Importance of Accounting in Society - Essay Example

University: The Role of Accounting in Society. Name: Date: THE ROLE OF ACCOUNTING IN SOCIETY. INTRODUCTION. Following the uncertain nature and the increased competition in the business world, modern business society has witnessed rapid changes in the way of doing business. This has primarily surfaced with the realization that professional accountants are faced with much more challenging tasks than merely keeping books of records. This essay embarks on exploring the roles played by professional accountants in the modern world, with a particular emphasis on the reality that the existing challenges in the accounting profession are a reflection of the challenges that face the society at large. Fundamentally, this essay seeks to evaluate to what extent the truth that accounting professionals should take to embark on corrective measures to encourage social awareness and promote social change. From the presentation of the facts in the quote, I wholly concur with Cooper & Sherer (1984) and will draw my arguments from the perspective of the need for social change facilitated by accountants. ACCOUNTING IN SOCIETY Accountants play a very critical role in safeguarding the reputation of organizations the world over. As organizations seek to expand and increase productivity, accountants are tasked with coming up with effective and sustainable models to ensure that companies do not face leverage problems. Consequently, organization have to prudently engage accountants in the day to day running of the organizations. However, over the years, there has been radical changes on the roles played by accountants in organizations. Particularly, the challenges faced have been driven by the internal pressures exerted upon accountants by organization’s top management with regards to account reporting and standards (Hopwood et al., 2010, p.51). An analogy to augment this position in instances whereby management encourages accountants to forego accounting standards in a bid to give reports indicating the firms have achieved high profitability levels while this is not true. As such, these challenges, if not critically addressed could infiltrate further into the society, causing a negative effect that is potentially damaging to the business image of organizations as well as the affecting the position of an organization as a going concern (Aras & Crowther, 2010, p.126). Therefore, the accountants’ roles in relation to achieving societal needs have to be well defined. Further, the impact of failing to carry out these duties should also be critically evaluated, One of the major roles of accountants in society is protecting public interest. Invariably, businesses engage in malpractices that have detrimental effects on the public. It’s the duty of accountants to protect public interest by educating the members of the public on the various changes in the organization (Ketz, 2006, p.45). For instance, in expansion of the Coca Cola brand in the Indian market, the accounting team was tasked with making accurate price prediction based on market analysis (Jeffrey, 2014, p.77). The primary task was to ensure that the prices were fair and non-exploitative. Moreover, accountants should provide clear documentation on the sources of the funds available to the organization and keep track to avoid any accusation of malpractices. The determination of the degree to which such information should be exposed to the public is a matter that should be addressed in the companies act. By definition, acting in the public interest refers to actions that are done with the general welfare of the members of the institution and the community of people served by the organization in mind (Chapman et al., 2009, p.76). In addition to this, accountants have the role of ensuring that the financial statements give a reflection amounting to a true and fair value of the organization’s actual financial position. In this regard, accountants are faced with the arduous task of ensuring that the records kept in the books of account show as much as possible an actual representation of the performance of the company at the specified date. This is a critical role of accountants as it shields the public form fraudulently engaging with the organization based on misleading financial statements (Greuning & Koen, 2011, p.117). Furthermore, investors, who make most of their investment decisions based on the financial position, are put in a position where they can comfortably rely on these financial statements in making important investment decisions (Blowfield & Murray, 2014, p.51). With the many changes in the business environment, it is equally pivotal that accountants ensure as much as possible the facilitation of disclosure to the various stakeholders within the organization (Chapman et al., 2009, p.93). The role played by accountants in enhancing disclosure of business information cannot be underscored. The recent cases where Starbucks was exposed for not having remitted corporation tax after sales amounting to way over $540 million was a big failure and shame for the accounting profession. This affects investor confidence as withholding of such information could lead to court cases and charges. (Simpson & Taylor, 2013, p.84). In most cases, professional and value investors seek the advice of financial analysts in projecting the performance of the company in both the short term and the long term. It is therefore, important that for these analysts to give sound and reliable data, the financial statements presented to them give as far as possible a true and fair value of the performance of the organization. (Hoque, 2006, p.88). The major role of accounting in light of disclosure has been the slow but steady shift in releasing of information. In some countries, it is observable that accounts are only made available to those with the legal capacity to hold the companies into account. Moreover, it gets further complicated with online companies such as Amazon, which in 2011 had been a victim of