the firms have become a significant source of export earnings to counter large trade deficits. Perhaps more importantly, the disappearance of one of the four major firms – for example through the loss of its licence following a criminal conviction, as happened to Arthur Andersen & Co – presents an unacceptable threat to auditing. So, in what one former Big Four partner has admitted is a ‘Faustian relationship’7 between government and the profession, the firms escape official scrutiny even at low points such as the aftermath of the financial crisis. They are too few to fail.

The major accountancy firms also avoid the level of public scrutiny that their importance warrants. Major scandals in which they are implicated invariably come with more colourful villains for the media to spotlight. So when, for example, the Paradise Papers hit the headlines in November 2017, the big news was that racing driver Lewis Hamilton had avoided VAT on buying a private jet. The more important fact that one of the world’s largest accountancy firms and a supposed watchdog of capitalism, EY, had designed the scheme for him and others, including several oligarchs, went largely unreported. Moreover, covering every area of business and public service, the Big Four firms have become the reporter’s friends. They can be relied on to explain complex regulatory and economic developments as ‘independent’ experts and provide easy copy on difficult subjects. Back in the 1970s, one commentator reflected of the profession that ‘like a skunk, it acquires immunity against attack from its repellency’.8 This was too harsh. The accountant, even as he gets richer, remains the slightly dull-looking chap who people avoid at a social gathering until they want to know how to avoid the roadworks on the way home.

The bean counters’ escape from responsibility away from home is facilitated by their legal structures. Unlike multinational corporations, which tend to be controlled by a single holding company, the Big Four operate as federations of separate partnerships in each country. While all exploit the names, branding and commercial networks of the Big Four, the arrangement allows the firms’ main operations and global headquarters (HQs) to distance themselves from misdeeds elsewhere. Although the globalization of media has exposed them to slightly greater reputational harm from faraway scandal, such damage can be quickly limited with the off-the-peg PR solution of firing a few local bean counters and promising to restore trust. Most major clients can’t take their business outside the Big Four in any case.

Left to prosper with minimal competition or accountability, the bean counters have become extremely comfortable. Partners in the Big Four charge their time at several hundred pounds per hour, but make their real money from selling the services of their staff (also at three-figure rates). The result is sports-star-level incomes for men and women employing no special talent and taking no personal or entrepreneurial risk. In the UK, partners’ profit shares progress from around £300,000 to incomes that at the top have reached £5m a year. Figures in the US are undeclared, because the firms are registered in Delaware and don’t have to publish accounts, but are thought to be similar. Average profit shares for British partners in every Big Four firm were more than £700,000 in 2015. For the lucky 700-plus at Deloitte, the figure was £822,000.9 When I asked one of the firm’s senior partners what justified these riches, he sheepishly admitted that it was ‘a difficult question’. His only explanation was that ‘we all put capital in, your capital is at risk and therefore there is an element of the remuneration that reflects that, but . . . I agree that the remuneration is high’.10 The capital put in by Deloitte UK’s partners in fact works out at less than £200,000 each (which itself is lent to new partners by the firm). Even if half their income could be considered due reward for their labour in accounting, consulting and managing their firms, they are still making an average annual return of 200% on their capital. This is more than ten times what shareholders in a very successful company in the real economy would expect, and can otherwise be achieved only in investment bubbles and scams.

Figure 2: The growth of the Big Four accountancy firms outstrips that of the markets and world economy that they serve

But it’s never enough. Targeting growth like any multinational corporation, despite their professional status, the Big Four continue to expand much faster than the world they serve. In their oldest markets, the UK and US, the firms are growing at more than twice the rate of those countries’ economies. Between 2004 and 2016, their income rose by 131% in the Americas and by 123% in the UK.11 Over the same period, by way of a crude comparison, the US economy grew in nominal terms by 51% and the UK by 49% (see Figure 2).12 Staff numbers rose by 70% and 66% respectively. By 2016, across 150 countries, the Big Four employed 890,000 people (40,000 of them partners), which was more than the six most valuable companies in the world combined.13

NEW PRIORITIES

For the past decade, all the firms’ real-terms global growth has come from selling more consulting services. This partly reflects a talent for turning any change into a fee-earning opportunity. Dealing with corporate governance changes after Enron and WorldCom, for example, became a consultancy industry in itself. Advising on post-crisis financial regulation has more than made up for the minor setback of 2008. KPMG starred in the ultimate ‘nothing succeeds like failure’ story. Although – more than any other firm – it had missed the devaluation of subprime mortgages that led to a world banking collapse, before long it was brought in by the European Central Bank for a ‘major role in the asset quality review process’ of most of the banks that now needed to be ‘stress-tested’.14

