Taxation in Cannabis Industry

Part of a series on
Cannabis
Arts Culture 420 (chan) Books Magu (deity) Names Religion Judaism Latter-day Saints Sikhism Smoke-in Spiritual use Sports Stoner film Stoner rock Terms
Chemistry Phytocannabinoids   Main THC Dronabinol (INN) CBD   Minor delta-8-THC delta-10-THC THCH THCP CBDH CBDP   Semi-synthetic cannabinoids   THC-O-acetate   Synthetic cannabinoids   AM AM-2201 CP CP-55940 Nabilone Dimethylheptylpyran HU HU-210 HU-331 JWH JWH-018 JWH-073 JWH-133 Levonantradol MDMB-CHMICA SR144528 WIN 55,212-2
Pharmacology Cannabinoid receptors   Cannabinoid receptor type 1 Cannabinoid receptor type 2   Endocannabinoids (activate cannabinoid receptors)   2-AG Anandamide NADA Virodhamine
Consumption Drinks Edibles Smoking Tea Conversion of CBD to THC Vaping Adult lifetime cannabis use by country Annual cannabis use by country
Economics Coffeeshop Cultivation Shop Social Club Grow house Grow shop Head shop Marijuana vending machine
Effects Dependence Driving Drug testing Effects of legalized cannabis Gateway drug theory Long term effects Medicine Memory Pregnancy Time perception
Forms Bhang Blunt Charas Flower essential oil Hashish Oil Hemp Beer Milk Oil Protein Hempcrete Joint Kief Roach Synthetic cannabis Tincture
Law Cannabis rights Legality of cannabis Timeline of cannabis law   Cannabis and international law UN 2020 descheduling Single Convention on adult use   Cannabis in the United States Legality Legal history Timeline Medical Non-medical   Cannabis in Canada Cannabis Act Cannabis laws of Canada by province or territory Legal history of cannabis in Canada   Elsewhere Cannabis by country Cannabis in Malta Cannabis in Spain Cannabis in South Africa Cannabis in Thailand Cannabis in the Netherlands Drug policy of Portugal   Structural scheduling of synthetic cannabinoids
Variants Autoflowering cannabis   Genus   Cannabis   Species   Cannabis sativa Cannabis indica Cannabis ruderalis   Strains   Acapulco Gold Charlotte's web Kush Malawi Gold Sour Diesel
Related Drug culture Drug liberalization Illegal drug trade Psychedelia
Cannabis portal Medicine portal Agriculture portal

Cannabis (/ˈkænÉ™bɪs/ ^ⓘ)^[2] is a genus of flowering plants in the family Cannabaceae that is widely accepted as being indigenous to and originating from the continent of Asia.^[3][4][5] However, the number of species is disputed, with as many as three species being recognized: Cannabis sativa, C. indica, and C. ruderalis. Alternatively, C. ruderalis may be included within C. sativa, or all three may be treated as subspecies of C. sativa,^[1][6][7][8] or C. sativa may be accepted as a single undivided species.^[9]

The plant is also known as hemp, although this term is usually used to refer only to varieties cultivated for non-drug use. Hemp has long been used for fibre, seeds and their oils, leaves for use as vegetables, and juice. Industrial hemp textile products are made from cannabis plants selected to produce an abundance of fibre.

Cannabis also has a long history of being used for medicinal purposes, and as a recreational drug known by several slang terms, such as marijuana, pot or weed. Various cannabis strains have been bred, often selectively to produce high or low levels of tetrahydrocannabinol (THC), a cannabinoid and the plant's principal psychoactive constituent. Compounds such as hashish and hash oil are extracted from the plant.^[10] More recently, there has been interest in other cannabinoids like cannabidiol (CBD), cannabigerol (CBG), and cannabinol (CBN).

Cannabis is a Scythian word.^[11][12][13] The ancient Greeks learned of the use of cannabis by observing Scythian funerals, during which cannabis was consumed.^[12] In Akkadian, cannabis was known as qunubu (𐎯𐎫𐎠𐎭𐏂).^[12] The word was adopted in to the Hebrew language as qaneh bosem (קָנֶה בֹּשׂם).^[12]

Cannabis is an annual, dioecious, flowering herb. The leaves are palmately compound or digitate, with serrate leaflets.^[14] The first pair of leaves usually have a single leaflet, the number gradually increasing up to a maximum of about thirteen leaflets per leaf (usually seven or nine), depending on variety and growing conditions. At the top of a flowering plant, this number again diminishes to a single leaflet per leaf. The lower leaf pairs usually occur in an opposite leaf arrangement and the upper leaf pairs in an alternate arrangement on the main stem of a mature plant.

The leaves have a peculiar and diagnostic venation pattern (which varies slightly among varieties) that allows for easy identification of Cannabis leaves from unrelated species with similar leaves. As is common in serrated leaves, each serration has a central vein extending to its tip, but in Cannabis this originates from lower down the central vein of the leaflet, typically opposite to the position of the second notch down. This means that on its way from the midrib of the leaflet to the point of the serration, the vein serving the tip of the serration passes close by the intervening notch. Sometimes the vein will pass tangentially to the notch, but often will pass by at a small distance; when the latter happens a spur vein (or occasionally two) branches off and joins the leaf margin at the deepest point of the notch. Tiny samples of Cannabis also can be identified with precision by microscopic examination of leaf cells and similar features, requiring special equipment and expertise.^[15]

All known strains of Cannabis are wind-pollinated^[16] and the fruit is an achene.^[17] Most strains of Cannabis are short day plants,^[16] with the possible exception of C. sativa subsp. sativa var. spontanea (= C. ruderalis), which is commonly described as "auto-flowering" and may be day-neutral.

Cannabis is predominantly dioecious,^[16][18] having imperfect flowers, with staminate "male" and pistillate "female" flowers occurring on separate plants.^[19] "At a very early period the Chinese recognized the Cannabis plant as dioecious",^[20] and the (c. 3rd century BCE) Erya dictionary defined xi 枲 "male Cannabis" and fu 莩 (or ju 苴) "female Cannabis".^[21] Male flowers are normally borne on loose panicles, and female flowers are borne on racemes.^[22]

Many monoecious varieties have also been described,^[23] in which individual plants bear both male and female flowers.^[24] (Although monoecious plants are often referred to as "hermaphrodites", true hermaphrodites – which are less common in Cannabis – bear staminate and pistillate structures together on individual flowers, whereas monoecious plants bear male and female flowers at different locations on the same plant.) Subdioecy (the occurrence of monoecious individuals and dioecious individuals within the same population) is widespread.^[25][26][27] Many populations have been described as sexually labile.^[28][29][30]

As a result of intensive selection in cultivation, Cannabis exhibits many sexual phenotypes that can be described in terms of the ratio of female to male flowers occurring in the individual, or typical in the cultivar.^[31] Dioecious varieties are preferred for drug production, where the fruits (produced by female flowers) are used. Dioecious varieties are also preferred for textile fiber production, whereas monoecious varieties are preferred for pulp and paper production. It has been suggested that the presence of monoecy can be used to differentiate licit crops of monoecious hemp from illicit drug crops,^[25] but sativa strains often produce monoecious individuals, which is possibly as a result of inbreeding.

