Relationship Between Accounting, Accountability and Organizational Control - Essay Example

Relationship between accounting, accountability and organizational control Accounting is a business language mostly used in the world of business to describe all transactions entered into by an enterprise hence it is used by individuals associated with business. These people include managers, investors, bankers and lawyers. Since it is a business language, there are words and terms that are used to mean one thing but different in ordinary language usage influencing a person to survey the transactions and also get an insight of how business activities are transacted. The process of record making is called book keeping. Accounting is more than book keeping, and is concerned on how these records are put, the analysis of the records and also interpretation. An accountant is concerned with the relationship between the financial results and the events that have led to them. They do study various alternatives that are available to the business and use their knowledge acquired in the accounting field to help management select the best action plan. Shareholders and management need knowledge in this field so that they get to understand what accountants tell them. Investors also need this knowledge so that they can read and understand the financial statement issued by the business (Roberts, 1991). Since it is a business language all the stakeholders of a business will want to know whether the organization is making a profit or not. It will also help show if the business will meet its commitment as they fall due and not run into bankruptcy. These are only answered by use of accounting information of the company which can be derived by the equation given by, Total Assets= Total Liabilities + Capital Accountability means taking the responsibility or obligation by an individual or an organization. It has to be done on a transparent manner. The responsibility can take the form of money or properties. In relation to accounting, it takes the form of integrity. That is to say that, the accountant has to be able to take responsibility on any issue regarding transaction of the firm. Organizations do undertake so many activities on a daily basis. Such activities include, purchase of raw materials for daily operation of the firm, receiving of payments from the customers, banking of the cash received on a daily basis. All these activities involve transactions and hence there is the responsibility on each and every activity. Each is assigned some duty to be undertaken (Roberts, 1991). The three are related from the following perspectives: a) Performances, there is a high degree required while undertaking the three issues. This is because in accounting, an individual performance in meeting different objectives of stakeholders of the firm; accountability takes the form of responsibility and obligation of an individual. The responsibility can be in the form of money or properties. Organizational control is important to the general functioning of an enterprise (Abernathy, et al. 1993). It entails: planning of what is desired; setting good standards, monitoring performance of the firm; measuring performance - comparing actual output with that which is expected; and taking accurate measures to correct discrepancies. b) Integrity, The three are pegged on integrity. For example, in accounting, the financial information of the company is prepared on rules and guidelines of accounting worldwide; accountability on the other hand, gives obligations to an individual. Organizational control gives an illustration on the level of monitoring and feedback, which is achieved by implementing internal controls. It follows a control loop of assessing systems and procedures, establishing appropriate controls, evaluating outputs and adjusting where necessary. Working definition of the concept of accountability and its relationship to accounting Since accountability refers to capability of being held responsible for something or being held to account, scrutinized and being required to give an account. The main objective of the concept of accountability is to be able to account for each and every stakeholder in the business the actions to third parties, for instance investors, clients, or other stakeholders. In business, there is a clear relationship between revenue sources and beneficiaries of the business goods and services that exists (Bragg, 2004). Documents used in the presentation of company’s account are multipurpose. In order to be of any use, all parties involved in the running of the business must agree to the way they have been drawn up. Revenue comes from consumers and the company buys goods and services in order to provide its own goods and services. Direct relationship between inputs and outputs gives rise to the concept of matching concept. In this concept, both expenses and revenues are recognized in the same period, so that the business can measure their profit reasonably (Roberts, J. 1991). Accounting is only concerned with facts that can be measured in terms of money with objectivity degree. This shows that accounting do not give all the facts needed for full facts of the business state. For instance, it does not show whether the business have good or bad management. The concept of going concern shows that the business will continue with its operation for a long time. If the business was going to be sold, then for accountability purpose, it must show how much its assets will fetch. Cash basis accounting recognizes transaction only when cash is received. It is safe to say that everyone agrees that cash basis accounting is inadequate for all but the tiniest organization. Small organizations do have challenges in applying cash basis accounting since it enables the managers not to show the true results of the company through manipulation of the cash flow. Alternatively, accrual basis accounting can be applied. The challenge with cash-basis