With wealth come the resources and capacity to expand and adapt, too. In the digital age, cyber-security is the latest major growth area for the firms’ consultants. Very little is bad news for the Big Four. The result is that, worldwide, they now make just 39% of their income from auditing and related ‘assurance’ services (the figure in the UK is 21%).15 They are consultancy firms with auditing sidelines, rather than the other way round (see Figure 3).16

Figure 3: Post financial crisis, the share of the Big Four firms’ income from non-audit services has expanded dramatically

The big firms’ senior partners, aware of the foundations on which their fortunes are built, nevertheless insist that auditing and getting the numbers right remains their core business. ‘I would trade any advisory relationship to save us from doing a bad audit,’ said KPMG’s UK head Simon Collins in 2015. ‘Our life hangs by the thread of whether we do a good-quality audit or not.’17 The evidence suggests otherwise. With so many inadequate audits sitting on the record alongside near-unremitting growth, it is clear that in a market with very few firms to choose from, poor performance is not a matter of life or death. Arthur Andersen folded because it was convicted for obstructing justice, not because of its connivance in fraudulent accounting.

The Big Four now style themselves as all-encompassing purveyors of ‘professional services’. Their consultancy-driven slogans tell of transformation from financial watchdogs to professional jacks-of-all-trades, offering the answers on everything from complying with regulations to IT systems, mergers and acquisitions and corporate strategy. KPMG goes with ‘Cutting Through Complexity’, while EY captures virtue and success with ‘Building a Better Working World’ (having ditched ‘Quality in Everything We Do’ as part of a rebrand following its implication in the 2008 collapse of Lehman Brothers). PwC leaves no room for doubt about what matters: ‘Building Relationships, Creating Value’. Deloitte simply has an enigmatic dot after its name.

There is vanishingly little evidence that the world is any better for the consultancy advice that now provides almost two thirds of the firms’ income. Yet all spew out reams of ‘thought leadership’ to create more work. A snapshot of KPMG’s offerings under this banner in 2017 throws up: ‘Price is not as important as you think’; ‘Man, machine and strategy: don’t over-hype technology’; ‘Four ways incumbents can partner with disruptors’; and ‘Customer centricity’.18 EY adds insights such as ‘Positioning communities of practice for success’, while PwC can help big finance with ‘Banking’s biggest hurdle: its own strategy’.19 The appeal of all this hot air to executives is often based on no more than fear of missing out and the comfort of believing they’re keeping up with business trends. Unsurprisingly, while their companies effectively outsource strategic thinking to the Big Four and other consultancy firms, productivity flatlines in the economies they command.

The commercial imperatives behind the consultancy big sell are explicit in the firms’ own targets. KPMG UK’s first two ‘key performance indicators’, for example, are ‘revenue growth’ and ‘improving profit margin’, followed by measures of staff and customer satisfaction (which won’t be won by giving them a hard time). Exposing false accounting, fraud, tax evasion and risks to economies – everything that society might want from its accountants – does not feature. Audit partners, known as ‘client relationship partners’, are rewarded for their wider contribution to the firm, not just sound auditing. The same senior Deloitte figure who struggled to justify the bean counters’ pay packets told me how audit partners would ‘be expected to win new audits [and] to actively develop relationships with management, non-executives in new [corporate] clients that we can either sell audit or advisory work to’.20 At all the firms, audit partners are outnumbered by the non-audit partners, who are paid more directly by reference to the value of consultancy services they sell. The overall effect, one former Big Four accountant told me, is that ‘the challenge has gone out of audit’.

The demise of sound accounting became a critical cause of the early-twenty-first-century financial crisis. Auditing limited companies, made mandatory in Britain around a hundred years before, was always a check on the so-called ‘principal/agent problem’ inherent in the corporate form of business. As Adam Smith once pointed out, ‘managers of other people’s money’ could not be trusted to be as prudent with it as they were with their own. When late-twentieth-century bankers began gambling with eye-watering amounts of other people’s money, good accounting became more important than ever. But the bean counters now had more commercial priorities and – with limited liability of their own – less fear for the consequences of failure. ‘Negligence and profusion’, as Smith foretold, duly ensued.21