Cannabis has been described as having one of the most complicated mechanisms of sex determination among the dioecious plants.^[31] Many models have been proposed to explain sex determination in Cannabis.

Based on studies of sex reversal in hemp, it was first reported by K. Hirata in 1924 that an XY sex-determination system is present.^[29] At the time, the XY system was the only known system of sex determination. The X:A system was first described in Drosophila spp in 1925.^[32] Soon thereafter, Schaffner disputed Hirata's interpretation,^[33] and published results from his own studies of sex reversal in hemp, concluding that an X:A system was in use and that furthermore sex was strongly influenced by environmental conditions.^[30]

Since then, many different types of sex determination systems have been discovered, particularly in plants.^[18] Dioecy is relatively uncommon in the plant kingdom, and a very low percentage of dioecious plant species have been determined to use the XY system. In most cases where the XY system is found it is believed to have evolved recently and independently.^[34]

Since the 1920s, a number of sex determination models have been proposed for Cannabis. Ainsworth describes sex determination in the genus as using "an X/autosome dosage type".^[18]

The question of whether heteromorphic sex chromosomes are indeed present is most conveniently answered if such chromosomes were clearly visible in a karyotype. Cannabis was one of the first plant species to be karyotyped; however, this was in a period when karyotype preparation was primitive by modern standards. Heteromorphic sex chromosomes were reported to occur in staminate individuals of dioecious "Kentucky" hemp, but were not found in pistillate individuals of the same variety. Dioecious "Kentucky" hemp was assumed to use an XY mechanism. Heterosomes were not observed in analyzed individuals of monoecious "Kentucky" hemp, nor in an unidentified German cultivar. These varieties were assumed to have sex chromosome composition XX.^[35] According to other researchers, no modern karyotype of Cannabis had been published as of 1996.^[36] Proponents of the XY system state that Y chromosome is slightly larger than the X, but difficult to differentiate cytologically.^[37]

More recently, Sakamoto and various co-authors^[38][39] have used random amplification of polymorphic DNA (RAPD) to isolate several genetic marker sequences that they name Male-Associated DNA in Cannabis (MADC), and which they interpret as indirect evidence of a male chromosome. Several other research groups have reported identification of male-associated markers using RAPD and amplified fragment length polymorphism.^[40][28][41] Ainsworth commented on these findings, stating,

It is not surprising that male-associated markers are relatively abundant. In dioecious plants where sex chromosomes have not been identified, markers for maleness indicate either the presence of sex chromosomes which have not been distinguished by cytological methods or that the marker is tightly linked to a gene involved in sex determination.^[18]

Environmental sex determination is known to occur in a variety of species.^[42] Many researchers have suggested that sex in Cannabis is determined or strongly influenced by environmental factors.^[30] Ainsworth reviews that treatment with auxin and ethylene have feminizing effects, and that treatment with cytokinins and gibberellins have masculinizing effects.^[18] It has been reported that sex can be reversed in Cannabis using chemical treatment.^[43] A polymerase chain reaction-based method for the detection of female-associated DNA polymorphisms by genotyping has been developed.^[44]

• 
  A male hemp plant
• 
  Dense raceme of female flowers typical of drug-type varieties of Cannabis
• 
  Male Lemon Kush cannabis plant (12 foot plant)
• 
  Male Lemon Kush cannabis Flowers
• 
  A young female Acapulco Gold plant (Mexican x Nepalese). Seed grown plant from seeds obtained from a cannabis seed bank.^[45]
• 
  Acapulco Gold female plant in bloom
• 
  Indoor grown Acapulco Gold female plant in final stages of flowering (flushing in amber and gold tones)

Cannabis plants produce a large number of chemicals as part of their defense against herbivory. One group of these is called cannabinoids, which induce mental and physical effects when consumed.

Cannabinoids, terpenes, terpenoids, and other compounds are secreted by glandular trichomes that occur most abundantly on the floral calyxes and bracts of female plants.^[46]

• 
  Root system side view
• 
  Root system top view
• 
  Micrograph C. sativa (left), C. indica (right)

Cannabis, like many organisms, is diploid, having a chromosome complement of 2n=20, although polyploid individuals have been artificially produced.^[47] The first genome sequence of Cannabis, which is estimated to be 820 Mb in size, was published in 2011 by a team of Canadian scientists.^[48]

The genus Cannabis was formerly placed in the nettle family (Urticaceae) or mulberry family (Moraceae), and later, along with the genus Humulus (hops), in a separate family, the hemp family (Cannabaceae sensu stricto).^[49] Recent phylogenetic studies based on cpDNA restriction site analysis and gene sequencing strongly suggest that the Cannabaceae sensu stricto arose from within the former family Celtidaceae, and that the two families should be merged to form a single monophyletic family, the Cannabaceae sensu lato.^[50][51]

Various types of Cannabis have been described, and variously classified as species, subspecies, or varieties:^[52]

• plants cultivated for fiber and seed production, described as low-intoxicant, non-drug, or fiber types.
• plants cultivated for drug production, described as high-intoxicant or drug types.
• escaped, hybridised, or wild forms of either of the above types.

