Financial Reporting - Essay Example

Also, there is the problem that no one individual or corporation has full ownership of the earth, so it would be very difficult to account for. Even if some accountants did factor use of the earth into the accounts, there would likely be many more that would not do this. Accountants do have the expertise required because they understand how assets depreciate and also how to balance the economic equation of assets equals liabilities plus equity. If such a system was put in place to allow accountants to value the earth, then it may be possible to do.

The major problem is trying to get everyone to agree on what should be accounted for. The accounting profession is suited perfectly to control such measurement functions but the problem is deciding on what those functions are. Because they are many things that cannot be measured, it is very difficult for accountants to include such functions on the balance sheet. The difference between accounting for financial and physical objects is that one type can be measured on a scale while the other is more ambiguous.

Financial objects have value because we give values that can be assigned to specific objects. For example, for an investment that loses money, it is easy to track that flow because we can compare the end result with the start value. The difficulty with accounting for physical objects is that often there is no ways to place value on them and also it may be hard to find a starting value in some instances. Activity 2 In this cartoon, the difference between the two companies could not be more remarkable.

While Company A has three legs on its chair (social, financial, and environmental), Company B only has only leg (financial). This illustration shows perfectly why companies must be well-balanced when it comes to business operations. Company A understands that in order to be successful in the business world, there is more goals than just simply making a profit. I think that it is important to note that in this picture the financial leg of the chair is the middle one. In other words, it is the cornerstone of the company or the part that is the basis for everything else.

The other two legs, social and environmental, provide solid support to the company, which is obviously very successful from a financial point of view. While success may be put down only to the financials, it cannot be understated the value of having good social and environmental responsibility for a firm. These measures often can't be valued, so it is difficult to try and judge success. I feel that it is also important to mention that the chair would not likely stand without the financial leg.

All three legs are needed to support the chair, and this shows that companies must concentrate on many different facets of business in order to be successful over the long run. Company B only has one led, financial, and as a result the company is having difficulty maintaining balance. Although this leg is important for making the chair stand, there are no other supports. Company B has placed all of its eggs in the financial basket and has paid the price for doing so. By neglecting other aspects of business, such as social and environmental, the company is taking a huge risk.

While it may be able to stay balanced initially, it is inevitable that the chair will take a fall because the company has focused all of its efforts on simple money making.