After the fall of Lehman Brothers brought economies to their knees in 2008, it was apparent that Ernst & Young’s audits of that bank had been all but worthless. Similar failures on the other side of the Atlantic proved that balance sheets everywhere were full of dross signed off as gold. The chairman of HBOS, arguably Britain’s most dubious lender of the boom years, explained to a subsequent parliamentary enquiry: ‘I met alone with the auditors – the two main partners – at least once a year, and, in our meeting, they could air anything that they found difficult. Although we had interesting discussions – they were very helpful about the business – there were never any issues raised.’22 This insouciance typified the state auditing had reached. Subsequent investigations showed that rank-and-file auditors at KPMG had questioned how much the bank was setting aside for losses. But such unhelpful matters were not something for the senior partners to bother about when their firm was pocketing handsome consulting income – £45m on top of its £56m audit fees in five years – and the junior bean counters’ concerns were not followed through by their superiors.23

Half a century earlier, economist J. K. Galbraith had ended his landmark history of the 1929 Great Crash by warning of the reluctance of ‘men of business’ to speak up ‘if it means disturbance of orderly business and convenience in the present’. (In this, he thought, ‘at least equally with communism, lies the threat to capitalism’.) Galbraith could have been prophesying accountancy a few decades later, now led by men of business rather than watchdogs of business.24 Another American writer of the same time caught the likely cause of the bean counters’ blindness to looming danger even more starkly. ‘It is difficult to get a man to understand something’, wrote Upton Sinclair, ‘when his salary depends upon his not understanding it.’25 Given that they were lucratively advising on the financial concoctions that would detonate the crisis, it certainly wouldn’t have paid the early-twenty-first-century bean counters to understand the destructive power within them.

MEN, AND A FEW WOMEN, OF THE WORLD

The Big Four’s bean counters are drawn from a pool of high educational achievers, dozens of graduates applying for each ‘fast-stream’ job that might eventually lead to partner status. Few arrive with much sense of vocation or a passion for rooting out financial irregularity and making capitalism safe. They are motivated by good income prospects even for moderate performers, plus maybe a vague interest in the world of business. Many want to keep their options open, noticing the prevalence of qualified accountants at the top of the corporate world; one quarter of chief executives of the FTSE100 largest UK companies are chartered accountants.26

When it comes to integrity and honesty, there is nothing unusual about this breed. They have a similar range of susceptibility to social, psychological and financial pressures to any other group. It would be tempting to infer from tales like the senior KPMG audit partner caught in a Californian car park in 2013 trading inside information for a Rolex watch and thousands of dollars in cash that accountancy is a dishonest profession.27 But such blatant corruption is exceptional. The real problem is that the profession’s unique privileges and conflicts distil ordinary human foibles into less criminal but equally corrosive practice.

A newly qualified accountant in a major firm will generally slip into a career of what one academic has called ‘technocratism’, applying standards lawfully but to the advantage of clients, not breaking the rules but not making a stand for truth and objectivity either.28 Progression to the partner ranks requires ‘fitting in’ above all else. This partly explains why, although for decades half of their graduate recruits have been women, fewer than 20% of their partners are – leading to fairly homogenous cultures that are not conducive to sound accounting.29 The highest reaches of the Big Four, meanwhile, are reserved for those with a flair for selling services and keeping clients happy. With serious financial incentives to get there, the major firms end up run by the more materially rather than ethically motivated bean counters. In the UK in 2017, none of the senior partners (equivalent to company chief executives) of the big firms had built their careers in what should be the firms’ core business of auditing. Worldwide, two of the Big Four were led by men who were not even qualified accountants.30

The core accountancy task of auditing can seem dull next to sexier alternatives, and many a bean counter yearns for excitement that the traditional role doesn’t offer. As long ago as 1969, Monty Python captured this frustration in a sketch featuring Michael Palin as an accountant and John Cleese as his careers adviser. ‘Our experts describe you as an appallingly dull fellow, unimaginative, timid, lacking in initiative, spineless, easily dominated, no sense of humour, tedious company and irredeemably drab and awful,’ Cleese tells Palin. ‘And whereas in most professions these would be considerable drawbacks, in chartered accountancy they’re a positive boon.’ Palin’s character, alas, wants to become a lion tamer. In 2016, EY’s ‘managing partner commercial’, Martin Cook, was not being so satirical when he welcomed his firm’s sponsorship of London’s Tate art gallery because it was ‘an extremely cool brand to be associated with’.31

The dangers of a bean counter’s head being turned have been obvious ever since a fifteenth-century Medici accountant was seduced by the Renaissance art scene and stopped questioning what was appearing on the bank’s ledgers. They were in evidence again when a PwC partner fouled up the 2017 Oscar presentation because he was tweeting photos of the best actress rather than concentrating on the envelopes. The bean counter’s quest for something more exciting can be seen running through modern scandals like Enron and some of the racy early-twenty-first-century bank accounting. The same ex-Big Four accountant who bemoaned the lack of challenge in auditing told me that if there was a single thing that would improve his profession, it would be to ‘make it boring again’.