Cannabis plants produce a unique family of terpeno-phenolic compounds called cannabinoids, some of which produce the "high" which may be experienced from consuming marijuana. There are 483 identifiable chemical constituents known to exist in the cannabis plant,^[53] and at least 85 different cannabinoids have been isolated from the plant.^[54] The two cannabinoids usually produced in greatest abundance are cannabidiol (CBD) and/or Δ⁹-tetrahydrocannabinol (THC), but only THC is psychoactive.^[55] Since the early 1970s, Cannabis plants have been categorized by their chemical phenotype or "chemotype", based on the overall amount of THC produced, and on the ratio of THC to CBD.^[56] Although overall cannabinoid production is influenced by environmental factors, the THC/CBD ratio is genetically determined and remains fixed throughout the life of a plant.^[40] Non-drug plants produce relatively low levels of THC and high levels of CBD, while drug plants produce high levels of THC and low levels of CBD. When plants of these two chemotypes cross-pollinate, the plants in the first filial (F₁) generation have an intermediate chemotype and produce intermediate amounts of CBD and THC. Female plants of this chemotype may produce enough THC to be utilized for drug production.^[56][57]

Whether the drug and non-drug, cultivated and wild types of Cannabis constitute a single, highly variable species, or the genus is polytypic with more than one species, has been a subject of debate for well over two centuries. This is a contentious issue because there is no universally accepted definition of a species.^[58] One widely applied criterion for species recognition is that species are "groups of actually or potentially interbreeding natural populations which are reproductively isolated from other such groups."^[59] Populations that are physiologically capable of interbreeding, but morphologically or genetically divergent and isolated by geography or ecology, are sometimes considered to be separate species.^[59] Physiological barriers to reproduction are not known to occur within Cannabis, and plants from widely divergent sources are interfertile.^[47] However, physical barriers to gene exchange (such as the Himalayan mountain range) might have enabled Cannabis gene pools to diverge before the onset of human intervention, resulting in speciation.^[60] It remains controversial whether sufficient morphological and genetic divergence occurs within the genus as a result of geographical or ecological isolation to justify recognition of more than one species.^[61][62][63]

The genus Cannabis was first classified using the "modern" system of taxonomic nomenclature by Carl Linnaeus in 1753, who devised the system still in use for the naming of species.^[64] He considered the genus to be monotypic, having just a single species that he named Cannabis sativa L.^{[a 1]} Linnaeus was familiar with European hemp, which was widely cultivated at the time. This classification was supported by Christiaan Hendrik Persoon (in 1807), Lindley (in 1838) and De Candollee (in 1867). These first classification attempts resulted in a four group division:^[65]

• Kif (southern hemp - psychoactive)
• Vulgaris (intermediate - psychoactive and fiber)
• Pedemontana (northern hemp - fiber)
• Chinensis (northern hemp - fiber)

In 1785, evolutionary biologist Jean-Baptiste de Lamarck published a description of a second species of Cannabis, which he named Cannabis indica Lam.^[66] Lamarck based his description of the newly named species on morphological aspects (trichomes, leaf shape) and geographic localization of plant specimens collected in India. He described C. indica as having poorer fiber quality than C. sativa, but greater utility as an inebriant. Also, C. indica was considered smaller, by Lamarck. Also, woodier stems, alternate ramifications of the branches, narrow leaflets, and a villous calyx in the female flowers were characteristics noted by the botanist.^[65]

In 1843, William O’Shaughnessy, used "Indian hemp (C. indica)" in a work title. The author claimed that this choice wasn't based on a clear distinction between C. sativa and C. indica, but may have been influenced by the choice to use the term "Indian hemp" (linked to the plant's history in India), hence naming the species as indica.^[65]

Additional Cannabis species were proposed in the 19th century, including strains from China and Vietnam (Indo-China) assigned the names Cannabis chinensis Delile, and Cannabis gigantea Delile ex Vilmorin.^[67] However, many taxonomists found these putative species difficult to distinguish. In the early 20th century, the single-species concept (monotypic classification) was still widely accepted, except in the Soviet Union, where Cannabis continued to be the subject of active taxonomic study. The name Cannabis indica was listed in various Pharmacopoeias, and was widely used to designate Cannabis suitable for the manufacture of medicinal preparations.^[68]

In 1924, Russian botanist D.E. Janichevsky concluded that ruderal Cannabis in central Russia is either a variety of C. sativa or a separate species, and proposed C. sativa L. var. ruderalis Janisch, and Cannabis ruderalis Janisch, as alternative names.^[52] In 1929, renowned plant explorer Nikolai Vavilov assigned wild or feral populations of Cannabis in Afghanistan to C. indica Lam. var. kafiristanica Vav., and ruderal populations in Europe to C. sativa L. var. spontanea Vav.^[57][67] Vavilov, in 1931, proposed a three species system, independently reinforced by Schultes et al (1975)^[69] and Emboden (1974):^[70] C. sativa, C. indica and C. ruderalis.^[65]

In 1940, Russian botanists Serebriakova and Sizov proposed a complex poly-species classification in which they also recognized C. sativa and C. indica as separate species. Within C. sativa they recognized two subspecies: C. sativa L. subsp. culta Serebr. (consisting of cultivated plants), and C. sativa L. subsp. spontanea (Vav.) Serebr. (consisting of wild or feral plants). Serebriakova and Sizov split the two C. sativa subspecies into 13 varieties, including four distinct groups within subspecies culta. However, they did not divide C. indica into subspecies or varieties.^[52][71][72] Zhukovski, in 1950, also proposed a two-species system, but with C. sativa L. and C. ruderalis.^[73]

In the 1970s, the taxonomic classification of Cannabis took on added significance in North America. Laws prohibiting Cannabis in the United States and Canada specifically named products of C. sativa as prohibited materials. Enterprising attorneys for the defense in a few drug busts argued that the seized Cannabis material may not have been C. sativa, and was therefore not prohibited by law. Attorneys on both sides recruited botanists to provide expert testimony. Among those testifying for the prosecution was Dr. Ernest Small, while Dr. Richard E. Schultes and others testified for the defense. The botanists engaged in heated debate (outside of court), and both camps impugned the other's integrity.^[61][62] The defense attorneys were not often successful in winning their case, because the intent of the law was clear.^[74]

In 1976, Canadian botanist Ernest Small^[75] and American taxonomist Arthur Cronquist published a taxonomic revision that recognizes a single species of Cannabis with two subspecies (hemp or drug; based on THC and CBD levels) and two varieties in each (domesticated or wild). The framework is thus:

• C. sativa L. subsp. sativa, presumably selected for traits that enhance fiber or seed production.
  • C. sativa L. subsp. sativa var. sativa, domesticated variety.
  • C. sativa L. subsp. sativa var. spontanea Vav., wild or escaped variety.
• C. sativa L. subsp. indica (Lam.) Small & Cronq.,^[67] primarily selected for drug production.
  • C. sativa L. subsp. indica var. indica, domesticated variety.
  • C. sativa subsp. indica var. kafiristanica (Vav.) Small & Cronq, wild or escaped variety.

