Empirical Evidence in an Emerging Market - Essay Example

The Theory of Accounting: A Critical Review AFFILIATION: The Theory of Accounting: A Critical Review Business and corporate activities form the unshakable basis of human development that is not happening in the current times. The businesses operate all around the world in order to create wealth and prosperity in the surrounding economic and social systems. The accounting department needs to record and publicize the level of success that an enterprise has earned over the specific period of time. The accounting information and financial statements guide investors and shareholders about the level of corporate success that a business has achieved so it is a necessity for any business before its leaders can decide to begin the project (Alali & Foote, 2012). The money is the only and ultimate source of exchange in the world, and therefore, the companies have to acquire human and other resources by paying the suppliers money. The theory of Resource Dependence argues that organizations cannot survive without receiving social support from the relevant societies. However, the companies need to create success in order to gift their investors with the construct of trust that forms a cornerstone of any kind of human relation one can think of. The organizations have to serve the needs and wants of the investors and shareholders as well. The financial recordkeeping is far reaching in terms of sustaining a relationship with the stakeholders. The accounting systems might have the flaws, but despite that, one cannot possibly give up on them because they form an integral part of the business. The field of accounting is filled with corruption and dishonesty, but it does not mean that the system is wrongful in nature. However, those who are running it might be doing corruption (Cecchetti, 2006). In this way, the accountant becomes corrupt and dishonest with his or her profession. The field of accounting has become a flashpoint of corruption in recent years because of unveiling fraudulent activities in the departments of the leading companies. The conceptual framework behind the art and science of accounting has a design to pass entries in order to depict the exact situation of the business. The experts use the term creative accounting in order to refer to the practices that accountants apply to manipulate the stakeholders. The accountants create attractive level of working capital so that the financial outlook of their companies can appear attractive in the eyes of the stakeholders. The issues in the field began to intensify after the application of Generally Acceptable Accounting Practices (GAAP). The accountants apply the aforementioned technique in order to falsify the outlook of the companies so that investors can be lured into putting in their hard-earned money. On the other hand, marketing departments play their hand in this regard as well. They claim their companies to be innovators and inventors (Gendron & Spira, 2009), but in major number of cases, they are using commission-based model of business that does not have much room for innovation after all. Theory of accounting has its foundations in the need of creating confidence in the stakeholders. However, the field has failed to do so over the passage of time. The recent history shows that accounting irregularities do not influence the decision-making processes of the investors, and they are basing their decisions over the ability of the companies to pay dividends. In this manner, they are ensuring that they earn adequate level of money over their investments. The problems with accounting and financial system are not monetary (Kelton & Pennington, 2012), but they are of an ethical nature. The accountants have to realize that they need to speak the truth, and they have to get their necks out, but they cannot do that because of fear. The faith has the unexplainable power to heal the broken hearts. The belief in God is going to cancel all of the fear in the world. People make irrational choices when they experience significant level of fear. They commit mistakes, and until they realize that, they bury themselves under the pile of errors. Then, they do not have the courage to expose all of their misgivings, and they finally find refuge in the area of corruption. They become devil’s agents, and they start living their lives as if they are going to be here forever, but it is not the case. The institutions tell and guide accountants that their job is to create wealth by hook or crook, and in often times, the teachers want and need the students to develop their entrepreneurial skills in order to find new and innovative ways to seek fresh streams of revenue. In the practical life, the managers remember to generate fresh sources of revenue without valuing the ethical side of the affairs, and that is the problem right there. The financial managers are reluctant to do the right thing, and therefore, they do not challenge the system (Leone & Liu, 2010). They learn to become tactful and deceptive because they have the goal of making money. The process of making money is a difficult one to say the least; one has to suffer significantly in this regard. Human development along with societal one gets lodged into the middle of the road, and that is caused by piling up of financial resources that do not serve the society. The breach of trust and contractual capacity happens, and eventually people become fearful in terms of making investment decisions. The era of The Great Depression witnessed times when people made some bold financial and corporate choices that paid off in the end. The situation embedded within the timeframe of The Great Depression was hopeless, and economists do not have the needed answers