Instead, the Big Four have adopted the techniques of the most ardent twenty-first-century profit-seekers, schmoozing corporate and government leaders and joining bankers and captains of industry as sponsors of prestigious sports and cultural events. EY’s British head Steve Varley claimed of his firm’s Tate deal: ‘we think we can take advantage of this not just in the UK but around the world as well’.32 At the same time, like any shrewd modern multinational, the Big Four uniformly trumpet their social value. The highest-earning firm in 2016, Deloitte, boasts of 1.3m employee hours given to good causes, with £75m cash donated. This largesse allows the accountants to tell heart-warming stories about causes ranging from mental health to child literacy (and indeed to make some real contribution). But the publicity value exceeds the real value. Deloitte’s donations equate to about half a day per employee and 0.2% of its income, or around 0.5% of profit. That’s the money lost to public services from just a handful of tax-avoidance schemes. Any comparison with the economic costs of poor auditing would yield an even harsher comparison.

Where once they were outsiders scrutinizing the commercial world, the Big Four are now insiders burrowing ever deeper into it. All mimic the famous alumni system of the last century’s pre-eminent management consultancy, McKinsey, ensuring that when their own consultants and bean counters move on, they stay close to the old firm and bring it more work. The threat of an already too-close relationship with business becoming even more intimate is ignored. EY’s ‘global brand and external communications leader’ recently waxed biblical on the point: ‘You think about the right hand of greatness; actually the alumni could be the right hand of our greatness.’33

The top bean counter’s self-image is no longer a modest one. ‘Whether serving as a steward of the proper functioning of global financial markets in the role of auditor, or solving client or societal challenges, we ask our professionals to think big about the impact they make through their work at Deloitte,’ say the firm’s leaders in their ‘Global Impact Report’.34 The appreciation of the profound importance of their core auditing role does not, alas, translate into a sharp focus on the task. EY worldwide boss, Mark Weinberger, personifies how the top bean counters see their place in the world. He co-chairs a Russian investment committee with prime minister and Putin placeman Dmitry Medvedev; does something similar in Shanghai; sat on Donald Trump’s strategy forum until it disbanded in 2017 when the US president went fully toxic by appeasing neo-Nazis; and revels in the status of ‘Global Agenda Trustee’ for the World Economic Forum. The latter is the annual convention of political and business leaders in Davos that Financial Times columnist Edward Luce calls a ‘gathering of the world’s wealthiest recyclers of conventional wisdom’, something that a ‘steward of the proper functioning of global financial markets’ should be challenging, not recycling.35 All the other Big Four firms also send platoons of senior partners to the Swiss mountain resort to get ‘connected with global stakeholders’, as Deloitte puts it. The pinnacle of modern accountancy stands confidently among the peaks of political and financial power.

The price of seats at all the top tables is a calamitous failure to account. In decades to come, without drastic reform, it will only become more expensive. If the supposed watchdogs overlook new threats, the fallout could be as cataclysmic as the last financial crisis threatened to be. As legendary American investor Charlie Munger put it: ‘widespread corrupt accounting will eventually create bad long-term consequences as a sort of obverse effect from the virtue-based boost double-entry bookkeeping gave to the heyday of Venice’.36 Yet such is their ambition and lack of self-awareness that the same bean counters who were found wanting last time round are already looking to take accounting into new and dangerous realms.

Global efforts to combat climate change and the impact of industry and government on the environment, for example, require scrutiny and auditing that could well transform accountancy in a way not seen since the Industrial Revolution. Already accountants and standard-setters are working on ‘integrated reporting’ methods to cover such matters, with the Big Four pre-eminently powerful. The international chairmen of Deloitte, EY and PwC, plus KPMG’s audit boss – who between them serve every one of the world’s largest fossil-fuel companies – all sit on the International Integrated Reporting Council.37 New forms of accounting will fall to the same accountancy establishment that has already proved unable and unwilling to hold powerful financial interests to account. It will become another business line, with the same corrupting incentives and conflicts of interest but with potentially more devastating results.

Bean counting is too important to be left to today’s bean counters.

