Impression management in accounting - Essay Example

Impression Management in Accounting Number: Introduction Impression management theory is one of the theories being applied in the 21st century in controlling information. It refers to the process or activity whose main goal is to control information specifically in order to sway the perception of the audience (Cunningham, 2013, p.45). Under this type of management, managers are interested with influencing the impressions of the other people such as friends and enemies, influence objects such as products or organizations, events like task performance, ideas such as socialism versus capitalism among other aspects.

Often, impression management is bewildered with self-presentation (Cunningham, 2013, p.45). Self-presentation refers to a scenario whereby individuals try to control their own impressions rather than that of the other people or other business entities. Under impression management, the management’s focus on controlling the its image or impression over some objects and events which is a vital element in effective interaction. Impression management theory is gaining some popularity in the accounting sector in the modern world since the scope of accounting information has been experiencing tremendous growth with the accounting reports being released influencing major factors in the business organization.

However, dominance of this type of management in the accounting sector has been negatively affecting the comprehension, reliability as well as the relevance of accounting information. Therefore, this calls for ways of reducing or standardizing accounting information while at the same time reducing chances of application of impression management in the accounting reports since such a room would only affect the reliability of the information given hence lowering the quality of the information given.

According to the impression management theory, business organizations or individuals are required to create and maintain opinions that are consistent with the impression they want to create to the public (Cunningham, 2013, p.45). The theory also explains ways in which individuals can establish and maintain their good public image. Voluntary disclosures refer to the information released by business organizations as part of their annual reports even though they are not required by the law to do so.

The released information is meant for enlightening all the stakeholder about the crucial decisions that the management could have made. Voluntary information mostly encompasses management projections, forecast, analysts’ presentations, press release, financial press and the industry’s expert analysis just to mention a few. These types of disclosures are very common in the modern world since managements are using them as a way of providing extra information to clarify issues of concern that might have caused dissatisfactions of the stakeholders from the released mandatory reports.

Mandatory financial reports refer to the information that business organizations are required by law or company’s act to release. Mostly organizations are required to disclose crucial financial reports to the public especially for public companies as per the accounting standards or stock exchange regulations. The theory of voluntary and mandatory reports explains reasons why it is necessary for corporates to release the two reports and more so voluntary disclosures. Some of the main reasons are attraction of new shareholders, which creates and maintain high demand for the corporates shares, minimizing information risks, which would lead in lowering the cost of capital and in helping the company in raising capital.

Such information may also create a good public image of the organization by disclosing information relating to the activities that the company has engaged in that are socially responsible. Corporate narratives refers to the stories that are written the organizations management communicating about the relevance of the business entity and what it offers to the customers lives be it personal or within the business context . The narratives are termed as a highly effective way of capturing the attention of the customers and the public in general.

Great stories lead to more customer attractions and at times, they may end up having a bigger impact in the market place than the typical marketing hence generating more revenue for the organization. However, for the narratives to be effective, they have to meet some standards in terms of credibility, readability, understandability, variability, textual characteristics among other elements. It is very important for corporate narratives to be readable and be easy for manipulation or variance.

Poorly prepared narratives may end up not communicating the desired message to the public at all since they only narratives are only confusing and distracting. However, the level to which readability of the narratives can be influenced is limited. At times, the narratives may be left confusing deliberately purposely so as to make the readers to probe more about the organization hence in the process the management conveying the desired message. Readability is influenced by two factors namely managerial manipulation and writer’s incompetence.

Nevertheless, in both situations, the narratives could be made difficult to read intentionally or intentionally even though mostly it can only happen deliberately because most corporates hire professionals to write these narratives. Understandability of the narratives is another crucial aspect that the writer should lay special focus on. Incomprehensible stories are likely to make the public more confused with the intended message being not delivered at all. Easily understandable narratives are interesting while reading and remain in the readers’ memory for long.

The narratives should also be easily variable depending on the circumstances so that the management can easily manipulate it. The text used should make readability easy as well as make the writing more attractive for the customers to be eager to read it. Unappealing writings are likely to be ignored by customers. The narratives should focus on the company’s strengths by giving good news that is likely to win the confidence of the stakeholders over the company’s performance. Well-presented financial reports can promote the image of the organizations to the community (Gibson, 2009, p.65). This is achieved by use of graphs in the end year reports which focuses on relationships, makes analyzing of data easy hence saving time as well as help in making the readers to remember the report more clearly.

It also makes reading easier even for the people who do not know how to read by highlighting key points. Graphs are mostly used for representing financial information such as company’s profit growth in profit and its decrease in expenditure among other crucial reports. However, some corporates tend to misuse graphs in communicating information that does not require use of graphs. In addition, excessive use of graphs as well as biased labeling can also be termed as misleading or distorted graphs.

Some of the potential bias in the financial graphs include improper labeling, deliberate erroneous scale as well as using a truncated graph whose y-axis scale does not start from zero (Gibson, 2009, p.65). In conclusion, impression management involves activities that the management applies deliberately in order to influence the other people’s perception on matters concerning events or objects. This type of management has gained popularity over time especially in the accounting sector whereby management control the information released by their accounting reports specifically to influence people.

This ends up affecting the quality and reliability of the given information. It is important for a business to release voluntary disclosures for they help in clarify issues off greater concern to the public that the compulsory annual reports may not elaborate. Use of corporates narratives plays a major role in marketing the company. They should be prepared by a professional so as to make them easily readable and comprehensible. Graphical representation of annual financial reports play creates a good image of the company.

It should be free from biases as well as not be over used. Some of the common biases common are improper labeling as well as scale error, which could be done intentionally. Bibliography Cunningham, C. 2013. Social networking and impression management: Self-presentation in the digital age. Lanham: Lexington Books. Gibson, C. H. 2009. Financial reporting & analysis: Using financial accounting information. Mason, OH: South-Western Cengage Learning. Top of Form Top of Form Bottom of Form Top of Form Top of Form Top of Form Top of Form Bottom of Form