Conceptual and Practical Approaches for Assessment in Accounting - Thesis Example

Conceptual and practical approaches for assessment in accounting Outline 1. Introduction a) Evidence that accounting with macroeconomic models helps in anticipating the economic recessions and credit crisis in any given organization b) Financial information about a business entity c) Assessment in accounting and evaluating the effectiveness of the accounting information 2. Accounting models of the economy a) Flow of funds models b) Equilibrium model 3) Key features of such models a) Circular flow of goods and money b) Separate representation of stock c) Explicit modeling of the financial sector d) Non optimizing behavior by economic agents e) Accounting entities 4. Overview of flow of funds in finance, insurance, and real estate a) Trade off between production and financing b) Liquidity from the FIRE sector 5. Impact of evaluation on accounting information a) The role of accounting information (AIS) b) The fit of AIS with the organizational requirements 6. Summary of the impacts of evaluating information technology a) Better decision making by managers b) Effective internal control systems c) Quality of financial reports d) Performance measures e) Facilitating financial transaction processes 7) Conclusion a) Accounting information should be understood through analyzing the accounting models and evaluating the effectiveness of this strategy. b) Proper accounting information is important to ensure that these firms do not end up in debt crisis c) Proper records must be kept which show the flow of resources. Abstract This paper provides evidence that accounting with macroeconomic models help in anticipating the economic recessions and credit crisis in any given organization. This involves financial information about a business entity to users like the business managers and shareholders of a particular firm. This communication is in the form of financial statements that show the money that the firm has and the economic resources which are under the control of the management. So, for any firm to realize its goals and objectives, assessment in accounting and evaluating the effectiveness of the accounting information will be very crucial. The paper keenly describes the various models and practices of assessment in accounting and the impact of evaluation on accounting information quality. Accounting models of the economy The concerns with wealth, debt, and credit flows of any economy can be summarized as accounting or flow of funds in an economy. Key features of such models include. 1) The circular flow of goods and money. This involves proper book keeping on how goods as well as money circulate in the firm 2) A separate representation of stock which include (inventories, wealth and debt) plus the flow of goods, services and funds 3) Explicit modeling of the financial sector as distinct from the real economy 4) Non optimizing behavior by economic agents in an environment of uncertainty 5) Accounting identities (not the equilibrium concept) as determinants of model outcomes in response to the shocks in the government or even in the policy (Rosales 199). Any business ventures prefer taking moderate risks. You find that before they commit their resources in any form of a business, they first assess the risks which might accrue when running their business and their ability to try and manage those risks, the benefits that they will realize after they have invested and the challenges they might come upon when running their business. Accounting information helps in solving this problem. This study will help to know how these elements of accounting also known as the flow of funds models are very vital in understanding the determinants of the economic growth and its likelihood of entering the debt driven recession. Flow of funds models and their underpinning are among the non-neo classical economic framework (Rosales 98). Overview of flow of funds in finance, insurance, and real estate The finance, insurance and the real estate (FIRE) sector includes all sorts of wealth managing nonbanks firms which may include (insures, pension funds, money managers, real estate agents, merchant banks e.t.c) which generate credit flows. Liquidity from the FIRE sector flows to firms, households and the government as they borrow. This then facilitates fixed capital investment, production, consumption the value by which the accounting necessity can be jointly equal to the real sector incomes which are inform of profits, taxes, wages plus the financial investments and obligations (interest payments). Funds then originate in the banking parts of the FIRE sector they do circulate to the real economy or even they can return back to the FIRE sector inform of financial investments or even in the payment of debts services plus financial fees. The total credit flows do increase yearly hence this reflects the positive profit and interest rates. This then shows a trade off between production and financing (which is out of the retained earnings plus fresh lending’s) on one hand plus the credit flows returning in to the financial sector on the other hand (Raymond 243). Impact of evaluation on accounting information In managing an organization and implementing an internal control system, then the role of accounting information (AIS) is very important. The biggest question in the field of accounting then being the concerns of the fit of AIS with the organizational requirements for the information communication and control. Accounting information system is considered as one of the subsystems of management information system (MIS). In order to regard accounting as an information