PART I

FROM THE TIGRIS TO WALL STREET

A Noble Profession’s Ignoble History

1

MERCHANTS AND MAYHEM

THE BIRTH OF MODERN ACCOUNTING AND THE SEEDS OF ITS CORRUPTION

Leonardo Fibonacci is now almost exclusively associated with his eponymous sequence in which each number is the sum of the previous two (1, 1, 2, 3, 5, 8 and so on). But the son of a wealthy twelfth-century merchant from Pisa did more than define a numerical progression; he also helped to transform the world of commerce and thus the course of Western civilization.

Fibonacci was schooled among Arab mathematicians in one of the city-state’s trading enclaves on the North African coast and travelled extensively around Egypt, Byzantium and southern Europe. There he studied not just the classical Greek disciplines, such as geometry, that his European contemporaries learned. He also mastered the Arabic number system that had already revolutionized mathematics, science and astronomy.

When the 32-year-old Fibonacci published his great treatise Liber Abaci (The Book of Calculation) in 1202, the Arabic method that we use today, with its ‘place value’ system for units, tens, etc., wasn’t entirely unknown in Europe. But it was his Liber that brought it into the abbaco schools of Venice, Florence and Pisa as they churned out successive generations of merchants. It was both textbook and business manual, covering geometry and algebra (an Arabic term for completion or balance), alongside techniques for such matters as allocating money among business partners. A chapter explaining principles that have been boring schoolchildren ever since, ‘On the Addition and Subtraction of Numbers with Fractions’, was followed directly by one on ‘Finding the Value of Merchandise by the Principal Method’.1 Crucially, wrote one accounting historian, Fibonacci ‘demonstrated the superiority of Arabic numbers by presenting accounts in which Roman numerals in the text were contrasted with Arabic figures in columns on the right’.2 Just as science and maths would become more practicable using the Arabic numbering method rather than the cumbersome Roman one (try subtracting VDI from MMCDXLIX or dividing CDLXXV by XIX),3 so would accounting. From counting stock and cash to more complex tasks like computing investment returns, the new numbers were eminently superior.

The era of measurement ushered in by Fibonacci transformed medieval northern Italy. It laid the foundations, sometimes literally, for Renaissance art and architecture. But nowhere were the new methods to prove more revolutionary than in commerce, where they made possible an ingenious new way of accounting called double-entry bookkeeping.4 As economist Werner Sombart would later write of the method’s origins: ‘Double-entry bookkeeping was born out of the same spirits as the systems of Galileo and Newton, as the theories of modern physics and chemistry’; it ‘discloses to us the cosmos of the economic world’.5

First used by Florentine merchants at the end of the thirteenth century, the system allows not just for the recording of a transaction; it simultaneously registers its financial consequences and thus automatically keeps a tab on the things that matter: sales and purchases, debtors and creditors, and so on. The state of an enterprise – its profits, its assets, its debts and much else – can be readily judged. The golden rule of double-entry bookkeeping is that every transaction is recorded by debiting one account, or ledger, and crediting another. That’s the ‘double-entry’. When, for example, a business sells something for cash, its bookkeeper records a sale through a credit to the ‘sales account’ and an increase in its cash through a debit to the ‘cash account’. (Somewhat counter-intuitively, assets of the business are recorded as debit balances and liabilities as credits.) If the sale is made not for cash but for settlement later on, there will be a credit to the sales and a debit to the account of the particular debtor (someone who owes the business money, derived from the Latin for ‘to owe’, debere). When the customer pays the bill, his account is credited – netting it to zero – and the cash account debited. Again, matching credit and debit entries. The sums of debits and credits are thus always identical and, in the absence of errors, the books ‘balance’. And while the process is now highly automated, the rules remain essentially unaltered many hundreds of years after they were devised. When the publisher of this book, for example, sells a copy to a bookshop, the publisher’s entries will be to credit its sales ledger and debit an account in the name of the bookshop (which would become its debtor). When the bookshop pays the bill, the publisher’s entries are to credit the ‘bookshop account’ – reducing it to zero – and debit the ‘cash at bank’ account, reflecting the publisher’s increased bank balance.

