The Importance of Accounting - Research Paper Example

Importance of Accounting Abstract The prevailing economic circumstances dictate that accounting is extremely significant. Accounting is a structure which creates, sustains and audits the financial records of an institution. It is a system that evaluates the financial situation of a commercial organization by analyzing the sales, expenses of and expenditures of overheads. The maintenance of these commercial documentations is in a sequential order and their summary is done using a predetermined format. Moreover, there exists interior control in keeping of these documents in terms of tests and balances. There are numerous significances of accounting, which must be accompanied by knowledge on how to perform this activity appropriately. Accounting is also crucial since it assists in ensuring financial accountability in a commercial institution. However, there are individuals that have a different ideology that diminishes the significance of accounting. These individuals sustain the notion that accounting is not as significant as most scholars might insist. The advocates of this notion present different rationales for their argument. Amongst other assertions, there is a claim that conventional record keeping styles are outdated due to technological developments. Therefore, the advocates of this notion conclude that accounting is an extremely complex procedure that wastes an organization’s resources. The main controversy surrounding on the issues of significance of accounting is about the methodology to utilize for thorough accountability. Most individuals are advocates of the GAAP structure, but there are trends that lead to questioning of whether this technique is all inclusive. This discourse is an analysis of opposing ideologies about appropriate accounting. It also illuminates on the factors that make accounting significant, with a keen consideration of the opposing ideologies of the topic (Atkinson, Kaplan, Mae and Young, 2011). Introduction The preliminary purpose of accounting is to document transactions in a commercial institution. This comprises documentation of the received and outgoing funds. This procedure has to be undertaken accurately and in adherence to the GAAP regulations. However, some individuals are abandoning the commonplace financial statements. These individuals assert that there are other techniques of analyzing data, even in massive magnitudes. These novel techniques of data evaluation diminish the significance of standard financial accounts. Moreover, these ideologies are due to augmenting disparity between users’ desires and what the standard records avail. Furthermore, there are assertions that the procedure of accounting is intricate especially for minute organizations; and hence, insignificant. This discourse is an evaluation of varying ideologies on the significance of accounting. It also explores why standardized accounting is extremely crucial to an organization despite the trends to this regard. The utilization of the GAAP structure in financial recording is the preliminary aspect of forecasting, controlling and financial deliberation. Most commercial institutions have an accounts section that utilizes GAAPs to give details relating to the prevailing and future financial circumstances of the institution. Consequently, the deliberation procedures regarding the institution’s projects become effortless. The institutions which utilize appropriate accounting practices are extremely competitive when contrasted with other organizations that utilize substandard practices. Moreover, proper accounting assists in determining the opportunities that an organization should seize in accordance to its financial situation (Kieso, Weygandt and Warfield, 2011). Moreover, the advocates of GAAP structure continue to assert that accounting is significant since through this recording, there is easy detection of corruption. This documentation also aids in acquisition of funds from commercial organizations. The banks and other commercial corporations, utilize the GAAP model to evaluate the hazards facing the organization borrowing funds. This conventional recording builds the reputation of an organization. This is attributed to the assertion that a business with sound documentation is also effective in other areas. Every organization has two principal purposes, attaining returns and sustaining solvency. The basic details that relate to these targets are availed through accounting that utilizes GAAPs. This accounting aids in confirming the net upshots in terms of returns or losses. Moreover, it gives data for evaluating the state of the organization to administrators as well as investors. The clients also utilize this information to know the situation of the organization. There are numerous aspects, which have led to transformation of standpoints with regard to financial documents comparative significance. There is a radical transformation of the business milieu ever since the construction of the GAAP structure. Currently, there are new altitudes of enterprise hazards as well as doubts. There is also exceptional instability in the capacity of certain assets to yield financial benefits. For instance, if production of a certain commodity such as oil suddenly halts due to decreasing returns, there is a quandary of whether the historical expenditure is appropriate to gauge the value of the assets used in the production procedures. There is also the query of whether to incorporate supplementary details on asset measurements. Furthermore, there has been an augmentation in the resources of future financial returns not measured and declared under the GAAP structure. Commercial organizations confront incredible instability in foreign currency prices, products prices as well as interest rates. Moreover, the pace of technological advancement escalates the peril that commodities and manufacturing facilities will become outdated. It also increases the probability that contenders will manufacture more effectively and cut into an organizations market share or return margins. In addition, intricate financial deals and instruments are exceedingly common in the current economy. All these aspects develop apprehension regarding whether standard financial documentations give users adequate details for effective business deliberations (Eccles and DiPiazza Jr, 2002). Additionally, the GAAP structure excludes numerous non financial assets. For instance, there is the recognition of goodwill in an organization’s combination. However, this recognition excludes its prospective returns such as the client base, administration skills and research capacity. There is no separate measurement and recording of these components. Moreover, they are not documented at all in records that do not comprise goodwill from an acquisition. Nonetheless, the intangible, undocumented assets possess enormous significance in a financial system, which requires proficiency, data and technology. Additionally, the prevailing economy has an extending service industry which does not depend on fixed assets as the preliminary source of returns. As a consequence of all these reasons, users usually make deliberations regarding investment and lending utilizing data that is not documented in the GAAP statements and that has not been confirmed by a sovereign external party. This analysis can only be performed by investment experts, financial evaluators and the organizations in question; hence, the significance of GAAP and accounting procedures diminishes to this regard (Eccles and DiPiazza Jr, 2002). Nonetheless, it is crucial to comprehend that without the GAAP structure, record keeping would be haphazard. This structure might not totally suffice for commercial documentation, but it still serves massively in safeguarding businesses. Therefore, until there is a total construction of other structures, this technique is still the best to ensure accountability. It should not be discredited for a few discrepancies, but it should be because it advanced to augment its accuracy and effectiveness of operation. References Atkinson, A., Kaplan, R., Mae, E & Young, S. (2011). Management Accounting: Information for Decision-Making and Strategy Execution. Prentice Hall. Eccles, R. & DiPiazza Jr, S. (2002). Building Public Trust: The Future of Corporate Reporting. John Wiley and Sons. Kieso, D. & Weygandt,J., Warfield, T. (2011). Intermediate Accounting. John Wiley and Sons. Importance of Accounting Read More