is that there is no record of assets and liabilities and thus are hidden from other parties. Accrual basis recognizes liabilities when the obligation arises and recognizes the assets when the organization has the right to have them as their own. When an asset is received but not yet paid for, then there is an accrual in the account payable and this makes the firms liability be recorded on the balance sheet. The balance sheet nature is that, it has to balance. If a liability is recorded, there must be an offsetting effect. Expenses recognition, once a liability has been accrued; the offsetting amount must be recorded. When we use this basis, the statement of operations will show the amount of cash that has been paid. Business accountability is characterized by shareholders holding management being responsible for profits. We have a high degree of control with fine details of operations provided that runs vertically upwards. The control is not detailed and so the shareholders can inquire information regarding the business. Business accountability serves as an inspiration for enhancing accountability in other areas. A user is not entitled in the same way as shareholder since both parties have different interests for instance shareholders have vested interest in their wealth accountability is characterized by high control. The bureaucracy here is from top managers to lower managers. In this case the objects of accountability are rules and regulations which are used to carry out the instructions regarding implementation passed at higher levels. In this concept managers have the right to inquire information regarding bureaucracy operations from lower levels. Seniors in this area have a direct influence about their juniors in terms of promotions, careers and conditions of work. Audit accountability, this is a combination of business and bureaucratic accountability in that it is horizontal. It is concerned with the financial accuracy and prudence. Auditors cannot inquire specific information but only those that lies within the view of the audit. Fiscal and legal accountability both can be vertical and horizontal. The degree of control is very high and detailed. In this scenario legislature holds various ministries, department and agencies fiscally accountable. Another example is when a state bureaucracy holds an implementing agency such as a non-profit business fiscally accountable. Ministry of finance can also hold other ministries accountable (Tsamenyi, 2010). How accounting represents the world, what and who is held accountable and why We are living in a world where there is commercialization of everything. Transactions are carried out globally and hence the need of global accounting standards. Due to shift in economic factors there is a need for a general agreement on the principles guiding accounting. Accountants all over the world have a common set of quality accounting principles and this is also in the interest of the public. The reason behind this is to provide a uniform language for reporting. The slow paces at which these guidelines are prepared create challenges for stakeholders. There is a need for adequate time for implementation and an intensive effort to let all the stakeholders know the changes made due to globalization of the business environment (Armstrong, 2002). Accounting examines the inscription and reception of performance measure, due to the emergence of diverse written performance measures, there is the need for examining the potentiality of writing for establishing inscriptions that are presented by managers as an impersonal. There are two factors that need to be explored; these include changing form of inscription and representation of senior and middle management levels, the introduction of new inscription (Ezzamel, 2004.). We look at the emergence of the new inscription in the context of efforts to raise the capital needed to start and run an organization. New performance inscriptions are devices for supporting and justifying the attraction of levels of investment that are necessary to increase the lifespan of an asset or a plant in order to maximize its profitability. Extensive use of accounting principles and reorganization into teams with operational responsibility adhering to the targets identified workers as individuals having the ability of interpreting complex processes. They are also able to make choices and exercise discretion in order to meet targets. This enables employees to gain knowledge and place it exclusively in management. The effect of inscriptions is that it develop ethos that emphasized the necessity of shifting rapidly from the regime of a factory based on cost plus to a regime that aspired to organize production of goods and services at commercially viable levels of cost, high quality and delivery on time. Accounting plays a key role in the sustenance and monitoring of management. In an effort to ensure compliance, it empowered employees, promoted new commercial agenda of the business, speed of action, ruthless focus on money, clear direction, and individual responsibility. Accounting also represents the world from the perspective of responsibility. This shows that managers are responsible for explaining their actions to a third party, whether to investors, clients, or other stakeholders and are held accountable for any actions. These actions include giving information to a third party, decision making in the organization, maximization of shareholders wealth. Shareholders will want to know how management are performing their function and hence will use the accounts as a tool for decision (Delft, 1999). This decision can be to dispose their shares or buy. Other people that are held accountable include the suppliers, these are people who give business goods and services that are used to generate money, Government also help in making of policies that do assist the day to day running of the business, they also issue licenses to business