When the accounts are reckoned at any particular point, such as the end of a year, the sales and expenses ledgers would be closed with balancing entries in a profit-and-loss account. So if sales were worth 100 florins in the year, there would be credits in the sales account totalling this amount. It would be closed for the year by a debit of 100 and a corresponding credit in the profit-and-loss account. If in the same year there were purchases costing 60 florins – debits in the purchases account totalling this amount – it would be closed with a credit of 60 and a corresponding debit in the profit-and-loss account of 60. The profit-and-loss account would then have a credit balance of 40 florins. As a final step, this account would be closed with a debit to the profit-and-loss account of 40 and a corresponding credit would be made to the proprietor’s ‘capital’ account. This is effectively what the business owes him and is therefore a liability in the balance sheet. The balance sheet then ‘balances’ because there would have been an identical increase in the business’s net assets. In the example here, if all sales and purchases had been for cash, there would be 40 florins more cash in the business at the end of the year.

Double-entry bookkeeping represented a huge advance on previous accounting methods. Without a handle on matters like an enterprise’s assets and liabilities, it was impossible to divide the spoils of a business among partners or shareholders rationally, to gauge the credit-worthiness and viability of a business or to decide how much employees can be paid. All such assessments are fundamental to investment and trading and thus to a functioning market economy. Some consider the Roman period to have been a commercial flop for this reason. In the words of one scholar, ‘the Romans’ failure to develop double-entry accounting served as a structural flaw which deprived them of the impetus for economic rationalism and profit-seeking behavior’.6

There was more of a demand for reliable accounting in late-medieval and early-Renaissance northern Italy. The mercantile ethos of the city-states was at odds with the Church’s distaste, bordering on hostility, for the business of making money. New patterns of society and improved agricultural productivity had increased wealth and expanded commercial opportunities. But with these came exploitation, turning the Church’s attention to sins associated with money. The Third Lateran Council in Venice in 1179, for example, determined that ‘usurers’ who lent money at interest should be excommunicated. In this climate, any merchant concerned for his reputation, not to mention his afterlife, was at pains to show the worthiness of his commercial success. Accounting presented the possibility of doing so, superficially at least. Double-entry bookkeeping in particular resonated with the tradition in Christianity and more ancient belief systems of balancing rights and wrongs.

The new accounting method was of special interest to those plying the morally dubious trade of financing the merchants. Their activities really amounted to moneylending for profit but were structured to evade the Church’s strictures. Under ‘bills of exchange’, these merchant bankers would advance money to a trader in his home city. Then, once he had sold his merchandise abroad, he would repay the debt to the banker’s agent in the foreign land in local currency. The exchange rates would be set to give the banker a profit. A Florentine merchant might borrow 100 florins, worth say £40, at home and be required to repay £45 in London three months later. What was in substance interest had been transformed into something that wasn’t. But still a cloud of suspicion as dark as a priest’s cassock hung over the activity, and the least the financiers could do was account properly.

One man with more need than most for accounting’s commercial and exculpatory qualities was fourteenth-century merchant Francesco di Marco Datini, a Tuscan who made a fortune from bills of exchange and dealing in everything from cloth to weapons. Rigorous accounting was essential both commercially and, perhaps even more importantly, to assuage Datini’s conscience. As his biographer noted, he ‘was preoccupied by the thought that his very skill in making profit was sin’.7 From around 1380, Datini operated a full double-entry bookkeeping system. The main account books, the libri grande that consolidated the contemporaneous notes of his transactions into double-entry accounts, explain his diligence. Each carried one of two headings: ‘In the Name of the Holy Trinity and of all the Saints and Angels of Paradise’, or sometimes simply ‘In the Name of God and Profit’.8

For the merchants and their bankers seeking wealth and piety, double-entry bookkeeping offered security and a certain salvation. But, one family was to discover, only if it was done properly.

RENAISSANCE MEN

In 1397, Giovanni di Bicci de Medici, a 37-year-old banker, returned from Rome to his home town of Florence and established a bank that would survive for just short of one hundred years.

Maintaining a branch in Rome to take deposits from the Vatican, the Medici Bank offered the full suite of early-Renaissance banking services and quickly became one of the leading banchi grossi of Italy. It lent extensively using bills of exchange, took interests in trading ventures and handled the savings of the leaders of the Catholic Church (cleverly evading the ban on usury by turning interest into discrezione, or optional payments that – it just so happened – would invariably be paid). It sent tithes, taxes and indulgences across Europe to Rome. And as much to earn public acceptance as anything else, it diversified into trading, notably in the woollen industry operating from the Cotswolds in England. ‘To deal in exchange and in merchandise with the help of God and good fortune’, ran the mission statement.

The key to the Medici rise was to combine scale and attention to detail, whether at home in Florence or in branches that by the middle of the fifteenth century stretched from London to Venice. In Giovanni’s son Cosimo, the architect of the bank’s achievements from his succession in 1420 until his death in 1464, the Medici had the right leader. As well as being a control freak who had spies in every corner of Florence, Cosimo understood the value of good accounting.