system. It involves data gathering, processing, categorizing, and reporting financial events in order to provide relevant information for the purpose of score keeping, attention directing, and decision-making (Raymond 254). Research has shown that successful implementation and evaluation of the accounting information require a fit between three key factors which include; a fit must be achieved with a dominant view of the firm or even a perception of the situation. Secondly, the accounting system must fit when problems are been solved or normally solved in the organization i.e. the technology of the organization. Thirdly, the accounting system must fit with the culture i.e. the norms and the value systems that characterize the organization (Maurice 93). Accounting information can be categorized in to two groups namely; 1) That information that influences the decision making and used mainly in controlling the organization 2) That information that facilities decision making process and can be used in coordination within the organization (John 97). The evaluation and effectiveness of the accounting information depend upon the quality of the output that can satisfy the user’s needs. Generally, accounting information provides financial reports on a daily and weekly basis; provide useful information for monitoring decision making process and performance of the firm. As a result, you find that proper valuation of information accounting is very much paramount since it ensures that decisions are well agreed upon by he company managers hence financial reports will be provided showing the finance of the company (Jennifer 27). The effectiveness of the accounting information will depend largely on the perception of the decision makers on the usefulness of the information which is generated by the system to satisfy information needs for operation processes, budgeting, managerial reports, plus control within the organization. By reviewing research studies during the 1987-1999, it was found that accounting information provide data for decision making. Data can be collected concerning the firms available resources. It is through this data then that an effective decision can be done on how to allocate these resources properly. Decision making is one of the keys to success. Managers sit down; make their own decisions which are supposed to act as a guide to running the company. These decisions involve the finance and the resources of the company, and how these resources are to be utilized. This is as a result of the information technology which has led to many changes in reporting information. So you find that the characteristics currently prepared information can help decision makers in seeking more alternative to the solutions of the current problems at hand (Brown 20). Summary of the impacts of evaluating information technology 1) Evaluation of accounting information lead to a better decision making by the managers. This is when managers or the team leaders come up with strategies which help in running of the company. This may involve going through the companies records in order to ascertain that no single resource has been wasted. 2) Accounting information systems lead to more effective internal control systems. In any financial firm, audits are properly made and its through auditing by the accountants which help the firm in assessing its profit worth or even loss 3) Accounting information systems improve on the quality of financial reports. Quality financial reports which include data collection and proper book keeping on the accounts finances 4) Improve on performance measures. This is as a result of proper financial accounts. This helps the firm to know when it’s making loss or when it’s making profits. Consequently, the performance of the company can be increased in cases of losses 5) Facilitate financial transactions processes. Facilitating the financial transactions is very much important. This involves the inputs, which are required in order for this process to be effective (Bill 19). Conclusion The concept of assessing accounting information is very crucial in any firm. It involves all the team leaders in that firm coming up with strategies which will make the company to be in a position to finance its available resources. This is because when the resources are misused, there is a likelihood of the company getting loses and this might affect the performance of the firm. As a result, accounting information should be understood through analyzing the accounting models and evaluating the effectiveness of this strategy. This is because it includes the flow of funds in that firm. Proper accounting information then is important to ensure that these firms do not end up in debt crisis which might even lead to the closures of the company. Proper records must be kept which show the flow of resources. Works Cited Bill, Moss. Assessing accounting information: A new design for enhanced portability Library Association. Oxford: Oxford University Press, 1997. Print Brown, Lerk. Overview on effective accounting information: A new teaching method on Accounting. Oxford: Oxford University Press, 2000. Print Jennifer, Resse. Evaluation and effectiveness of accounting information. Oxford: Oxford University Press, 2000. Print John, Ford. Models and practices of accounting information. New York: McGraw-Hill, 1997. Print Maurice, Roberts. Concepts on assessing accounting information. TN: Thomas Nelson Publishers, Nashville, 1993. Print Raymond, Martin. Guide on effective accountancy. New York: Bantam Book, 1977. Print. Pp 254-265 Rosales, Philip. A History of the accounting information. Harvard: Harvard University Press, 1998. Print Read More