This classification was based on several factors including interfertility, chromosome uniformity, chemotype, and numerical analysis of phenotypic characters.^[56][67][76]

Professors William Emboden, Loran Anderson, and Harvard botanist Richard E. Schultes and coworkers also conducted taxonomic studies of Cannabis in the 1970s, and concluded that stable morphological differences exist that support recognition of at least three species, C. sativa, C. indica, and C. ruderalis.^{[77][78][79][80]} For Schultes, this was a reversal of his previous interpretation that Cannabis is monotypic, with only a single species.^[81] According to Schultes' and Anderson's descriptions, C. sativa is tall and laxly branched with relatively narrow leaflets, C. indica is shorter, conical in shape, and has relatively wide leaflets, and C. ruderalis is short, branchless, and grows wild in Central Asia. This taxonomic interpretation was embraced by Cannabis aficionados who commonly distinguish narrow-leafed "sativa" strains from wide-leafed "indica" strains.^[82] McPartland's review finds the Schultes taxonomy inconsistent with prior work (protologs) and partly responsible for the popular usage.^[83]

Molecular analytical techniques developed in the late 20th century are being applied to questions of taxonomic classification. This has resulted in many reclassifications based on evolutionary systematics. Several studies of random amplified polymorphic DNA (RAPD) and other types of genetic markers have been conducted on drug and fiber strains of Cannabis, primarily for plant breeding and forensic purposes.^{[84][85][28][86][87]} Dutch Cannabis researcher E.P.M. de Meijer and coworkers described some of their RAPD studies as showing an "extremely high" degree of genetic polymorphism between and within populations, suggesting a high degree of potential variation for selection, even in heavily selected hemp cultivars.^[40] They also commented that these analyses confirm the continuity of the Cannabis gene pool throughout the studied accessions, and provide further confirmation that the genus consists of a single species, although theirs was not a systematic study per se.

An investigation of genetic, morphological, and chemotaxonomic variation among 157 Cannabis accessions of known geographic origin, including fiber, drug, and feral populations showed cannabinoid variation in Cannabis germplasm. The patterns of cannabinoid variation support recognition of C. sativa and C. indica as separate species, but not C. ruderalis. C. sativa contains fiber and seed landraces, and feral populations, derived from Europe, Central Asia, and Turkey. Narrow-leaflet and wide-leaflet drug accessions, southern and eastern Asian hemp accessions, and feral Himalayan populations were assigned to C. indica.^[57] In 2005, a genetic analysis of the same set of accessions led to a three-species classification, recognizing C. sativa, C. indica, and (tentatively) C. ruderalis.^[60] Another paper in the series on chemotaxonomic variation in the terpenoid content of the essential oil of Cannabis revealed that several wide-leaflet drug strains in the collection had relatively high levels of certain sesquiterpene alcohols, including guaiol and isomers of eudesmol, that set them apart from the other putative taxa.^[88]

A 2020 analysis of single-nucleotide polymorphisms reports five clusters of cannabis, roughly corresponding to hemps (including folk "Ruderalis") folk "Indica" and folk "Sativa".^[89]

Despite advanced analytical techniques, much of the cannabis used recreationally is inaccurately classified. One laboratory at the University of British Columbia found that Jamaican Lamb's Bread, claimed to be 100% sativa, was in fact almost 100% indica (the opposite strain).^[90] Legalization of cannabis in Canada (as of 17 October 2018^[update]) may help spur private-sector research, especially in terms of diversification of strains. It should also improve classification accuracy for cannabis used recreationally. Legalization coupled with Canadian government (Health Canada) oversight of production and labelling will likely result in more—and more accurate—testing to determine exact strains and content. Furthermore, the rise of craft cannabis growers in Canada should ensure quality, experimentation/research, and diversification of strains among private-sector producers.^[91]

The scientific debate regarding taxonomy has had little effect on the terminology in widespread use among cultivators and users of drug-type Cannabis. Cannabis aficionados recognize three distinct types based on such factors as morphology, native range, aroma, and subjective psychoactive characteristics. "Sativa" is the most widespread variety, which is usually tall, laxly branched, and found in warm lowland regions. "Indica" designates shorter, bushier plants adapted to cooler climates and highland environments. "Ruderalis" is the informal name for the short plants that grow wild in Europe and Central Asia.^[83]

Mapping the morphological concepts to scientific names in the Small 1976 framework, "Sativa" generally refers to C. sativa subsp. indica var. indica, "Indica" generally refers to C. sativa subsp. i. kafiristanica (also known as afghanica), and "Ruderalis", being lower in THC, is the one that can fall into C. sativa subsp. sativa. The three names fit in Schultes's framework better, if one overlooks its inconsistencies with prior work.^[83] Definitions of the three terms using factors other than morphology produces different, often conflicting results.

Breeders, seed companies, and cultivators of drug type Cannabis often describe the ancestry or gross phenotypic characteristics of cultivars by categorizing them as "pure indica", "mostly indica", "indica/sativa", "mostly sativa", or "pure sativa". These categories are highly arbitrary, however: one "AK-47" hybrid strain has received both "Best Sativa" and "Best Indica" awards.^[83]

Cannabis likely split from its closest relative, Humulus (hops), during the mid Oligocene, around 27.8 million years ago according to molecular clock estimates. The centre of origin of Cannabis is likely in the northeastern Tibetan Plateau. The pollen of Humulus and Cannabis are very similar and difficult to distinguish. The oldest pollen thought to be from Cannabis is from Ningxia, China, on the boundary between the Tibetan Plateau and the Loess Plateau, dating to the early Miocene, around 19.6 million years ago. Cannabis was widely distributed over Asia by the Late Pleistocene. The oldest known Cannabis in South Asia dates to around 32,000 years ago.^[92]

Cannabis is used for a wide variety of purposes.

According to genetic and archaeological evidence, cannabis was first domesticated about 12,000 years ago in East Asia during the early Neolithic period.^[5] The use of cannabis as a mind-altering drug has been documented by archaeological finds in prehistoric societies in Eurasia and Africa.^[93] The oldest written record of cannabis usage is the Greek historian Herodotus's reference to the central Eurasian Scythians taking cannabis steam baths.^[94] His (c. 440 BCE) Histories records, "The Scythians, as I said, take some of this hemp-seed [presumably, flowers], and, creeping under the felt coverings, throw it upon the red-hot stones; immediately it smokes, and gives out such a vapour as no Greek vapour-bath can exceed; the Scyths, delighted, shout for joy."^[95] Classical Greeks and Romans also used cannabis.

