Accounting in Retaining a Credibility - Essay Example

?Accounting Reporting Accounting Reporting Introduction The term accounting policyis assigned to the process of making decisions regarding the achievement of the aims and objectives of the profession of accounting. These policies focus on creating principles of accounting for corporate use, setting rules and regulations for accountants (BERNEY, 1984, p.46). The main objective behind the study of systems of accounting in accordance to accounting policy is to identify the reasons and the process that are involved while accounting systems are created in various nations. The aims of financial account have a very major influence on the way institutions operate, on certain rules and regulations of accounting and accounting practices conducted at the corporate level. The two main goals of accounting policy is to firstly focus upon the importance of accounting systems for the private sector and secondly it is to be utilized by the government sector. Different countries place different level of importance on accounting. There are two kinds of users of accounting and accounting systems, these include the macro and the micro level users. The main difference between these users is the intention of using accounting information, this means that macro level users use it for different purposes and micro level users use it for different purposes (MA, 1997, p.198). Those who are referred to as macro level users include government agencies that uses accounting information for the purpose of economic planning and development. Those who are referred to as micro users are the ones who provide the capital and are given utmost importance in society. Body The two different users and the way they use accounting in different manners is quite evident in the role played by accounting in capital markets. For example in areas such as US and Canada, the system of accounting in these nations is micro user level and the broader aim of the accounting policy is to provide financial statements that are unbiased and fair (Flesher, 2010, p.66). When the emphasis is paid to providing fair and truthful accounting information, the organizations within these nations are expected to disclose their financial transactions in a reliable and credible manner. Transaction conducted by the organizations that follow the micro user level accountancy aims at achieving economic substance rather than conforming to rules and regulations set by the country. Nations that follow the macro user level accountancy system do not operate while aim at achieving fairness in providing accounting details and information. Traditionally the main aim of accounting has been to safeguard the loss of assets that take place in a secretive manner. This aim of accountancy was obtained by reporting less than the actually amount of assets owned and profit made by an organization. At the domestic level capital markets, the aim of accountancy is to achieve optimum level corporate governance. At the domestic level, those nations that follow micro user accounting systems, the main role of accounts and accountants is to provide reliable accounting information in order to evaluate the performance of the management. Management’s performance is measured through several means and the main way proposed is to how well they keep track of the organizations earning, dividends and cash flows. The main aim of the management is to increase the profit of the organization and for this they end up producing biased accounting reports and due to this there is a need to provide, unbiased and neutral accounting reports to decrease the conflict between the management and the owners of the business (Wolk, 2001, p.217). There have been ample amount of debate surrounding the impact of accounting on a businesses profits and well being, this have increase the possibility that certain methods of accountancy can be utilized to obtained desired aims and objectives. The aims and objectives that can be obtained include increasing competitiveness of an organization by promoting research and development. A major concern of micro user level accountancy is that the process of accounting should be conducted in a way so that it is not dependant on the benefits and the negative economic reasons. If this dependency arises, the chances of loss of credibility of reports of accountancy will increase. The main of accountancy in the regions of Europe such as France and Germany where macro user level accountancy is under operation, the aim is to obtain steadiness and permanence for the business and organization (Previts, 1998, p.345). This view of accountancy and aim of accountancy is obtained from the conditions of these countries. The conditions of these countries are such that the creditors in these nations play a major role in the process of corporate governance as they are a major part of the board of the directors of the organization or the executive level of management of these organizations. Conventional accounting systems ensure that management does not give away dividends which are expected to harm the creditors and the values of assets represented in financial statements are at its lowest while the company is experiencing liquidation phase. In the nations such as Japan and Europe great amount of recognition is given to different stakeholders of the corporate sector. In such arenas government agencies and workers are given equal importance as they are seen as providers of capital. Organizations themselves are expected to provide employment on long-term basis so the nation can benefit and can achieve its economic aims and objectives. In such conditions neutrality of accounting information is given low or no importance and is substituted with the aim of directing the behaviors of an organization towards attainment of pre determined aims and objectives (Mattessich, 1995, p.245). Such an environment is said to be unacceptable in micro level user accounting system because such an environment leads to production of accounting information that is biased in nature. Before the Soviet Union came to an end, the main aim of accountancy was quite limited in the areas the practiced planned economic system within a government that was operating in accordance to communism (Knapp, 1993, p.467). In such nations the government used to control organizations and private ownership was looked down upon. Such environments did not contain external stakeholders and the level of competition between services and goods was even at its lowest, in such economies measures of performance such as profitability were given no importance. In such times the main goal of accounting was to provide assistance to the government in carrying out their plans and the government used to create aims and objectives on a macro level and these aims and objectives used to determine the goals and limits of production level in different industries and factories. The limited task of accountancy was to obtain information and to prepare statistics on domestic level and to identify whether government has been able to achieve its aims and objectives. There is shortage of evidence that can prove that the differences in accounting systems can bring changes to accountancy and the profession of accounting in the shorter run. Certain researchers and theorists are of the idea that efforts made deliberately to attain harmony in accountancy can lead to reduction in the difference between the over all aims of different nations. Efforts on a larger scale have been made by the European Union to achieve harmony between the accountancy systems of different regions of Europe but there even exists a huge gap between the broader level aims of accountancy and the accounting systems practiced in the nations that fall under European Union. Research shows that there is a huge difference between the accountancy systems practiced in these nations because the structure and the operations of the capital markets in these nations are quite diverse from each other. In regions such as US and UK the securities exchange markets and capital markets play a very major role, where as in nations such as Germany and France which are even the largest economies of the European Union have been reliant on finances provided by the banking sector to produce goods and services within the economy. Accounting in different nations is used to serve different purposes and these purposes define what kind of accounting information needs to be presented. In nations where the demand for capital investment from investors is high, accounting is used to provide a golden picture of an organization and under such activities accounting can not remain neutral as this objective will make the management show misguided accounting information to investors and creditors in order to obtain more funds for their businesses and higher amount of investments. Due to decrease in the credibility of accounting information provided by those who provide auditing services, user confidence has decreased. If the user confidence continues to decrease then that day is not far when the profession will be merely used to provide profit and loss statements and not analytical work. Conclusion There is no worth of the profession of accountancy if the information provided by the professionals is not credible and in order to attain credibility, the professionals from this field need to remain neutral and not work in accordance to interest of the organization or the consumers or investors. Neutrality of accounting information refers to the zero degree of existence of biased behavior (Amernic, 1998, p.203). References Amernic, Joel H.. Financial accounting: expanding horizons. Toronto: McGraw-Hill Ryerson, 1998. Print. BERNEY, P. R., & GARSTKA, S. J. (1984). Accounting: concepts and applications. Homewood, Ill, R.D. Irwin. Flesher, Dale L.. Gerhard G. Mueller: father of international accounting education. Bingley, UK: Emerald, 2010. Print. Knapp, Michael Chris. Selected cases in Auditing management 123 from Contemporary auditing: issues and cases. Cincinnati: South-Western College Pub., 1993. Print. MA, R. (1997). Financial reporting in the Pacific Asia region. Singapore, World Scientific. Mattessich, Richard. Critique of accounting: examination of the foundations and normative structure of an applied discipline. Westport, Conn.: Quorum Books, 1995. Print. Previts, Gary John, and Barbara Dubis Merino. A history of accountancy in the United States: the cultural significance of accounting. Columbus, Ohio: Ohio State University Press, 1998. Print. Wolk, Harry I., Michael G. Tearney, and James L. Dodd. Accounting theory: a conceptual and institutional approach. 5th ed. Australia: South-Western College Pub., 2001. Print. Read More