Corporate Governance - Accounting Is Not Accountability - Essay Example

Corporate governance Accounting is not accountability Introduction Accountability is one of the golden concepts in accounting.However, it is not accounting in itself. Accountability is widely used in policy documents and political discourse because it relays an image of trustworthiness and transparency. Its evocative powers make it very elusive as a concept since it can mean different things to different people. However, accounting is not accountability. Accountability implies sets of social relations that can, empirically, be studied. It is the relationship between a forum and an actor, where the actor is obligated to justify and explain a particular action (Messner, 2009). This paper seeks to justify that accounting is not accountability. Accountability is both a goal and an instrument. It began as an instrument to promote efficiency and effectiveness of corporate governance, but has gradually developed into a goal in itself. It is increasingly becoming elusive and an icon for good corporate governance. In the contemporary scholarly and political discourse, accountability normally serves as an umbrella concept that covers numerous concepts. Many people use it to substitute concepts such as equity, transparency, efficiency, democracy, responsibility, responsiveness, and integrity. Accountability has been used to stand as a general concept for any mechanisms that force corporations to be responsive to the public. Transparency, even though often used to substitute accountability, is not enough to represent accountability. However, transparency and information freedom are often very essential prerequisites for accountability. They offer necessary information to the forum. Transparency is, therefore, not enough to qualify as a form of accountability because it sees the element of information disclosure, the judgment disclosure, or accessibility of public debates. Therefore, public reporting does not qualify, in itself, as accountability. Through accounting, agencies publicly prepare annual reports, benchmarks, and assessments and publish for the general public. However, public debates can only rise if the information catches the watchful eye of an interest group, journalist, or activists, who may stimulate the forum to hold the agency into account. Accountability is closely related to accounting in the sense of bookkeeping. However, accountability is distinguished from mere accounting. However, accountability calls for more participation and openness of a wide range of stakeholders. It is retrospective in nature. Actors are required to account to a forum after an act. Accountability does not, however, convey the image of accounting, financial administration, but hold strong promises of equitable and fair governance (Messner, 2009). Calls for greater accountability from corporations and managers are frequently voiced these days, both in public discussions and in academic literature more generally. The author asserts that to claim that an individual is accountable for a certain event or action is to have particular expectations about what the individual or corporation should be obliged to justify and explain, as well as take responsibility for (Messner, 2009). Accountability in the structural discourse is perceived as the technical property of a contract or role, system or structure. Territories are demarcated and clear, accountabilities uncontested. However, in this discourse, accountability is ambiguous and has the potential to be something that is lifting or feared. In American political and scholarly discourse, particularly, accountability is used interchangeably with virtuous behavior or good governance. However, in any senses, accountability is no-opposite concept. Accountability is exercised when corporations provide quality public services at low costs in a courteous manner (Roberts 2009). Other scholars have equated accountability to responsiveness and exercise of navigational competence, which is the appropriate use of authority in search of the most beneficial path to success. Accountability can also be distinguished in five dimensions such as responsiveness, liability, responsibility, transparency, and controllability. These dimensions make it impossible to determine whether a corporation is accountable. A recent study that related the banking crisis incidence in the 90s to the disclosure regulations made by banks, characterized the arguments over transparency-fragility and transparency-stability. Transparency-stability holds that disclosure promotes transparency and enhances the flow of information. Therefore, it helps market discipline and leads to more efficient resource allocation. Transparency-fragility, on the other hand, holds that disclosure creates negative externalities. Disclosures that some banks experience financial difficulties may stimulate bank-runs, which can disrupt the system of banking as a whole and cause broader negative economic consequences. The gradual accounting regulation evolution in financial reporting has seen banks allowed to continue with a lack of transparency in financial reporting longer than other corporations. Voluntary disclosures by banks have been limited. Dimensions such as transparency are very instrumental for accountability, but do not constitute accountability. Responsiveness is more evaluative and not analytical. Therefore, accountability is basically an evaluative concept that is used to positively qualify corporation’s state of affairs of actors’ performance (Solomon, Solomon & Simon 2000). Accountability comes close to responsiveness in terms of responsibility, which illustrates a willingness to act in a fair, transparent, and equitable manner. It is, therefore, a contested concept due to the lack of a general consensus about the standards of behaviors deemed as accountable, which