In China, the psychoactive properties of cannabis are described in the Shennong Bencaojing (3rd century AD).^[96] Cannabis smoke was inhaled by Daoists, who burned it in incense burners.^[96]

In the Middle East, use spread throughout the Islamic empire to North Africa. In 1545, cannabis spread to the western hemisphere where Spaniards imported it to Chile for its use as fiber. In North America, cannabis, in the form of hemp, was grown for use in rope, cloth and paper.^{[97][98][99][100]}

Cannabinol (CBN) was the first compound to be isolated from cannabis extract in the late 1800s. Its structure and chemical synthesis were achieved by 1940, followed by some of the first preclinical research studies to determine the effects of individual cannabis-derived compounds in vivo.^[101]

Globally, in 2013, 60,400 kilograms of cannabis were produced legally.^[102]

Cannabis is a popular recreational drug around the world, only behind alcohol, caffeine, and tobacco. In the U.S. alone, it is believed that over 100 million Americans have tried cannabis, with 25 million Americans having used it within the past year.^[when?][104] As a drug it usually comes in the form of dried marijuana, hashish, or various extracts collectively known as hashish oil.^[10]

Normal cognition is restored after approximately three hours for larger doses via a smoking pipe, bong or vaporizer.^[105] However, if a large amount is taken orally the effects may last much longer. After 24 hours to a few days, minuscule psychoactive effects may be felt, depending on dosage, frequency and tolerance to the drug.

Cannabidiol (CBD), which has no intoxicating effects by itself^[55] (although sometimes showing a small stimulant effect, similar to caffeine),^[106] is thought to attenuate (i.e., reduce)^[107] the anxiety-inducing effects of high doses of THC, particularly if administered orally prior to THC exposure.^[108]

According to Delphic analysis by British researchers in 2007, cannabis has a lower risk factor for dependence compared to both nicotine and alcohol.^[109] However, everyday use of cannabis may be correlated with psychological withdrawal symptoms, such as irritability or insomnia,^[105] and susceptibility to a panic attack may increase as levels of THC metabolites rise.^[110][111] Cannabis withdrawal symptoms are typically mild and are not life-threatening.^[112] Risk of adverse outcomes from cannabis use may be reduced by implementation of evidence-based education and intervention tools communicated to the public with practical regulation measures.^[113]

In 2014 there were an estimated 182.5 million cannabis users worldwide (3.8% of the global population aged 15–64).^[114] This percentage did not change significantly between 1998 and 2014.^[114]

Medical cannabis (or medical marijuana) refers to the use of cannabis and its constituent cannabinoids, in an effort to treat disease or improve symptoms. Cannabis is used to reduce nausea and vomiting during chemotherapy, to improve appetite in people with HIV/AIDS, and to treat chronic pain and muscle spasms.^[115][116] Cannabinoids are under preliminary research for their potential to affect stroke.^[117] Evidence is lacking for depression, anxiety, attention deficit hyperactivity disorder, Tourette syndrome, post-traumatic stress disorder, and psychosis.^[118] Two extracts of cannabis – dronabinol and nabilone – are approved by the FDA as medications in pill form for treating the side effects of chemotherapy and AIDS.^[119]

Short-term use increases both minor and major adverse effects.^[116] Common side effects include dizziness, feeling tired, vomiting, and hallucinations.^[116] Long-term effects of cannabis are not clear.^[120] Concerns including memory and cognition problems, risk of addiction, schizophrenia in young people, and the risk of children taking it by accident.^[115]

The term hemp is used to name the durable soft fiber from the Cannabis plant stem (stalk). Cannabis sativa cultivars are used for fibers due to their long stems; Sativa varieties may grow more than six metres tall. However, hemp can refer to any industrial or foodstuff product that is not intended for use as a drug. Many countries regulate limits for psychoactive compound (THC) concentrations in products labeled as hemp.

Cannabis for industrial uses is valuable in tens of thousands of commercial products, especially as fibre^[121] ranging from paper, cordage, construction material and textiles in general, to clothing. Hemp is stronger and longer-lasting than cotton. It also is a useful source of foodstuffs (hemp milk, hemp seed, hemp oil) and biofuels. Hemp has been used by many civilizations, from China to Europe (and later North America) during the last 12,000 years.^[121][122] In modern times novel applications and improvements have been explored with modest commercial success.^[123][124]

In the US, "industrial hemp" is classified by the federal government as cannabis containing no more than 0.3% THC by dry weight. This classification was established in the 2018 Farm Bill and was refined to include hemp-sourced extracts, cannabinoids, and derivatives in the definition of hemp.^[125]

The Cannabis plant has a history of medicinal use dating back thousands of years across many cultures.^[126] The Yanghai Tombs, a vast ancient cemetery (54 000 m²) situated in the Turfan district of the Xinjiang Uyghur Autonomous Region in northwest China, have revealed the 2700-year-old grave of a shaman. He is thought to have belonged to the Jushi culture recorded in the area centuries later in the Hanshu, Chap 96B.^[127] Near the head and foot of the shaman was a large leather basket and wooden bowl filled with 789g of cannabis, superbly preserved by climatic and burial conditions. An international team demonstrated that this material contained THC. The cannabis was presumably employed by this culture as a medicinal or psychoactive agent, or an aid to divination. This is the oldest documentation of cannabis as a pharmacologically active agent.^[128] The earliest evidence of cannabis smoking has been found in the 2,500-year-old tombs of Jirzankal Cemetery in the Pamir Mountains in Western China, where cannabis residue were found in burners with charred pebbles possibly used during funeral rituals.^[129][130]

Settlements which date from c. 2200–1700 BCE in the Bactria and Margiana contained elaborate ritual structures with rooms containing everything needed for making drinks containing extracts from poppy (opium), hemp (cannabis), and ephedra (which contains ephedrine).^{[131]: 262 } Although there is no evidence of ephedra being used by steppe tribes, they engaged in cultic use of hemp. Cultic use ranged from Romania to the Yenisei River and had begun by 3rd millennium BC Smoking hemp has been found at Pazyryk.^{[131]: 306 }

Cannabis is first referred to in Hindu Vedas between 2000 and 1400 BCE, in the Atharvaveda. By the 10th century CE, it has been suggested that it was referred to by some in India as "food of the gods".^[132] Cannabis use eventually became a ritual part of the Hindu festival of Holi. One of the earliest to use this plant in medical purposes was Korakkar, one of the 18 Siddhas.^{[133][134][self-published source?]} The plant is called Korakkar Mooli in the Tamil language, meaning Korakkar's herb.^[135][136]

In Buddhism, cannabis is generally regarded as an intoxicant and may be a hindrance to development of meditation and clear awareness. In ancient Germanic culture, Cannabis was associated with the Norse love goddess, Freya.^[137][138] An anointing oil mentioned in Exodus is, by some translators, said to contain Cannabis.^[139]

In modern times, the Rastafari movement has embraced Cannabis as a sacrament.^[140] Elders of the Ethiopian Zion Coptic Church, a religious movement founded in the U.S. in 1975 with no ties to either Ethiopia or the Coptic Church, consider Cannabis to be the Eucharist, claiming it as an oral tradition from Ethiopia dating back to the time of Christ.^[141] Like the Rastafari, some modern Gnostic Christian sects have asserted that Cannabis is the Tree of Life.^[142][143] Other organized religions founded in the 20th century that treat Cannabis as a sacrament are the THC Ministry,^[144] Cantheism,^[145] the Cannabis Assembly^[146] and the Church of Cognizance.