understating its profits so as to reduce taxes. This had the effect of reducing investor confidence in the company (Jeffrey, 2014, p.34). This, leaves out the general public and shields them from obtaining key information that would prove valuable in making investment decisions. Another challenge that has surfaced in accounting and is equally a challenge in the society is that of accountability. At all times, accountants have to maintain high level professional conduct. In addition to this, accountability comes with the duty of accountants to strive at all times to make a truthful representation of the various aspects surrounding productivity (Godfrey, 2007, p.18). In this regard, accountants face the challenge of keeping their books of records clearly updated on the events taking place on a day to day basis. In most organizations, accountability is enforced through holding monthly meetings to report on any arising expenditures and changes in spending (Simpson &Taylor, 2013, p. 87). This example serves to show the importance of deliberately checking on accountability. Ultimately, this provides pivotal assistance in enhancing productivity within the field. Therefore, the fundamental basis of accountability lies in the right to know, rather than the right to trust (Ketz, 2006, p.52). This means that for accountability to be considered effectual, it has to be practically approached, thereby abandoning the theoretical framework. In practice, accountability takes more form as a social concept but with a wide spectrum addressing the interests and needs of all stakeholders in an organization. An equally important role of accounting is the role of corporate social responsibility. By definition, corporate social responsibility encompasses the ability of institutions to give out both non-financial as well as financial information concerning the interactive process that takes place between an organization’s social and physical environments (Sale, 2007, p.66). On a broader perspective, the corporate social responsibility deals with the relationship between an organization and its stakeholders, who include government, creditors, community, its employees, and, shareholders. The accounting community has had the moral privilege and authority to address the issue of corporate social responsibility in organizations through providing a proper understanding of financial statements to all these stake holders (Greuning & Koen, 2011, p.46). Nestle company, for instance has been under sharp criticism in the Asian markets. This is due to the steep pricing of some of its products such as the mineral water. The move was perceived as unnecessary and socially irresponsible (Hopwood et al., 2010, p.84). The accounting profession should have stood out to emphasize the negative effects of such a strategy in the long term. Further, another major problem that has faced the accounting community in the contemporary world and is an indicator of the challenges facing society is that of budgeting. Accounting provides critical aid in the budgeting process. When organizations are setting goals on the expected productivity within a certain time period, it is usually the task of the accountants in the organization to projected the expected expenditures and expected revenue and therefore project the anticipated productivity (Hopwood et al., 2010, p.59). The ability of accounting professionals to provide accurate budgets is a difficult task. In the 2008 depression, Britain’s government accountants chose not to include $1.36 billion lost through money used to bail out banks during the financial crisis. The implication was that in budget projection, the national debt figures were steeply understated. (Blowfield & Murray, 2014, p.83). In the accounting profession, budgets are usually specific to a particular set of items. This primarily seeks to break down the budgeting process to easier sub categories that can be monitored at ease. Essentially, this should be a solution to most of the challenges witnessed in the budgeting process in society as breaking down budgets to subcategories that cater for particular items makes the budgeting processes easy and manageable (Hoque, 2006, p.63) Competence has also been a great challenge not only in the accounting profession but also in the modern society. With the ever increasing complexity in presentation of financial statements, primarily motivated by the adoption of new technology in the accounting field, there has been a need for accountants to keep abreast with the changes (Godfrey, 2007, p.43). The issue of competence therefore surfaces due to the changing aspects in the workplace. As witnessed in the accounting field, there are also these changes taking place in the society. With the increased competition amongst organizations, it is up to professionals to hone their skills in their fields of specialization so as to remain competent. Another pivotal strategy that can be learned and from competence in the accounting professionals is the need for communication. As a means to ensure that the standards of the accounting professional are not in any way compromised through incompetence, organizations require that the accounts departments strictly adhere to International Financial Reporting Standards. Rather than providing particular and specific guides on how to deal with every possible scenario, the IFRS provides an overview of the general principles at play that should be applied to make sense of the accounting figures (Ketz, 2006, p.103). As businesses expand and grow at a multinational level, the need to embrace globalization has developed. Essentially, globalization entails the opening up of organizations at a multinational or global level. While globalization plays a critical role in improving the society at large through opening up of branches all over the word and equally availing of essential goods and services to the final consumers, it has presented unique challenges to the accounting profession, therefore translating to being problematic to the society in some way (Godfrey, 2007, p.74). In the accounting field, globalization means that countries can no longer operate in isolation as they have to come up with measures that not only support but also comply with the required standards at a global scale. This has meant that it is not enough for nations to merely comply with the standard set by the international bodies as far as these accounting standards are concerned. They are required to go the extra mile and assist in the formulation, revision, and adoption of new accounting policies and principles (Hoque, 2006, p.97) . In relation to how this challenge reflects what is facing modern society, it is clear that a vast majority of businesses in the contemporary society have been faced with the pressure to change their business models in the dawning age of globalization. The aspect of globalization with respect to accounting is rather a minute one compared its impact at a societal level. This is because as businesses expand, they are faced with the legal requirements to comply with certain statutory needs (Greuning & Koen, 2011, p.72). The idea of complying with the needs has not been much of a difficult task, however. What has been a challenge has been the ability to adapt to this shift from operating at a globalized level. Over the last one decade, great leaps have been taken in the Information Technology sector. With the shift from the traditional manual record keeping system to the digital system where data is stored in computers, organizations have had to undergo a major paradigm shift in the way of doing businesses (Sale, 2007, p.89). This has, of course, had challenges to the accountants working in the sector. From retraining so as to develop these computer skills, accountants have had to pass through a series of challenges in a bid to embrace this change and remain competitive in what is a rather dominated field. ACCA has been encouraging accountants all over the world to contribute in working towards the realization of a paperless society Simpson & Taylor, 2013, p.106). This move could help in promoting integration of accounting systems and thus enhance accountability. However, there are inherent challenges that came with this shift from the analogue to the digital system. First, the shift runs the system with the risk of harboring or transmitting undetected errors or bugs in the system (Chapman et al., 2009, p.105). Moreover, the manner in which the data is retrieved from the system is also a matter of interest as it shows the safety of the data. The accounting professionals, especially those in the auditing field have embraced these Information Technology techniques that have proved to be useful in promoting creation of a full automated and integrated system in the Computer Aided Audit Tools (Blowfield & Murray, 2014, p.103). In society, the challenge of embracing modern technology has been witnessed although with far reaching consequences than those in the accounting industry (Aras & Crowther, 2010, p.75). I argue that the consequences of information technology in society has had way more consequences than those witnessed in the accounting profession due to two major factors. First, in societies where members of the working population were not well versed with the use of technology it led to laying off of workers (Hopwood et al., 2010, p.136). Secondly, embracing new technology meant an increase in the cost of some of the equipment and this had the short term effect of increasing the cost of items. However, the overall benefits of modern technology in both the accounting field and the modern society have been rewarding CONCLUSION. This paper has explored the factors, challenges, and the roles of accounting in modern society. From the arguments presented in the essay, it becomes increasingly clear that indeed, there does exist a strong link between the occurrences that take place in the accounting professional to the occurrences in the society. Particularly, this essay brings to focus the major argument presented at the introductory of this essay that the challenges faced by the accounting profession is a reflection of the challenges facing society today. Indeed, from the examples, illustrations, and facts ran from the analysis of this statement, I do agree with the quote and its constituent elements. This is majorly informed by the understanding of the facts cited in this essay, and an understanding that in conceptualizing the truth behind the quote, the data submitted here, ranging from the relationship between corporate social responsibility in accounting and in the society to the relation between Information technology in accounting and in society, all point out towards reaffirming the quote and its constituent elements REFERENCES. ARAS, G., & CROWTHER, D. (2010). A handbook of corporate governance and social responsibility. Farnham, Surrey, England, Ashgate. BLOWFIELD, M., & MURRAY, A. (2014). Corporate responsibility. Oxford [u.a.], Oxford Univ. Press. Chapman, C. S., Hopwood, A. G., & Shields, M. D. (2009). Handbooks of Management Accounting Research 3-Volume Set. Burlington, Elsevier.  Godfrey, J. M. (2007). Globalisation of accounting standards. GREUNING, H. V., & KOEN, M. (2011). International accounting standards: a practical guide. Washington, DC, World Bank. Hopwood, A., Unerman, J., & Fries, J. (2010). Accounting for Sustainability Practical Insights. London, Earthscan.  Hoque, Z. (2006). Methodological issues in accounting research: theories, methods and issues. London, Spiramus Press. JEFFREY, C. (2014). Research on professional responsibility and ethics in accounting. Volume 18 Volume 18. Ketz, J. (2006). Accounting ethics. London: Routledge. Morgan, G. (1988), Accounting as Reality Construction: Towards a New Epistemology for Accounting Practice, Accounting, Organizations and Society, Vol. 13 No. 5, pp. 477-485. Sale, J. T. (2007). Advances in international accounting. Greenwich, CT, JAI Press.  SIMPSON, J., & TAYLOR, J. R. (2013). Corporate governance, ethics, and CSR. London, Kogan Page. Read More