Impact of Accounting Information - Essay Example

The accounting field has helped society keep its finances in order for centuries. According to recent archaeologists findings accountants have been performing their duties for at least 5,000 years (Giroux). Accountants have always been an important part of our society since their jobs entails tracking the flow of money and economic activity of the community. In the 21st century accountants are the ones that decipher the economic transactions of governments and corporations worldwide. Accountants also provide valuable services for individuals. Individuals are also the beneficiaries of accounting services and the information the profession provides. The purpose of this paper is to describe and analyze the impact accounting information has on individuals. Accounting information is prepared to be utilized by either internal or external users. The internal users are the managerial team of an enterprise that utilizes the information for planning purposes and as a tool which facilitates the decision making of the managers. The information prepared by accountant for internal purposes is more revealing and detailed in order to provide additional analysis of updated and sensitive information. There are various external users of accounting information. These include investors, creditors, governmental agencies, labor unions, taxing authorities, economic planners, customers and other individual users (Weygant & Kieso & Kimmel, 2002). Accounting information by companies is typically prepared for the users on a recurrent period basis, with the one year period being the industry standard. The information prepared by companies on the one year progress which is illustrated in the company’s annual report can be useful for individual users in order to evaluate an operation. The annual report provides a lot insight of a companies operation. This report is prepared by management to present the current status of the company, its historic economic patters and forecast of the future of a company. The main emphasis of this report is illustrated the economic condition of the company by utilizing the different accounting reports potential investors recognize as being the most relevant reports that provide a comparative basis to evaluate a firm. These reports are called the financial statements of companies. The four major financial statements are the income statements, the balance sheet, the statement of cash flow and the statement of stockholders equity. These financial statements can be utilized by individual users to determine if a particular public company is a good investment for them. The general public and investors in Wall Street suffered though some tough times in the early part of the 21st century due the major accounting scandals involving two fraudulent companies called Enron and WorldCom. Due to the severity of these scandals which in the Enron case caused thousands of employees their full retirement funds the government passed on new legislation to protect individual investors. In 2002 Senator Paul Sarbanes and Congressman Michael Oxley created a law which was approved by both houses called the Sarbanes-Oxley Act to encouraged improved business ethics and penalized unethical behavior in the stock market and corporate financial reporting (Sarbanesoxleysimplified). Investing is an inherent element of the retirement planning of all individuals. Retirement planning includes investment activities, savings initiatives, debt evaluation, tax planning and asset evaluation. Accounting information is best tool to determine and evaluate an individual’s retirement plan. All humans can benefit from having basic understanding of accounting information. Two types of license professionals that can help individuals understand financial information and its implication for their individual cases are certified financial planners and certified public accountants. A certified financial planner is a professional dedicated to the process of wisely managing one’s finances to achieve certain goals and dreams while a the same time helping negotiate fiscal barriers that inevitably arise in every stage of a person’s life (Fpanet, 2007). The certified public accountant (CPA) is the professional who holds the most prestigious certification in the accounting field. The CPA is the only person that can audit the financial statements of public firms moving millions of dollars annual such as the companies registered with the New Your Stock Exchange (NYSE). For an individual the CPA is the person that can provide him with useful accounting information for his personal use such as financial planning, tax planning, current taxes and personal financial statements. Every adult human that generated a minimum level of income living in a civilized society is obligated to pay taxes to the government ruling a particular country. Taxes are a dreadful reality for the working person. The people that are experts in the area of taxes are accountants and accounting knowledge must be applied to file an individual tax return. Filing a tax return is not that complicated and any person who wished to save a bit of money can file their tax returns instead of paying a professional in the field of accounting to perform the duties. In 2004 there were 133,917,068 tax returns filed by individuals to the Internal Revenue Service in the United States of America (IRS, 2007). Taxes are one particular element in the profession which forces all individual to recognize the importance of accounting knowledge. Families and individuals also need accounting information when it becomes time to make the biggest and most important investment in a person’s portfolio, the purchase of their first home. Buying a home is part of the American dream and there are important financial considerations that must be consider (Mutualofamerica, 2006). A person must save the down payment, find a lender to provide financing at the lowest possible interest and negotiate the best possible price for the property based on the market value of the asset. Accounting information is relevant throughout the entire process. A particular piece of accounting documentation a bank requires from the home buyer to evaluate their loan application are the personal financial statements of the person or the couple. The person the homebuyer must turn to for this type of professional service is the certified public accountant. Accounting information is very valuable for individual users. It helps individuals in many ways such as determining the viability of an investment, during tax season, retirement planning, financial planning and at the time of purchasing a home. The contributions of the accounting field towards society have impacted the world tremendously and will continue to influence people’s lives in the future. References Fpanet.org (2007). About the Profession. Retrieved September 4, 2007 from http://www.fpanet.org/member/about/profession/ Giroux, G. Accounting History Page. Retrieved September 4, 2007 from http://acct.tamu.edu/giroux/history.html Irs.gov (2007). Tax stats at a glance. Retrieved September 4, 2007 from http://www.irs.gov/taxstats/article/0,,id=102886,00.html Mutualofamerica.com (2006). Your Retirement Center. Retrieved September 4, 2007 from http://www.mutualofamerica.com/lbp/personalfin/pf_home_001.html Sarbanesoxleysimplified.com. Introducing Sarbanes Oxley Simplified. Retrieved September 4, 2007 from http://www.sarbanesoxleysimplified.com/ Weygandt, J.J., Kieso, D.E., Paul, D.K. (2002). Accounting Principles (6th ed.) New York: John Wiley & Sons, Inc. 4. Read More