Since the 13th century CE, cannabis has been used among Sufis^[147][148] – the mystical interpretation of Islam that exerts strong influence over local Muslim practices in Bangladesh, India, Indonesia, Turkey, and Pakistan. Cannabis preparations are frequently used at Sufi festivals in those countries.^[147] Pakistan's Shrine of Lal Shahbaz Qalandar in Sindh province is particularly renowned for the widespread use of cannabis at the shrine's celebrations, especially its annual Urs festival and Thursday evening dhamaal sessions – or meditative dancing sessions.^[149][150]

• All pages with titles beginning with Cannabis
• All pages with titles containing Cannabis
• Cannabis drug testing
• Cannabis edible
• Cannabis flower essential oil
• Hash, Marihuana & Hemp Museum
• Indian Hemp Drugs Commission
• Legal history of cannabis in the United States
• Legality of cannabis by U.S. jurisdiction
• List of books about cannabis
• List of celebrities who own cannabis businesses
• Occupational health concerns of cannabis use

• International Plant Names Index (IPNI)

 

Part of a series on
Accounting
Constant purchasing power Historical cost Management Tax
Major types Audit Budget Cost Forensic Financial Fund Governmental Management Social Tax
Key concepts Accounting period Accrual Constant purchasing power Economic entity Fair value Going concern Historical cost Matching principle Materiality Revenue recognition Unit of account
Selected accounts Assets Cash Cost of goods sold Depreciation / Amortization (business) Equity Expenses Goodwill Liabilities Profit Revenue
Accounting standards Generally-accepted principles Generally-accepted auditing standards Convergence International Financial Reporting Standards International Standards on Auditing Management Accounting Principles
Financial statements Annual report Balance sheet Cash-flow Equity Income Management discussion Financial statement analysis
Bookkeeping Bank reconciliation Debits and credits Double-entry system FIFO and LIFO Journal Ledger / General ledger Trial balance
Auditing Financial Internal Firms Report Sarbanes–Oxley Act
People and organizations Accountants Accounting organizations Luca Pacioli
Development History Research Positive accounting Sarbanes–Oxley Act
Misconduct Creative Earnings management Error account Hollywood Off-balance-sheet Two sets of books

Business administration
Management of a business
Accounting Management accounting Financial accounting Audit
Business entity (list) Corporate group Corporation sole Company Conglomerate Holding company Cooperative Corporation Joint-stock company Limited liability company Partnership Privately held company Sole proprietorship State-owned enterprise
Corporate governance Annual general meeting Board of directors Supervisory board Advisory board Audit committee
Corporate law Commercial law Constitutional documents Contract Corporate crime Corporate liability Insolvency law International trade law Mergers and acquisitions
Corporate title Chairman Chief business officer/Chief brand officer Chief executive officer/Chief operating officer Chief financial officer Chief human resources officer Chief information officer/Chief marketing officer Chief product officer/Chief technology officer
Economics Commodity Public economics Labour economics Development economics International economics Mixed economy Planned economy Econometrics Environmental economics Open economy Market economy Knowledge economy Microeconomics Macroeconomics Economic development Economic statistics
Finance Financial statement Insurance Factoring Cash conversion cycle Insider dealing Capital budgeting Commercial bank Derivative Financial statement analysis Financial risk Public finance Corporate finance Managerial finance International finance Liquidation Stock market Financial market Tax Financial institution Capital management Venture capital
Types of management Asset Brand Business intelligence Business development Capacity Capability Change innovation Commercial Marketing Communications Configuration Conflict Content Customer relationship Distributed Earned value Electronic business Enterprise resource planning  management information system Financial Human resource  development Incident Knowledge Legal Materials Network administrator Office Operations  services Performance Power Process Product life-cycle Product Project Property Quality Records Resource Risk  crisis Sales Security Service Strategic Supply chain Systems administrator Talent Technology
Organization Architecture Behavior Communication Culture Conflict Development Engineering Hierarchy Patterns Space Structure
Trade Business analysis Business ethics Business plan Business judgment rule Consumer behaviour Business operations International business Business model International trade Trade route Business process Business statistics
Business and economics portal

Accounting, also known as accountancy, is the process of recording and processing information about economic entities, such as businesses and corporations.^[1][2] Accounting measures the results of an organization's economic activities and conveys this information to a variety of stakeholders, including investors, creditors, management, and regulators.^[3] Practitioners of accounting are known as accountants. The terms "accounting" and "financial reporting" are often used interchangeably.^[4]

Accounting can be divided into several fields including financial accounting, management accounting, tax accounting and cost accounting.^[5] Financial accounting focuses on the reporting of an organization's financial information, including the preparation of financial statements, to the external users of the information, such as investors, regulators and suppliers.^[6] Management accounting focuses on the measurement, analysis and reporting of information for internal use by management to enhance business operations.^[1][6] The recording of financial transactions, so that summaries of the financials may be presented in financial reports, is known as bookkeeping, of which double-entry bookkeeping is the most common system.^[7] Accounting information systems are designed to support accounting functions and related activities.

Accounting has existed in various forms and levels of sophistication throughout human history. The double-entry accounting system in use today was developed in medieval Europe, particularly in Venice, and is usually attributed to the Italian mathematician and Franciscan friar Luca Pacioli.^[8] Today, accounting is facilitated by accounting organizations such as standard-setters, accounting firms and professional bodies. Financial statements are usually audited by accounting firms,^[9] and are prepared in accordance with generally accepted accounting principles (GAAP).^[6] GAAP is set by various standard-setting organizations such as the Financial Accounting Standards Board (FASB) in the United States^[1] and the Financial Reporting Council in the United Kingdom. As of 2012, "all major economies" have plans to converge towards or adopt the International Financial Reporting Standards (IFRS).^[10][11]

Accounting is thousands of years old and can be traced to ancient civilizations.^[12][13][14] One early development of accounting dates back to ancient Mesopotamia and is closely related to developments in writing, counting and money;^[12] there is also evidence of early forms of bookkeeping in ancient Iran,^[15][16] and early auditing systems by the ancient Egyptians and Babylonians.^[13] By the time of Emperor Augustus, the Roman government had access to detailed financial information.^[17]

Many concepts related to today's accounting seem to be initiated in medieval's Middle East. For example, Jewish communities used double-entry bookkeeping in the early-medieval period^[18][19] and Muslim societies, at least since the 10th century also used many modern accounting concepts.^[20]

The spread of the use of Arabic numerals, instead of the Roman numbers historically used in Europe, increased efficiency of accounting procedures among Mediterranean merchants,^[21] who further refined accounting in medieval Europe.^[22] With the development of joint-stock companies, accounting split into financial accounting and management accounting.

