The Role Of Accounting In The Society - Research Paper Example

The Role Of Accounting In The Society Accounting is majorly concerned with the collection, analysis and communication of the economic information (Chartered Institute of Management Accountants, 2007). However, in order to develop a wider understanding of the role of accounting in the society, we need to consider it from the social perspective. Accounting information can be used to serve many different important purposes, for instance, it can assist users in making more informed decisions in relation to efficient and effective allocation of the scarce resources (Walter, Charles and William, 2012). Therefore, accounting information can bring a potent influence in the society, which ultimately influences every individual. Accounting has a vast and long history and it’s seen by many to be socially constructed i.e. most of its practices involves interaction with people hence making it more of an art rather than a science. Accounting is a vital tool in any business because it makes it easier to record and track the manner in which a business has grown and after the analysis of figures, it also suggests the way forward for the business in the future. Further, in today’s accounting profession, accounting is not only just about the organizational aspect, but also new accounting aspects like environmental or social accounting such as the corporate social responsibility have been included. For instance, in the developed countries, companies have a responsibility to allocate the cost for the environmental and the social aspects resulting from their activities. Moreover, good and quality financial infrastructure is critical for the development of the emerging economies and our societies as it provides investors with acceptable high levels of assurance. Accountants and more specifically, the bookkeepers play important roles in our societies because they account for the various transactions happening through the daily economic activities happening outside and inside any given country, in addition to, offering the society many things such as the low priced products, jobs, and more opportunities arising from an effective accounting framework when the society develops and improves. Accountants such as the auditors, bookkeepers and consultants are part of the society. They form part of the organized group such as the banks, companies, firms and the other financial institutions that are working with common beliefs, interests, and profession to help, guide and advice the society (Walter, Charles and William, 2012). For instance, bookkeepers are considered as the chains binding the society and the economy together helping them to develop and grow while consultants perform the advisory roles in the society and are responsible for the controlling and planning of the current operations, decision making of crucial matters and the formulating of the long range plans, which are important in society and organizations. They also do the collection, analysis, interpretation and presentation of the accounting information that is useful for management (Walter, Charles and William, 2012). In addition, an accountant with the help of his/her educational qualification, training, experience and the analytical mind can be a great asset to a growing society. Accountants can not only do justice to the matters pertaining to the costing, taxation, financial lay-out, procedures, and management accounting but they can explore deeply into the fields that are relating to the financial policies, economic policies, and the budgetary policies. Thus, this makes the accounting profession not only limited to the production of the financial statements, but also as a tool corporate socially responsibility. Differences between managerial accounting and financial accounting Management accounting and financial accounting are both vital tools for the business, but the two serve different purposes. Management accounting is the process of identification, analysis, interpretation, measurement, preparation and the flow of the information that is used by the management in the evaluation, controlling and planning with an entity or an organization (Karen and Wendy, 2012). While Financial accounting is the process of recording, summarizing, analysis, and reporting of the financial transactions pertaining to the business. The distinct differences that exist between managerial and financial accounting are that one is stronger in its application of ethics than the other. Although both the management accounting and financial accounting provide the information to the users for the purposes of decision making, the differences between them are summarized below; Users The management accounting is concerned with the provision of the information for the managers/management and the employees. The information helps the management of the company/organization in the processes of planning and controlling in their daily routine activities to make the short term decisions. On the other hand financial accounting is concerned with the financial statements preparations for use by the external users. Some of the external users of the financial accounting information include stakeholders, creditors, agencies, suppliers, potential clients, and among many more others (Karen and Wendy, 2012). Objective/purpose Financial accounting deals with the financial statements preparation with the main objective of disclosing the end results of the business and the financial position/condition of the entity on the particular date. The information that is provided by the financial accounting is used for general purposes. The management accounting on the other hand has the main objective of providing the information for the management for the purposes of planning, setting goals and the evaluation of the goals. Additionally, management accounting presents information with the purposes of the decision making and control whereas financial accounting provides general information for the investment and credit decisions (Hall, 2010). The regulation and standardization While the financial accountants follow the Generally Accepted Accounting Principles (GAAP) set by the professional bodies in each country or the International Financial Reporting Standards, the managerial accountants make the use of the processes and procedures that are not required by the standard-setting bodies. This is because the managerial accounting statements/reports are only used internally within the company hence making them not regulated by the legal requirements (Chartered Institute of Management Accountants, 2007). Time period The management accounting provides the top management with the reports that are usually future-oriented. Financial accounting on the other side deals with the preparation of the reports that are based on the historical information. Additionally, for management accounting there is no time span for producing the managerial accounting statements while financial accounting statements are usually required to be prepared or produced for the period of the twelve previous months. Format The financial accounts in the financial accounting are generally reported based on the specific format for ease of comparison between the different companies or organizations in the industry. Managerial accounting on the other hand prepares the managerial statements based on an informal format and it’s based on every department (Karen and Wendy, 2012). Reporting frequency and the duration The financial statements are generally defined annually, semi-annually, quarterly, or yearly. The financial accounting statements provide the information on about the organization’s performance over a given period of time and the state of affairs of the organization over the given period. The managerial accounting on the other hand prepares the reports that are needed daily, weekly, or monthly (Hall, 2010). Information The financial accounting information is usually verifiable, monetary information. On the other hand the managerial accounting’s information is monetary and company goal driven type of information. Additionally, managerial accounting requires the information that is specific to the project or the management action. The information is usually detailed and can include estimates. On the other hand, financial accounting information is produced with the objective of general purpose with very few estimates (Chartered Institute of Management Accountants, 2007). Independent opinion In managerial accounting independent opinion by the auditors in regard to the statements/reports prepared is not required. Financial accounting on the other hand requires the independent opinion of the auditors in regard to its preparation and adherence to the rules and regulations of the preparation of the financial statements. Reports Managerial accounting is the branch of the Accounting that basically deals with the confidential financial reports exclusively for use by the management within the organization. The reports are usually prepared by utilizing the statistical and scientific methods to arrive at the certain monetary values that are used for the decision. The reports are; the sales forecasting reports, feasibility studies, comparative analysis and budget analysis, and consolidation and merger reports (Hall, 2010). Financial Accounting on the other hand, concentrates on preparation of the financial statements/reports including basic reporting requirements of the liquidity, profitability, stability and solvency. The reports of this nature are usually accessed by the external and internal users such as the banks, the shareholders and the creditors (Chartered Institute of Management Accountants, 2007). Context In financial accounting, the financial statements are usually an end to themselves as the statements dwell mainly on the whole company/organization aggregating the revenues and costs from the different departments. Managerial accounting information can only be an end to a product but rather aid in the process of the decision making. Additionally, management accounting gives focus on the specific areas and not necessarily every department. Conclusion Accounting is fundamental to the growth of the businesses and the society as a whole. The fast changing responsibilities of the accounting profession to integrate the needs of the society underpins the crucial role that accounting is playing in the modern society. The differences that exist between the financial accounting and managerial accounting are that one is stronger in application of ethics than the other. References Karen, W. Braun and Wendy, M. Tietz, (2012). Managerial Accounting 3rd edition. Prentice Hall. Chartered Institute of Management Accountants. (2007). Management accounting financial strategy. Oxford: CIMA Pub., an imprint of Elsevier. Hall, M. (2010). Accounting information and managerial work. Accounting, Organizations and Society, 35(3), 301-315. Walter, T. H., Charles, H.T. and William, C.T. (2012). Financial Accounting 9th edition. Prentice Hall. Read More