enterprises. Loan creditor group will want to ensure that interest payments and also capital repayments are made promptly made (Sinnett, 2002). Employees group both existing, past and potential concerns are pensions, ability of the company to keep on carrying out its activities so as not to lose jobs. Demonstrating a coherent, comprehensive and reflective critique of existing ideas and literature Accounting is a business language mostly used in the world of business to describe all transactions entered into by an enterprise hence it is used by individuals associated with business. These people include managers, investors, bankers and lawyers. Since it is a business language, there are words and terms that are used to mean one thing but different in ordinary language usage influencing a person to survey the transactions and also get an insight of how business activities are transacted (Bawley, 1999). The process of record making is called book keeping. Accounting is more than book keeping, and is concerned on how these records are put, the analysis of the records and also interpretation. Many of the financial statements produced for publications is used for multipurpose This means that we have not reached at giving financial reports for specific group of users meant to take care of their special needs. In some occasions a company will give out special reports for a given group of users. For example, a bank will want to see a forecast of future cash flows before it gives a loan. Producing reports meant for special group of users is extremely costly and time consuming (Bawley, 1999). Published accounts are seen as a compromise between maintenance of accounting concepts and users requirements. This is subjected to auditor scrutiny. For information to be useful, there are some features that must be taken into consideration. They include, Reliability, this indicates that the information should be subjected to an independent person/auditor. This will enhance people’s reliance on the information (Sinnett, 2002). Relevance of the information i.e. the information supplied should be the one that satisfies the user’s needs. Objectivity of the information, an information free from bias increases people’s reliance hence the need to give a clear picture of the performance. It is the duty of the auditor to ensure objectivity. Ability to be understood, information presented should be easily understood by the various users of accounts. Other useful information includes completeness, consistency, realism, consistency and comparability (Sinnett, 2002). From the definition of Organizational control, we can derive four key aspects of an organization namely, formal relationships between organizational entities and spans of control, mechanisms for the delegation of authority and procedures for monitoring and evaluating the use of discretion. Definition of roles and positions through allocation of individual tasks and responsibilities, job specialization and job definition and division of work by grouping together sections, divisions, departments and larger units. The two inter related controls that are most troubling to management includes that which seek to infiltrate and reconfigure employees. This has an effect on their private beliefs, motivations and values (Sinnett, 2002). The profound unease generated by this form of control indicates strong normative expectations. The second concern is that employees are often not easily manipulated and when subjected to such they act in a different way. Once people over commit themselves to a company and invest excessive faith in the management, they are liable to lose their original sense of identity and tolerate ethical lapses. This gives an illustration on the level of monitoring and feedback, which is achieved by implementing internal controls. It follows a control loop of assessing systems and procedures, establishing appropriate controls, evaluating outputs and adjusting where necessary. The three are related from the following perspectives (Tsamenyi, 2010). a) Integrity, The three are pegged on integrity. For example, in accounting, the financial information of the company is prepared on rules and guidelines of accounting worldwide; accountability on the other hand, gives obligations to an individual. Organizational control gives an illustration on the level of monitoring and feedback, which is achieved by implementing internal controls. It follows a control loop of assessing systems and procedures, establishing appropriate controls, evaluating outputs and adjusting where necessary (Tsamenyi, 2010). b) Performance is very important for any organizations growth. Some organization use performance contract to award its employees (Tsamenyi, 2010). This is a clear indication that an individual has to perform in order to meet the objective of the firm; accountability will take responsibility and obligation by an individual. The responsibility can be in the form of money or properties. Organizational control is important to the general functioning of an enterprise. Although all the three discussed points help in the running of the day to day activities of the firm, it is always costly to the firm. For instance in organizational controls, a firm has to put check and balances that will aid management achieve its objective. Setting up these controls is expensive and hence additional cost to the company. Work citations Abernathy, M. A., & Brownell, P. (1993). Markets, bureaucracies and clans: the role of accounting in organisational control. Caulfield, Vic.: Monash University, Faculty of Business and Economics. Armstrong, P. (2002)'Management, Image and Management Accounting' critical perspective on Accounting Bawley, D. (1999). 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Accounting standards are we ready for principles-based guidelines. Morristown, NJ: FEI Research Foundation. Tsamenyi, M. (2010). Management controls and new organisational forms. England: Emerald. Read More