The first published work on a double-entry bookkeeping system was the Summa de arithmetica, published in Italy in 1494 by Luca Pacioli (the "Father of Accounting").^[23][24] Accounting began to transition into an organized profession in the 19th century,^[25][26] with local professional bodies in England merging to form the Institute of Chartered Accountants in England and Wales in 1880.^[27]

Both the words "accounting" and "accountancy" were in use in Great Britain by the mid-1800s and are derived from the words accompting and accountantship used in the 18th century.^[28] In Middle English (used roughly between the 12th and the late 15th century), the verb "to account" had the form accounten, which was derived from the Old French word aconter,^[29] which is in turn related to the Vulgar Latin word computare, meaning "to reckon". The base of computare is putare, which "variously meant to prune, to purify, to correct an account, hence, to count or calculate, as well as to think".^[29]

The word "accountant" is derived from the French word compter, which is also derived from the Italian and Latin word computare. The word was formerly written in English as "accomptant", but in process of time the word, which was always pronounced by dropping the "p", became gradually changed both in pronunciation and in orthography to its present form.^[30]

Accounting has variously been defined as the keeping or preparation of the financial records of transactions of the firm, the analysis, verification and reporting of such records and "the principles and procedures of accounting"; it also refers to the job of being an accountant.^[31][32][33]

Accountancy refers to the occupation or profession of an accountant,^[34][35][36] particularly in British English.^[31][32]

Accounting has several subfields or subject areas, including financial accounting, management accounting, auditing, taxation and accounting information systems.^[5]

Financial accounting focuses on the reporting of an organization's financial information to external users of the information, such as investors, potential investors and creditors. It calculates and records business transactions and prepares financial statements for the external users in accordance with generally accepted accounting principles (GAAP).^[6] GAAP, in turn, arises from the wide agreement between accounting theory and practice, and changes over time to meet the needs of decision-makers.^[1]

Financial accounting produces past-oriented reports—for example financial statements are often published six to ten months after the end of the accounting period—on an annual or quarterly basis, generally about the organization as a whole.^[6]

Management accounting focuses on the measurement, analysis and reporting of information that can help managers in making decisions to fulfill the goals of an organization. In management accounting, internal measures and reports are based on cost–benefit analysis, and are not required to follow the generally accepted accounting principle (GAAP).^[6] In 2014 CIMA created the Global Management Accounting Principles (GMAPs). The result of research from across 20 countries in five continents, the principles aim to guide best practice in the discipline.^[37]

Management accounting produces past-oriented reports with time spans that vary widely, but it also encompasses future-oriented reports such as budgets. Management accounting reports often include financial and non financial information, and may, for example, focus on specific products and departments.^[6]

Intercompany accounting focuses on the measurement, analysis and reporting of information between separate entities that are related, such as a parent company and its subsidiary companies. Intercompany accounting concerns record keeping of transactions between companies that have common ownership such as a parent company and a partially or wholly owned subsidiary. Intercompany transactions are also recorded in accounting when business is transacted between companies with a common parent company (subsidiaries).^[38][39]

Auditing is the verification of assertions made by others regarding a payoff,^[40] and in the context of accounting it is the "unbiased examination and evaluation of the financial statements of an organization".^[41] Audit is a professional service that is systematic and conventional.^[42]

An audit of financial statements aims to express or disclaim an independent opinion on the financial statements. The auditor expresses an independent opinion on the fairness with which the financial statements presents the financial position, results of operations, and cash flows of an entity, in accordance with the generally accepted accounting principles (GAAP) and "in all material respects". An auditor is also required to identify circumstances in which the generally accepted accounting principles (GAAP) have not been consistently observed.^[43]

An accounting information system is a part of an organization's information system used for processing accounting data.^[44] Many corporations use artificial intelligence-based information systems. The banking and finance industry uses AI in fraud detection. The retail industry uses AI for customer services. AI is also used in the cybersecurity industry. It involves computer hardware and software systems using statistics and modeling.^[45]

Many accounting practices have been simplified with the help of accounting computer-based software. An enterprise resource planning (ERP) system is commonly used for a large organisation and it provides a comprehensive, centralized, integrated source of information that companies can use to manage all major business processes, from purchasing to manufacturing to human resources. These systems can be cloud based and available on demand via application or browser, or available as software installed on specific computers or local servers, often referred to as on-premise.

Tax accounting in the United States concentrates on the preparation, analysis and presentation of tax payments and tax returns. The U.S. tax system requires the use of specialised accounting principles for tax purposes which can differ from the generally accepted accounting principles (GAAP) for financial reporting.^[46] U.S. tax law covers four basic forms of business ownership: sole proprietorship, partnership, corporation, and limited liability company. Corporate and personal income are taxed at different rates, both varying according to income levels and including varying marginal rates (taxed on each additional dollar of income) and average rates (set as a percentage of overall income).^[46]

This section does not cite any sources. Please help improve this section by adding citations to reliable sources. Unsourced material may be challenged and removed. (June 2023) (Learn how and when to remove this message)

Forensic accounting is a specialty practice area of accounting that describes engagements that result from actual or anticipated disputes or litigation.^[47] "Forensic" means "suitable for use in a court of law", and it is to that standard and potential outcome that forensic accountants generally have to work.

Political campaign accounting deals with the development and implementation of financial systems and the accounting of financial transactions in compliance with laws governing political campaign operations. This branch of accounting was first formally introduced in the March 1976 issue of The Journal of Accountancy.^[48]

Professional accounting bodies include the American Institute of Certified Public Accountants (AICPA) and the other 179 members of the International Federation of Accountants (IFAC),^[49] including Institute of Chartered Accountants of Scotland (ICAS), Institute of Chartered Accountants of Pakistan (ICAP), CPA Australia, Institute of Chartered Accountants of India, Association of Chartered Certified Accountants (ACCA) and Institute of Chartered Accountants in England and Wales (ICAEW). Some countries have a single professional accounting body and, in some other countries, professional bodies for subfields of the accounting professions also exist, for example the Chartered Institute of Management Accountants (CIMA) in the UK and Institute of management accountants in the United States.^[50] Many of these professional bodies offer education and training including qualification and administration for various accounting designations, such as certified public accountant (AICPA) and chartered accountant.^[51][52]