at that time. The business professionals stepped forward and took the responsibility of changing the economic system once and for all. However, they surprisingly found out that there is enough money present in the system, but people are not willing to invest that out of fear. The same situation is developing once again, and if the companies fail to revitalize their trustworthiness amongst the stakeholders then, the globalized and modern version of the great depression will hit the economy once again. This time, there may be no stopping it because the people who are supposed to correct the conditions might be too afraid to handle the situation. According to basic psychology, liar is a person who is frightened, and therefore, he or she does not have the courage to speak the truth. The financial studies are bringing out worst in people, and they are not producing leaders, but managers who are managing the situation by hook or crook. Human developmental performance in business schools is worst because students waste too much time in planning and strategizing (Franco, et al., 2011). They plan too much, and waste the energy and the time that would have been used in order to carry out the project in a physical sense. When they do not innovate and they do not also invent then, things get out of hand, and they have to use false means and methods in order to keep their companies appearing attractive to the investors, and they create a bubble that bursts one day, and the companies lost their public trust and credibility forever. The companies do not die the natural deaths, but they are majorly killed by the incompetence of their managers. The current era is no doubt featuring a time when everybody has fears. They have taken the shapes of clouds in our heads. The strong sense of emotions is also there, and in the given circumstances, people will need to incorporate meditation and other mind relaxing techniques so that they can manage their mindset with great level of effectiveness. The companies do not sell money in the market as banks do, but commercial operators have to sell a product or a service, and in this way, they create entrepreneurial success as well. The entrepreneurial spirit is missing from the latest version of the business. The managers have become lazy in terms of making the struggle to innovate. We all are trying to avoid risks that are not real, and we are making irrational choices. Without risk, we cannot earn in the world of business, and if we are trying to minimize the risks then, we are at the same time, trying to limit our earnings as well in the long-run perspective. When managers fail to create success then, they apply creative accounting in order to hide their failures regarding launch of new products and services. Human development has a strong link with the idea of compensation, and if one is not receiving the pay according to his or her efforts then, the performance will tend to die out with the passage of time. The companies try to rip off the employees of their talents and abilities. The companies are working to follow the model of cost reduction. However, they do not care about humanistic values during the process, the employees do not make a significant effort in terms of serving the companies, and they become dreary. The lack of motivation and commitment towards work is the leading cause of corporate destruction in the world of economics. There is a significant hindrance in the process of economic growth because people are saving money rather than investing it with the companies. The financial services have produced the larger portion of American GDP in the previous year, and that activity does not have anything to do with the needs of the masses so the ultimate concept of business is finally dying out (Gendron & Spira, 2009). There is no surprise when one finds out that accounting irregularities and frauds are the only methods to create success in the market. Conclusion This paper has a design that has told the readers about failure of accounting as a conceptual framework. In the view of this paper, it is not the case because accounting did not fail, but the managers who did not apply it according to international standards failed it. They have paid kickbacks to the governments to turn a blind eye towards the issue, and they planted a seed of corruption for the first time, and gave it a name of Generally Acceptable Accounting Principles (GAAP). The GAAP provided the solidified basis for the corrupt practices in the market of business and finance. The managers are the ultimate and unprecedented culprits in this regard, and the system needs not to be cursed because system is ideal, but its application is not. Bibliography Alali, F. A. & Foote, P. S., 2012. The Value Relevance of International Financial Reporting Standards: Empirical Evidence in an Emerging Market. The International Journal of Accounting Vol 47 No.1, p. 85–108. Cecchetti, S. G., 2006. Money, Banking and Financial Markets. London: McGraw Hill International. Franco, G., Kothari, S. & Verdi, R., 2011. The Benefits of Financial Statement Comparability. Journal of Accounting Research Vol 49 No. 4, p. 895–931. Gendron, Y. & Spira, L. F., 2009. What Went Wrong? The Downfall of Arthur Andersen and the Construction of Controllability Boundaries Surrounding Financial Auditing. Contemporary Accounting Research,Vol 26 No.4, p. 987-1027. Kelton, A. & Pennington, R., 2012. Internet financial reporting: The effects of information presentation format and content differences on investor decision making. Computers in Human Behavior Vol 28 No.4, p.1178–1185. Leone, A. & Liu, M., 2010. Accounting Irregularities and Executive Turnover in Founder‐Managed Firms. The Accounting Review Vol 85 No 1. p. 1051-1082. Read More