Analysis of the Role of Accounting in the Society - Essay Example

Accounting Essay: The Role of Accounting in the Society Student’s name: Instructor’s name: Course code: Institution’s name: Date of submission: The Role of Accounting in the Society Introduction Accounting refers to the process or procedure of gathering, evaluating and analysing and communication economic information to the users of such information that includes shareholders, investors, management, employees, supplies, government and the society at large (Andersen, 2001). All business organisations regardless of the sectors or markets that they trade in, they have to account for all their revenues and incomes. They have to let the society know their financial position and their financial performances each and every financial year. The accounting department in these organisations consists of people who are experienced in the accounting and financial field (Barry, 2002). Most accountants are people of high integrity and honesty and this enables them to prepare financial information that is true and fair. They are aware of the impacts of this information in the society and this motivates them not to mislead the society by giving irrelevant and inaccurate information. In order to see how important the financial information prepared by organisations’ accountants is, just analyse the role played by auditors in all countries (Bunce, 2003). For example in Australia, the Financial Reporting Council and the Auditing and Assurance Standards Board (AUASB) work hand in hand to ensure that all organisations’ annual report within the country reflect information that is accurate and reliable. “The financial information that is reflected by the annual reports impacts the society in a number of ways and this is the reason why it has to be accurately prepared with no fraud or any other errors”, quoted the FRC (Financial Reporting Council) chairman in a conference with business executives in the year 2012 in Australia. Bearing this on mind we can see that if any problem arises in the society, it is in one way or another contributed by the accounting sector. Therefore, accountants and financial experts have a huge role to play in the society since their errors results to challenges in the society. In this essay, the statement “problems in accounting are potentially reflections of problems in and of society and accordingly that the latter should be critically analysed. Thus if a major problem in accounting is identified, say as its overwhelming orientation to investors, then a critical [analysis] would suggest that this problem is a reflection of society’s orientation and to change accounting practice requires both social awareness (e.g identification of alternative ‘accounts’ and the roles of accounting in society) and ultimately social change (Cooper and Sheerer, 1984, p. 184)”, will be closely analysed and discussed. Discussion Accountants play huge role in their respective business organisations and in the society at large. One of the functions that they play is the maintenance of accounting books (Cahill, 2010). The management of business organisations rely heavily on the accounting books when making decisions that are necessary for the benefits of their respective organisations. In any case bad decisions are made by the management as a result of poor, inaccurate and unreliable accounting information, an organisation is likely to fail and incur huge losses. The problems that arise as a result of poor financial decisions can affect an organisation and even cause it to go bankrupt. Once an organisation is bankrupt, most people lose their jobs directly or indirectly (Chambers, 2008). This simply means that once an accounting problem is experienced, the society is affected negatively. For example, Rio Tinto is among the largest companies not only in Australia but the whole world. The role that this company plays in the society is very large. The company gives a great number of people opportunities to earn a living in order to meet their day to day needs. Rio Tinto plays a significant role in reducing the unemployment rate of Australia. The higher the unemployment rate in the society the higher the number of crime rate in the society. Most youth participate in crimes in order to make a living since they have no other sources of income. In order to minimise crime rates in Australia, the government is working hard to ensure that the unemployment rate in the country is as minimal as possible (Copstead and Banasik, 2005). A company such Rio Tinto has a very large number of employees in Australia that is over 70,000 employees. This shows that the company plays a significant role in assisting in the reduction of the unemployment rate in Australia. In order for any company to have such a high number of employees, everything must be running as expected within the company. All departments of the company have to function effectively and efficiently. The accounting department should do its job appropriately to ensure that the company does not run out of resources that are needed for its long term operations (David, 2004). The accounting books have to be well prepared so that the management can make good decisions for the prosperity of the company. By the term prosperity, I simply mean that the company will operate forever and that it keeps increasing the number of its operations and branches to create more employment opportunities. As a result of the high number of employees that Rio Tinto has, we can see that the company is doing well financially and that good decisions are made by the management of the company. Let’s take for example the accounting department fails to prepare and maintain the accounting books properly. In this case I mean that the accountants are not doing their jobs as expected. During tough economic times or at the start of each financial year, the management of Rio Tinto has to make crucial decisions for the benefit of the company. The management obviously will rely on the books of accounts (Gardner, 2003). If the accountants have not executed their job well and have prepared the accounting books poorly then books will not reflect the true financial position of the company and its financial performance. For example, resources may have been misappropriated, fraud might have been experienced from time to time and the company is experiencing decreasing revenues and all this is not outlined in the accounting books. As a result of this, the management of Rio Tinto will make poor decisions that are irrelevant and inappropriate. The poor decisions made will have severe effects on the long term operations of the company and this will give its competitors within Australia and the world competitive advantage over the company. As a result of this the company will slowly lose some of its loyal clients and with time will