He needed to. Banking depended on assiduously applied double-entry bookkeeping. Bills of exchange, the bread-and-butter of the business, paid slim margins. A default on one could wipe out the gains on many times the number that were honoured. Keeping close tabs on borrowers, spreading risk and not over-exposing the bank to more suspect customers was therefore critical. Distant branches were partnerships between a Medici Bank holding company and local managers in a federated structure that would work only if the results of the branches were fairly shared. The profits needed to be properly measured.

Double-entry bookkeeping met these specifications ideally. It wasn’t merely a means of accounting for the Medici business. It was central to actually doing it. In his book The Reckoning – Financial Accountability and the Making and Breaking of Nations, historian Jacob Soll goes so far as to say: ‘The Great Masters of the Medici Bank used accounting to create a financial machine that allowed them to dominate their age, both culturally and politically, like no family before them.’9

This was the achievement of Cosimo and his trusted general manager and chief accountant from 1435, Giovanni Benci, who had begun his career as an office boy at the Rome branch twenty-five years earlier. He had risen through the Geneva branch to become Cosimo’s most trusted adviser, earning the nickname ministro, or minister. In the words of leading Medici historian Raymond de Roover: ‘It was during the years of Benci’s management that the Medici Bank witnessed its greatest expansion and reached the peak of its earning capacity.’ Crucially, Benci was ‘thoroughly familiar with double-entry bookkeeping’.10 Under his searching accounting regime, Medici branches were required to close their ledgers and balance their accounts every year. The books would then be sent to Florence for the annual ‘audit’ (a word originating in the more feudal traditions of landowners ‘listening’ to managers read out their estate accounts). The ledgers were statements of great detail, with balance sheets identifying the amounts owed by each customer, or debtor, and thus containing hundreds of items that the accountants back in Florence could check. Their chief concerns were, firstly, to identify debts that might go bad – perhaps because the debtors were already behind with payments – and, secondly, to spot indulgent lending to the wrong customers. Defaults had done for a number of fourteenth-century Florentine financial powerhouses,11 and Cosimo was not going to let the Medici go the same way. The double-entry system allowed his auditors to pick out doubtful debts and track their history through the branch’s records. If they weren’t happy, they would summon the branch manager to Florence for a grilling from Cosimo and Benci. The result was controlled success in a manner that later bankers would have done well to emulate.

DEATH OF AN ACCOUNTANT

Cosimo had, however, become over-dependent on Giovanni Benci. When the accountant died in 1455, he was not replaced for three years. During this period it emerged that Benci had been the sole signatory on the Medici Bank holding company’s partnership agreements with all its local managers. The contracts now lapsed and the holding-company structure was torn up. Instead, individual members of the Medici family – not all of them entirely reliable – would become partners in local branches with their managers. Effective control of the Medici empire from Florence died with the accountant who knew how to exercise it.12

Cosimo had already become distracted by the wonders of the Renaissance and the fashionable Neoplatonist, humanist philosophy that prized a good life in the present over a ticket to the afterlife. This may have been enlightening, but it also eased the moral requirement for sound accounting and proved disastrous for the banking business. As did the transition to the next Medici generation. Five years after Cosimo’s death in 1464, leadership of the richest bank in the world passed to his 20-year-old grandson Lorenzo. He was the brightest of the new breed but had been educated by clerics and philosophers and was destined to devote his intellectual energy to poetry. Accounting, it would be fair to say, was not his thing.

‘Il Magnifico’, as Lorenzo would become known, duly left the task of controlling the bank to a useless lieutenant called Francesco Sassetti. He was an accountant, who had risen through the ranks in Avignon and Geneva before returning to Florence. Cosimo had made him Benci’s successor as general manager in 1458, and now, ten years later as sole director, his ascent was complete. But Sassetti had also become diverted by the wealth and wonders of the Renaissance. His main preoccupation was building a chapel bearing his name, replete with frescoes featuring him alongside the Medici luminaries among whom a once humble bean counter yearned to belong. It stands as a monument to the dangers of a bean counter’s head being turned.13