Depending on its size, a company may be legally required to have their financial statements audited by a qualified auditor, and audits are usually carried out by accounting firms.^[9]

Accounting firms grew in the United States and Europe in the late nineteenth and early twentieth century, and through several mergers there were large international accounting firms by the mid-twentieth century. Further large mergers in the late twentieth century led to the dominance of the auditing market by the "Big Five" accounting firms: Arthur Andersen, Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers.^[53] The demise of Arthur Andersen following the Enron scandal reduced the Big Five to the Big Four.^[54]

Generally accepted accounting principles (GAAP) are accounting standards issued by national regulatory bodies. In addition, the International Accounting Standards Board (IASB) issues the International Financial Reporting Standards (IFRS) implemented by 147 countries.^[1] Standards for international audit and assurance, ethics, education, and public sector accounting are all set by independent standard settings boards supported by IFAC. The International Auditing and Assurance Standards Board sets international standards for auditing, assurance, and quality control; the International Ethics Standards Board for Accountants (IESBA)^[55] sets the internationally appropriate principles-based Code of Ethics for Professional Accountants; the International Accounting Education Standards Board (IAESB) sets professional accounting education standards;^[56] and International Public Sector Accounting Standards Board (IPSASB) sets accrual-based international public sector accounting standards.^[57][4]

Organizations in individual countries may issue accounting standards unique to the countries. For example, in Australia, the Australian Accounting Standards Board manages the issuance of the accounting standards in line with IFRS. In the United States the Financial Accounting Standards Board (FASB) issues the Statements of Financial Accounting Standards, which form the basis of US GAAP,^[1] and in the United Kingdom the Financial Reporting Council (FRC) sets accounting standards.^[58] However, as of 2012 "all major economies" have plans to converge towards or adopt the IFRS.^[10]

A bachelor's degree or a master's degree in accounting or a related field is required for most accountant and auditor job positions, and some employers prefer applicants with advanced qualifications.^[59] A degree in accounting may also be required for, or may be used to fulfill the requirements for, membership to professional accounting bodies. For example, the education during an accounting degree can be used to fulfill the American Institute of CPA's (AICPA) 150 semester hour requirement,^[60] and associate membership with the Certified Public Accountants Association of the UK is available after gaining a degree in finance or accounting.^[61]

A doctorate is required in order to pursue a career in accounting academia, for example, to work as a university professor in accounting.^[62][63] The Doctor of Philosophy (PhD) and the Doctor of Business Administration (DBA) are the most popular degrees. The PhD is the most common degree for those wishing to pursue a career in academia, while DBA programs generally focus on equipping business executives for business or public careers requiring research skills and qualifications.^[62]

Professional accounting qualifications include the chartered accountant designations and other qualifications including certificates and diplomas.^[64] In Scotland, chartered accountants of ICAS undergo Continuous Professional Development and abide by the ICAS code of ethics.^[65] In England and Wales, chartered accountants of the ICAEW undergo annual training, and are bound by the ICAEW's code of ethics and subject to its disciplinary procedures.^[66]

In the United States, the requirements for joining the AICPA as a Certified Public Accountant are set by the Board of Accountancy of each state, and members agree to abide by the AICPA's Code of Professional Conduct and Bylaws.

The ACCA is the largest global accountancy body with over 320,000 members, and the organisation provides an 'IFRS stream' and a 'UK stream'. Students must pass a total of 14 exams, which are arranged across three levels.^[67]

Accounting research is research in the effects of economic events on the process of accounting, the effects of reported information on economic events, and the roles of accounting in organizations and society.^[68][69] It encompasses a broad range of research areas including financial accounting, management accounting, auditing and taxation.^[70]

Accounting research is carried out both by academic researchers and practicing accountants. Methodologies in academic accounting research include archival research, which examines "objective data collected from repositories"; experimental research, which examines data "the researcher gathered by administering treatments to subjects"; analytical research, which is "based on the act of formally modeling theories or substantiating ideas in mathematical terms"; interpretive research, which emphasizes the role of language, interpretation and understanding in accounting practice, "highlighting the symbolic structures and taken-for-granted themes which pattern the world in distinct ways"; critical research, which emphasizes the role of power and conflict in accounting practice; case studies; computer simulation; and field research.^[71][72]

Empirical studies document that leading accounting journals publish in total fewer research articles than comparable journals in economics and other business disciplines,^[73] and consequently, accounting scholars^[74] are relatively less successful in academic publishing than their business school peers.^[75] Due to different publication rates between accounting and other business disciplines, a recent study based on academic author rankings concludes that the competitive value of a single publication in a top-ranked journal is highest in accounting and lowest in marketing.^[76]

The year 2001 witnessed a series of financial information frauds involving Enron, auditing firm Arthur Andersen, the telecommunications company WorldCom, Qwest and Sunbeam, among other well-known corporations. These problems highlighted the need to review the effectiveness of accounting standards, auditing regulations and corporate governance principles. In some cases, management manipulated the figures shown in financial reports to indicate a better economic performance. In others, tax and regulatory incentives encouraged over-leveraging of companies and decisions to bear extraordinary and unjustified risk.^[77]

The Enron scandal deeply influenced the development of new regulations to improve the reliability of financial reporting, and increased public awareness about the importance of having accounting standards that show the financial reality of companies and the objectivity and independence of auditing firms.^[77]

In addition to being the largest bankruptcy reorganization in American history, the Enron scandal undoubtedly is the biggest audit failure^[78] causing the dissolution of Arthur Andersen, which at the time was one of the five largest accounting firms in the world. After a series of revelations involving irregular accounting procedures conducted throughout the 1990s, Enron filed for Chapter 11 bankruptcy protection in December 2001.^[79]

One consequence of these events was the passage of the Sarbanes–Oxley Act in the United States in 2002, as a result of the first admissions of fraudulent behavior made by Enron. The act significantly raises criminal penalties for securities fraud, for destroying, altering or fabricating records in federal investigations or any scheme or attempt to defraud shareholders.^[80]

Accounting fraud is an intentional misstatement or omission in the accounting records by management or employees which involves the use of deception. It is a criminal act and a breach of civil tort. It may involve collusion with third parties.^[81]

An accounting error is an unintentional misstatement or omission in the accounting records, for example misinterpretation of facts, mistakes in processing data, or oversights leading to incorrect estimates.^[81] Acts leading to accounting errors are not criminal but may breach civil law, for example, the tort of negligence.

The primary responsibility for the prevention and detection of fraud and errors rests with the entity's management.^[81]

• Accounting information system
• Accounting records
• Outline of accounting

• Library resources in your library and in other libraries about accounting
• Operations Research in Accounting on the Institute for Operations Research and the Management Sciences website