differ from time to time, role to role, and from speaker to speaker. The personal discourse functions to accept the failures and risks, invasiveness and exposure with accountability are witnessed. The accountability notion is drawn upon frequently in the accounting literature. The generic sociological meaning of accountability appears to give a common ground for many people. In a sociological perspective, accountability represents the exchange of reasons for actions. To provide an account refers to providing reasons for a particular conduct, and to justify and explain the event that took place. Such accounts are given to render actions intelligible and to avoid conflicts from occurring through bridging the gap between expectation and action verbally. Accountability is a morally vital practice because asking an account from an individual infers to demanding that the individual enact discursively the responsibility of a particular act. This generic definition of accountability underlies the application in both management and financial accounting literature. In financial accounting, the emphasis is on accounts disclosed to the public and shareholders. This takes different forms such as earning announcements, profit and loss statements, and press statements by CEOs. In is more proper to talk about public accountability instead of financial accountability. If the corporations rely on transparency as a form of accountability, then the positive impacts will be encountered by serious distortions to communications, which will serve to weaken accountability effectiveness. Accountability is self-absorbed and motivated by the narcissistic imperative to absolve the self blame or get reward or praise to the self, rather than by the collective need to manage interdependencies of corporations (Roberts 2009). Therefore, rather than just providing accounts by subjects that have already been formed, accountability is the conditions of being the subject who gives the accounts. The exchange of accounts, in management accounting, occurs within the corporation or between some of the contractual stakeholders and the corporation. It occurs through control and reporting routines where profits, costs, returns, and other information related to management are communicated. This is what entails managerial accounting. Both cases emphasize the content of accountability or on the social practice of demanding and giving accounts. When both the content and practice of accountability is considered, it seems vital when it comes to the ethical dimensions of accountability. It is so because ethical issues may not only rise in terms of accountability, but also in terms of how it was accounted. There are many corporate governance transparency issues. Transparency in modern financial reporting is essential in assisting users to understand and draw conclusions concerning the corporations. The volume of information has hit higher levels not previously witnessed, and continues to be available as requirements of financial reporting become more extensive. The long-term trend of financial information availability is appropriate to the corporation governance. Major corporate scandals such as Equitable Life in the UK and Enron in the US, prompts calls for increased financial reporting transparency. However, it is not obvious that accountability reforms declines such incidences (Biilings & Capie 2009). A significant feature of corporate environment in the last two decades has been in conformity internationally in the mechanisms and models relied on for corporate governance such as differentiating the role of chief executive, chairman, non-executive directors, and board subcommittees (Collier & Zaman 2005). These separations of roles enhance accountability in the corporations. A conceptual framework of internal control and corporate risk management is essential in differentiating these roles. This framework has been used in the UK companies in management practice and policy. There have been increasing interests in the disclosure of risk information due to prominent corporate failures which have alerted investors on the significance of certain risk and uncertainty sources (Solomon, Solomon & Simon 2000). These accounts clearly indicate that accounting is not accountability. Conclusion In conclusion, accountability is not accounting. While accounting entails mere preparation and presentation of financial statements and bookkeeping to the general public, the most precise description of accountability is the obligation to justify and explain conduct. Explanation and justification in this sense are not in void, but are significant to each other. It involves not only information provision as in the accounting, but also debate possibilities where answers are demanded for any pressing questions, and eventually passing of judgment. Judgment implies imposition of informal or formal sanctions on the actors where there is malfunction and rewards where there is sufficient performance. This is what entails accountability. Bibliography Billings, M., & Capie, F. 2009. Transparency and financial reporting in mod-20th century British banking. International Accounting Forum, 33(1), pp. 38-53 Collier, P. And Zaman, M. 2005. Convergence in European Corporate Governance: The Audit Committee Concept, Corporate Governanace: An International Review, Vol. 13, No. 6, November, pp 753-768 Messner, M. 2009. The limits of accountability. Accounting, Organizations and Sociaety, 34(1), pp. 918-938. Roberts, J. 2009. No one is perfect: The limits of transparency and an ethic for intelligent accountability, Accounting, Organizations and Society, 34, 957-970 Solomon J.F., Solomon, A., Norton, S. D. and Joseph, N. L. 2000. A conceptual framework for corporate risk disclosure emerging from the agenda for corporate governance reform, British Accounting Review, 32 (4), December Read More