It wasn’t a good time for a banking group to have an absent boss and no serious accountant. From the mid 1450s, the economic climate had also begun to turn against the Medici business model. A shortage of gold pushed the value of the florin steadily upwards against other currencies. The Medici Bank tended to take deposits, and thus have to repay depositors, in florins, since this was the currency used by the Church hierarchy and wealthier merchants. It was owed money, however, in a mixture of relatively weakening currencies. The combination eroded its margins significantly. At the same time, after being milked of profits to fund Cosimo’s and later Lorenzo’s extravagance, its branches were highly leveraged. The effect of any losses on the Medici would be magnified, just as in the twenty-first-century banking crisis. But to the extent that it could still be considered one bank, it remained the largest in Europe and as a matter of pride rarely refused deposits. Nor would it reduce the generous discrezione interest rates it paid on them. Most of its branches were consequently on the lookout for ever higher returns from lending this money out. This in turn meant loans to the warring kings, princes and dukes of Europe. Unfortunately, their appetite for funds was matched only by the likelihood that they wouldn’t repay them. The result was toxic lending, Renaissance-style.

Figure 4: Errant accountant Francesco Sassetti (second right) alongside Lorenzo ‘Il Magnifico’ Medici (second left)14

The London branch’s excessive loans to Edward IV to fund his War of the Roses, indulging him in return for wool export licences, duly bankrupted it in 1478. More than 50,000 florins – tens of millions of pounds today – had to be written off. Greater losses followed at the branch in Bruges, a city then ruled by the Duke of Burgundy. His nickname, Charles the Bold, might have given a prudent bank manager pause for thought. Instead, he was lent 6,000 groats, or twice the branch’s entire capital, to fund his squabbles with Louis XI of France.15 Good money was thrown after bad, and by the time the branch was liquidated in 1478, it had lost 100,000 florins.16 Both disasters could have been averted if financial control had remained as strong as in Cosimo’s heyday. Audits of any substance would have registered the parlous state of these and other branches’ finances much earlier, and prevented the growth of bad debts over many years. But Sassetti had more or less abdicated his responsibilities, subcontracting scrutiny back to the branch managers. While they marked their own homework, he fretted over how his chapel was coming along.

Gone were the days when branch managers feared the missive from Florence summoning them to account to Giovanni Benci in person for their books. Nowhere were the consequences of this laxity starker than in the Lyons branch. Lending extravagantly to the region’s spice and silk traders, plus Charles the Bold’s enemy Louis XI, the branch boasted returns of between 70 and 105% for most of the 1460s. This was treble what was considered good elsewhere and would surely have raised a sober auditor’s eyebrow. A glance at the books would then have exposed the reason for the spectacular success: the absence of any recognition of bad, or even doubtful, debts among the bank’s diverse clientele. Financing at the time worked on charging effective ‘interest’ rates running into double figures to compensate for significant levels of default. Ignoring the latter therefore grossly inflated returns. This in turn enabled partners to extract handsome if undue rewards, further depleting the branch’s capital in a manner that would be repeated more than five hundred years later through the payment of dividends and enormous bankers’ bonuses out of similarly illusory profits.

Just as money had bought the Medici power, so financial failure brought political defeat. Lorenzo responded to the demise of the Medici Bank by plundering municipal funds (bank mismanagement then, as now, hitting the public in the pocket). In 1494, an enraged Florentine mob invaded the great Medici Palace and set fire to most of its records. The bank that had been built on books and accounts disappeared in the smoke from burning them. The fall of the Medici proved that the power of sound accounting is balanced by the dangers of poor accounting. It gave an early warning that when the bean counters are distracted, become too close to power and neglect their core responsibilities, disaster follows.

It was therefore timely that, in the same year that bad accounting claimed its most famous victim in Florence, not so far away some-body was preparing to tell the world just how it should be done.

BY THE BOOK

As immortalizing epithets go, ‘Father of Accounting’ wouldn’t be the most sought after by history’s great figures. But it’s the one destined to be borne forever by Luca Bartolomeo de Pacioli, a mathematician from the market town of Sansepolcro, near Florence, who was educated in the methods pioneered by Fibonacci two hundred and fifty years earlier.

By the time the middle-aged Pacioli arrived in Venice in 1494 with a manuscript containing what is still the blueprint for accounting, he had already scaled the heights of Renaissance mathematics as a professor at Perugia University. He’d also taken vows as a Franciscan friar. More importantly for the future of accounting, while tutoring a wealthy Venetian fur merchant’s children, Pacioli had doubled up as an agent for his boss’s maritime business and studied at the Scuola di Rialto in the city’s commercial district. There, in the hub of European commerce, he had taken the opportunity to learn what had become known as the ‘Venetian’ style of accounting: double-entry bookkeeping.

At the age of 49, Pacioli was ready to publish the magnum opus he had been working on for twenty years.