start generating low incomes that cannot support their large operations. This will lead to retrenchment of employees since the company will no longer have enough resources to continue operations in some of its department and not able to maintain its high number of employees. In one way or another employment rate in Australia will be negatively affected because a large number of people will be jobless due to the direct or indirect impacts arising as a result of poor performance of Rio Tinto. Once the employment rate is affected, the society is affected (Garry, 2003). The jobless people will have no source of income and this will tempt them to engage in crimes such as fraud and theft in order to make a living. This simply shows that as a result of an accounting problem a challenge arises in the society that affects the peaceful co-existence of people. The accounting information that is prepared by organisations is heavily relied on by other financial information users other than the management of the organisations (Maurice, 2003). Investors, shareholders and the government are among the users of financial information. They rely heavily on the information that companies display on their annual report. Investors check the financial position of the organisations and their financial performances so that they can decide whether they can invest in the organisations or not. If the organisations are doing well, investors get an opportunity to invest in the organisations since they value their investments and rely on the returns of their investments. If the organisations are performing poorly, investors make decisions not to invest in the organisations so that they do not incur losses as a result of poor investments. On the other hand, shareholders rely on the information that is displayed in their respective companies’ annual reports to check their financial progresses. This information is vital to shareholders when they are in a situation to decide whether to increase their shares by making further purchases or to sell their shares (Nelly, 2004). In most cases, shareholders sell their shares when the companies are performing poorly or facing hard economic times. However, when the companies are doing well financially the shareholders opt to increase their shares by purchasing more and more shares of the companies. Therefore, they rely heavily on the accounting information displayed in the companies’ financial books. If for example, accountants in Rio Tinto prepare financial information that is inaccurate and irrelevant, the shareholders and the investors will make bad decisions that will affect their financial status in one way or another. This will affect their lifestyles too. The shareholders and investors play a huge part in the society both socially and economically. Therefore, once they are misled to make poor decisions due to the misleading information outlined by accountants, the society is affected in one way or the other. The government of Australia for example relies on taxes as one of its sources of income (Peter, 2010). They have to check the financial information of companies within Australia so as to determine whether the companies are paying taxes as expected or not. When the accounting information is poorly prepared and displayed in annual reports, the government fails to collect the right amount of tax revenue. This affects the resources of the country that should be used to develop the society and improve the lives of the citizens and residents of Australia. The annual reports are prepared by accountants. The reports have a number of sections that have to be well addressed concerning the companies’ operations (Paul, 2006). One of the sections that accountants include is the corporate social responsibility section. In this section, the accountants outline how their respective companies have executed this duty. Corporate social responsibility is simply a duty that a business organisation executes by playing a part in developing the society that it operates in or a duty to empower people in the society as a sign of appreciation for what it have gained from the society. This duty is very vital in the creation of a good reputation by companies (Reid, 2004). Once a company builds a good reputation, most clients in the market that the company operates in associates with the company since they have trust in the company and vice versa. Therefore, accounting plays a significant role in the development of the society. It ensures that companies are playing a part in the development of the society. If the accounting department of an organisation such Rio Tinto fails to execute its duty professionally, chances are very high that the corporate social duty of the company will be overlooked. This simply means that the society will be affected by the problems that arise from poor accounting in business organisations. Conclusion In conclusion, we can define accounting as the process or procedure of gathering, evaluating and analysing and communication economic information to the users of such information that includes shareholders, investors, management, employees, supplies, government and the society at large. All business organisations regardless of the sectors or markets that they trade in, they have to account for all their revenues and incomes. They have to let the society know their financial position and their financial performances each and every financial year. From the discussion above we can see that any problem that arises from the accounting department of business organisations affect the society at large. Therefore I agree with the argument of Cooper and Sheerer (1984) that states, “Problems in accounting are potentially reflections of problems in and of society and accordingly that the latter should be critically analysed. Thus if a major problem in accounting is identified, say as its overwhelming orientation to investors, then a critical [analysis] would suggest that this problem is a reflection of society’s orientation and to change accounting practice requires both social awareness (e.g identification of alternative ‘accounts’ and the roles of accounting in society) and ultimately social change”. References Andresen, N. C. (2001), The management and leadership strategies in various governments. Oxford, England: Oxford University Press. Barry, J. (2002), The role of accounting in the society. 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Thomas, L. (2004), Strategies for sustainable growth outlined by community organisations in the Australia (4rd ed.). Philadelphia, PA: Saunders. Titus, B. C. (2003), The management, accounting and leadership strategies in various governments. Oxford, England: Oxford University Press. Barry, J. (2002), The role of accounting, auditing and assurance in the society. Oxford, England: Oxford University Press. Read More